Channel Conflicts

Channel ConflictsConflict is generated when actions of any channel member come in the way of the system achieving its objectivesThree broad categories of channel conflict are:Goal conflict understanding of objectives by various channel members is differentDomain conflict understand responsibilities and authority differentlyPerception conflict reading of the market place is different and proposed actions varyChannel ConflictCONFLICTDOMAINPERCEPTIONGOALChannel ConflictSituation of discord or disagreement between partners in the same channel system has negative connotations and is driven more by feelings than factsConflict is part of any social system getting disparate entities to work together as in a channel system is also one such social unit If any member feels that another is working in a manner as to affect him, conflict resultsConflicts Result FromEach channel member wanting to pursue his own goalsEach wants to retain his independenceThere are limited resources which all of them want to utilise in achieving their goalsFeatures of conflicts:Initially latent and does not affect the workingIs not normally possible to detect till it becomes disruptive Four stages.Four StagesLATENTMANIFESTFELTPERCEIVEDEach stage is progressively more severe than the earlier oneTypes of ConflictsLatent Conflict:Some amount of discord exists but does not affect the working or delivery of customer service objectives. Disagreement could be on roles, expectations, perceptions, communication.Perceived Conflict:Discords become noticeable channel partners are aware of the opposition.Channel members take the situation in their stride and go about their normal business No cause for worry but the opposition has to be recognized

Types of ConflictsFelt Conflict:Reaching the stage of worry, concern and alarm. Also known as affective conflict.Parties are trying to outsmart each other.Causes could be economical or personalNeeds to be managed effectively and not allowed to escalate.Manifest Conflict:Reflects open antagonistic behaviour of channel partners. Confrontation results.Initiatives taken are openly opposed affecting the performance of the channel system.May require outside intervention to resolve

Reasons for Channel ConflictRoles not defined properlyAllocation of scarce resources between members seem unfair to someDifferences in perception of the business environmentReasons for Channel ConflictFuture expectations not likely to materializeDecision domain disagreements who has to decide on what (key account pricing)Channel members do not agree on objectivesMisunderstanding or mis-interpretation of routine business communicationResolving.Resolving ConflictsUnderstanding nature and intensityStrategy and plan of action for resolution

Understand the impact of the conflict

Tracing the source of the conflict

A 4 Stage ProcessConflict Resolution StylesAvoidance AggressionAccommodationCompromiseCollaborationLeast effort and resultsMaximum effort and Best resultsStyles are a combinationof assertiveness andco-operation. AvoidanceUsed by weak channel members.Problem is postponed or discussion avoided. Relationships are not of much importance.As there is no serious effort on getting anything done, conflict is avoided.Aggression Also known as a competitive or selfish style.It means being concerned about ones own goals without any thought for the others.The dominating channel partner (may be the principal) dictates terms to the others. Long term could be detrimental to the system.AccommodationA situation of complete surrender.One party helps the other achieve its goals without being worried about its own goals.Emphasis is on full co-operation and flexibility in approach. May generate matching feelings in the receiver.If not handled properly, can result in exploitationCompromise Obviously both sides have to give up something to meet mid way.Can only work with small and not so serious conflicts.Used often in the earlier two stages.CollaborationAlso known as a problem solving approachTries to maximize the benefit to both parties while solving the dispute.Most ideal style of conflict resolution a win-win approachRequires a lot of time and effort to succeed.Sensitive information may have to be sharedChannel Policies Defines how the channel is required to operate.Normally framed by the channel principal to guide the operations of the channel systemIf not framed properly could prove the starting point of channel conflicts.Some subjects of channel policies could be as seen in the next slide:Channel Policies Markets to be coveredCustomer coveragePricing Product portfolio to be handledSelection, termination of channel membersOwnership of the channel The Services SectorTwice the size of the manufacturing sectorServices offered are to be in line with customer demandServices have to be presented in an appealing manner to sustain customers.Needs specialized channels which understand the characteristics of service delivery5 Characteristics of ServicesThey are intangible can only be felt. No visual features like size, style.They are inseparable from their service providers a 3P cannot deliverThey cannot be standardized custom made and deliveredCustomers are involved to a great degree define the servicesThey are perishable cannot be stored for delivery later. Salvage value of an unsold service is zero. Channels UsedShorter channels than for productsSome channels used are:Direct from service provider to userAgents or brokers to bring buyer and seller togetherFranchisees or contractorsElectronic channelsHigh degree of customization is providedKey LearningsChannel management is done by: use of power bases, identifying and resolving channel conflicts and co-ordinationChannel conflicts could occur due to: goal conflicts, domain conflicts and perception conflictsChannel conflicts pass thru the 4 stages of latent, perceived, felt and manifest.Conflicts are avoided with the use of power bases of rewards, coercion, expertise, legitimacy and reference.There are 5 styles of conflict resolution: avoidance, aggression, accommodation, compromise and collaboration Key LearningsChannel conflicts are resolved by joint membership of associations, exchanging personnel or arbitrationChannel management involves the four steps of planning, organisation structure, control of the channels and measuring performance for continuous improvementServices are distinguished by 5 characteristics of being intangible, inseparable from service providers, cannot be standardised, customers are involved in service delivery and are perishable. Distribution channels should take these into account.ASSESSING MARKETING CHANNELPERFORMANCE Performance In marketing channels stakeholders are the channel members themselves as well as customers or consumers they serve.Performance has both efficiency and effectiveness characteristicIt measures total channel profitability as well as target segments satisfaction with the level of service outputs supplied to themTwo tools the SPM and EVA help channel members to appraise the health and viability of current or prospective channel members as well as permitting channel members to examine sources of problems in financial performancePerformance Measures in Marketing ChannelsChannel Member PerformanceSales performanceFinancial performanceReseller competenceReseller complianceReseller adaptationReseller growthCustomer satisfaction

CAPITAL MANAGEMENTMARGIN MANAGEMENTAsset Turnover (Net Sales/Total Assets)Profit Margin(Net profits/Net sales)XEqualsReturn on Assets(Net profit/Total assets)Leverage Ratio(Total assets/Net Worth)XEqualsReturn on Investment(Net Profits/Net Worth)FINANCIALMANAGEMENTHIGH YIELDMANAGEMENTSTRATEGICPROFITMODELKey Causes of Channel Conflicts

Role Incongruities

Resource Scarcities

Perceptual Differences

Expectational Differences

Domain Disagreements

Goal Incompatibilities

Communication Difficulties

Conflicts in Distribution Channels

Conflict is ubiquitous in distribution channels

Roots of conflict can be traced to interdependence, and asymmetry of power inherent in distribution channels

Traditionally, conflicts are denounced because they can:

Lead to hostility and bitterness that can hurt the entire supply chain

Destroy the very expectations of mutually beneficial exchange relationships based on trust And most importantly, lead to poor performance

Functional Conflicts in Distribution Channels

The functional view of conflict focuses on its performance enhancing effects

Disagreements clear the air and reduce tensions

Conflicts ultimately improve efficiency and performance by identifying sources of tension and reducing complacency

Differences of opinion lead to creative and better business ideas and solutions

Resolved conflicts ultimately strengthen the quality of channel relationships

Empirical Link Between Conflict and Efficiency

Conflict LevelEfficiency C1 C2 Managing Conflict

Detection, preferably ex ante, or early by

Channel Audits

Advisory Councils

Resolution of Conflicts by

Councils and Committees

Joint Goal Setting

Arbitration

Role Clarity

Effective CommunicationsIntroduction to Alternative Distribution Strategies

Logistical Perspective

Intensive, Selective, andExclusive distribution

Strategic Perspective

TCA: Focus on transaction costs

Agency Theory: Focus of efficient contracts and aligning incentive structures

Relationalism: Focus on trust and alliances/partnering

Is There a Dark Side to Long Term Alliances?

Recent research suggests that long term alliances have led to some unintended consequences.

Specifically, high levels of interaction, familiarity and experience implicit in long term relationships can:

Foster a What have you done for me lately mindset

Make objective evaluations difficult

Generate doubts of being take advantage of

Spread a culture of complacency

Empirical Evidence on Relationship Oriented Strategies

Correlation Between Key Variables and Performance over Time Chart20.6040.7460.580.4830.6770.6740.5930.5590.4810.6890.5450.540.5960.5840.5920.4660.6290.5060.5220.418

Sheet1TrustCommitmentCommunicationShared ValuesMutual Dependence1st Quartile (less than 7 years)0.6040.6770.4810.5960.6292nd Quartile (7 to 11 years 11 months)0.7460.6740.6890.5840.5063rd Quartile (12 to 18 years)0.580.5930.5450.5920.5224th Quartile (more than 18 years)0.4830.5590.540.4660.418

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