043c4channel power& conflict

7/29/2019 043c4Channel Power& Conflict

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Amity Business School

Channel Implementation Process After attaining a good channel design for the market, the channel

managers job is not over. He now has to implement the channel design.

The same involves 3 basic tasks :-

Identifying Power Sources

Identifying channel conflicts

Achieve Channel coordination


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Channel Implementation Process

After attaining a good channel design for the market, the channelmanagers job is not over. He now has to implement the channel design.

Specific channel members are likely to specialise in particular flows &activities.

If the channel members do not perform properly , the entire channel effortsuffers.

e.g a poor transportation system can ruin a most excellent channel designalso at times


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Amity Business SchoolThe nature of power

Power defined:Power is the ability of one channel member ( A) to get another channel

member (B) do something, it otherwise would not have done. It is basically

the potential to influence!

For a channel manager to implement the optimal channel design, in the face

of interdependence of the channel partners , of whom not all incentiviseduniformly & not all cooperate to deliver their designated channel flows, the

channel manager needs to possess & use channel power.

A channel members power is its ability to control the decision variables inthe marketing strategy of another member in the given channel at a

different level of distribution Difference b/w power & co operation

At times what looks like a manufacturers use of power over the distributor

could simply be an act of free will, or a response to the power of

environment or other players.


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Why marketing channels require power?

Interdependence in channel system does not mean, that what is good for

one is good for all

Each channel member is seeking its own profit

Maximising the systems profit is not the same as maximising each

members profit

All else constant, each member tries to avoid cost at its own level or push it

to the other channel member while garnering revenues.

Problem of double marginalisation- involves taking of two margins rather

than one in the channel. Solution can be vertical integration


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Identifying the power sourcesThe key to determining which channel member has the most power lies in

an understanding of the sources of power available to channel members.

E.g Dell selling HP printers

Five sources of power:-

a) Reward Power

b) Coercive Power

c) Expertise Power

d) Legitimate Powere) Referent Power


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Amity Business SchoolReward Power

A reward is a benefit given in recompense to a channel member

for altering its behaviour.

Financial aspect of rewards.

Reward power is based on the belief held by B that A has theability to grant rewards to B.

The effective use of reward power restson As possession of

some resource that B values & believes it can obtain by

conforming to A s request For e.g French chain of sporting goods Decathlon


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Amity Business SchoolCoercive Power

Coercive Power stems from B s expectation of punishment byA if B fails to conform to As influence attempt.

e.g. reduction in margins, withdrawl of rewards previouslygranted, exclusive territory right, slowing down of shipments.

Its the reverse of reward power. Channel members view this as an attack on themselves & their

businesses. Stems from great size & position in the industry.

When they perceive coercion, the react by considering the

counter attack Coercion should be used when all other alternatives to evoke

change have proved unsuccessful

E.g Gallo Wine Company coercion on its distributors

Wal

Mart announcement of its procurement policy led toemergence of CASE


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Amity Business SchoolExpert Power

Expert Poweris based on the targets perception that the influencer has

special knowledge, useful expertise that the target does not possess. The value of expertise comes out more prominently in one of the most

widespread channel form- franchise

The durability of expert power presents another problem in channel

management- what after the expertise gets transferred?

To retain expert power in the long run, a channel partner has 3 options:-

a) Dole out expertise in small portions

b) Invest in continuous learning, thereby it shall always possess some new &

important information to offer

c) Transmit only customised information i.e encourage transaction specific

expertise

e.g supermarkets, retailers & industrial distributors have an edge over suppliers

on consumer information;

eg ( General Foods now Kraft Foods)- massive study of mateials

handling,concept of DPP, retail space productivity,P& G s EfficientAssortment Program


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Amity Business SchoolLegitimate Power

To be legitimate is to be seen as right & proper, as being in accordancewith what is seen as normal or established standards.

The same stems from the target companys sense that it is in some way

obligated to comply with the requests of the influencer.

The decision maker feels constrained morally, socially or legally to go

along with the influencer Legitimate power can come from two sources : from law- Legal legitimate

Power : from norms & valuesTraditional Legitimate power


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Legitimate Power contd.

Legal legitimate power is conferred by govts., coming from the nationslaw of contracts& the laws of commerce. For e.g. In many countries patent& trademark laws gives owners justification in supervising the distributionof their products, franchise contract

Another major source of legitimate power comes from the contract channelmembers write to each other.

In a traditional legitimate power which stems from norms, values &beliefs, a firm may believe that a channel member deserves to be accorded

a certain deference perhaps because of its successful track record orexemplary management.


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Amity Business SchoolReferent Power

Referent Power exists when B views A as a standard of reference &

therefore wishes to identify publicly with A

A prominent reason for wishing to be publicly identified with the other is

prestige Downstream channel members would like to carry high status brands to

benefit their own image

JC Penney almost begging Levi strauss to sell its jeans through them

Harley Davidson


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The Balance of Power

Channel outcome depends on the balance of power in a relationship

Net Dependence

Dependence is never entirely one way, it is mutual. Power is to be balancedin a relationship. Net dependence should be assessed.

High mutual dependence gives rise to high mutual power. Each channelmember is able to create high levels of value addition.

The two sides can drive each other to craft & implement creative win winsolutions

It also encourages cooperation by blocking exploitation, no party is weak,both are giants. The same leads to channel coordination


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Imbalanced DependenceExploitation inevitable?

Imbalanced dependence happens when one channel member A is much

more dependent than channel member B.

Typically a large producer or manufacturer dealing with relatively small

channel members at a wholesale or retail level has high reward or coercive

power. On the other hand, you also have retail giants like Wal-Mart, Toys

R Us who negotiate & exercise power on various suppliers.

The balance of power favours B & A is open to exploitation

The dependent party suffers in economic terms as well non economic

benefits.e.g. Marks & Spencers ( Britains largets retailer) preferred suppliers


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Imbalanced Dependence : Countermeasures for

the weaker party The weaker party can take 3 counter measures :

a) Developing alternatives to A

b) Organizing a coalition to attack A

c) Exiting the situation , removing itself from the danger by no

longer seeking the benefits which A provides

e.G the U S automobile dealers; once represented only one brand

of car but were eventually forced to diversify themselves


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Exercising Power: Influence Strategies The more the parties have power, the more they tend to use it

Latent power is rapidly converted to exercised power

Converting the potential to influence into real changes in the behaviourof the other party requires communication. The nature of that

communication affects channel relationships.

Most of the channel communications can be grouped into the followingsix influence strategies :-

1) Promise strategy 4)Request strategy

2) Threat strategy 5)Information Exchangestrategy

3) Legalistic strategy 6)Recommendation strategy


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Influence strategies contd.

Influence strategies1.Promise

2Threat3.Legalistic

4.Request

5.Information Exchange

6.Recommendation

Power sources necessary

for this to workReward

Coercion

Legitimacy

Referent, reward, coercion

Expertise, reward

Expertise reward


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Consequence of each strategy/ implications

of the use of power ( General inferences) Some forms of power must be exercised to influence channel member

behavior

The effectiveness of various power bases in influencing channel member

behaviour is most of the times situation- specific.

The use of power also affects the degree of co operation and conflict in the

channel & can affect the level of channel member satisfaction with the

channel relationship.

The first three styles (promise, threat, legalistic) often provoke a backlash

because they are perceived as heavy handed , high pressure techniques.

In the short term, high pressure techniques are effective, however they have

damaging long term effects on the counterparts trust & commitment.


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Amity Business SchoolContd.

A promise can be considered as a bribe, as insulting & unprofessional,

something of a forcing technique in the short term

In the long term, it has mixed effects. The counterpart usually delivers on

the promise & his & channel members financial indicators improve

The last three influence strategies (request, information exchange &recommendation are more subtle more nuanced than the first three.

Channel counterparts welcome these efforts and do not take offence of the

usage

These three strategies increase all facets of counterparts satisfaction

economically & interpersonally.

Recommendation strategy although more overt because the desired

behaviour is stated, does not threaten the counterparts autonomy


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Amity Business SchoolChannel ConflictNature of channel conflict

Channel conflict is a state of opposition, or discord among the

organization comprising a marketing channel

The many connotations of conflict :- contention, disunity,

disharmony, argument, friction, hostility, antagonism, struggle,

battle

Interdependent parties at some level try to block each other


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Amity Business SchoolTypes of conflict

Horizontal channel conflict

Vertical channel conflict

Multichannel conflict


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Amity Business SchoolDegree of Conflict

When conflict occurs at such a low level that channel members

do not fully sense it, the conflict is latent in nature.Latentconflict is the norm in marketing channels.

When a channel member senses that some sort of opposition

exists, opposition of view points, of perceptions, of sentiments,

of interests or of intentions, the conflict is perceived

But when emotions enter, the channel experiences felt

conflict, or affective conflict. Here channel members

experience tension, anxiety, anger, frustration, hostility.

Differences get personalised, normal interactions startsounding as disputes

If not managed, felt conflict can escalate quickly into manifestconflict. This conflict is visible with blocking of each othersinitiatives & withdrawal of support.


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Amity Business SchoolMeasuring conflict

For diagnosing the true level of conflict that an organization faces

in a channel relationshipGather 4 kinds of information :-

Step 1Counting up the issues

Step 2- Importance

Step 3- Frequency of disagreement

Step 4- Intensity of dispute

With this we arrive at the index of conflict :-

Conflict =

i=1

nImportance * Frequency* Intensity


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Amity Business SchoolConsequences of conflict

Generally considered dysfunctional,negative in terms of

consequences but at certain occasions conflict actually makesthe relationship better!

Functional (useful) conflict are positive in their outcome. A

chance to learn, innovate & grow

In a functional conflict , opposition leads to :-

More frequent & effective commsunication

Establishing outlets for expressing their grievances

Critically reviewing their past actions

Devise & split more equitable split of system resources

Develop more balanced distribution of power

Develop standardized ways too deal with future conflict


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When channel members are committed, these disputes raisestandards of performance in the short term encourages close cooperation

Are peaceful channels better? At times what appears as peaceful & harmonious relationship

might be a relationship of indifference ! The two parties dontdisagree on anything & neglect becomes mutual. Therelationship then exists only on paper

Lack of conflict soon becomes lack of engagement that leadsto poor performance ,increasing activity levels can be asolution.


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Amity Business SchoolSources of conflict

Most conflict is rooted in differences in :-

a) Channel members goals

b) Their perceptions of reality

c) Their domains areas

d) Role incongruities

e) Resource scarcities

f) Communication difficulties


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Amity Business SchoolCompeting Goals

Each channel members' set of goals & objectives is different

from those of other members.

Goal divergence & subsequent conflict is very common

Eg Resellers carry a suppliers line in order to maximise their

own profits by the following ways:-

a) Achieving higher gross margins per unit

b) Increasing unit sales & decreasing inventory

c) Holding down expenses &

d) Receiving higher allowances from the manager.

But even the manufacturer wants to make greater profits?


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For this the manufacturer wishes to do exactly the reverse!

a) Accept lower margins ( pay suppliers more & charge

customer less

b) Hold more inventory ( avoid stockouts, maximise selection),

spend more to support the product line

c) Get by avoiding allowances

So both collide on all objectives except oneraise unit sales!


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Inherent differences in the viewpoints of suppliers &

resellersManufacturer viewpoint Reseller viewpoint Expression of clash

Financial

goals

Maximise profit by Maximise profit by

Manufacturer: You dont putenough effort behind mybrand. Your prices are too high

Higher prices to reseller

Higher own level margins

Higher sales by resellerHigher reseller expenses

Higher reseller inventory

Lower allowances to r

Lower expenses

Faster inventory

turnoverHigher allowancesfrom

manufacturers

Reseller: You dont supportme enough. With yourwholesale prices , we cantmake money


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Amity Business SchoolContd.Focus on Focus on

Desired

target

accounts

Multiple segments

Multiple markets

Many accounts

( volume plus share)

Segment corresponding

to resellers positioning.

Our markets only

Selected accounts those

that are profitable to serve)

Manufacturer:We

need more coverage&

more effort

Reseller.You dont

respect our marketing

strategy. We need to

make money too.

Desired

products &

account policy

Concentrate on

our product category

& our brand

Carry out full line

Achieve economies of

scope over product

Categories Serve customers by

offering brand

Assortment

Do not carry inferior

Or slow moving items

Manufacturer: You carry too

may lines. Dont give us

enough attention, youre

disloyalReseller : Our customers

come first. We need to

satisfy them to benefit you.

Why dont you prune

your product line


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Differing Perceptions of Reality

Refers to the way an individual selects and interprets

environmental stimuli.One of the most common sources of

conflict

Different channel members respond differently to the same

situation

eg. perceptions may differ markedly on basic topics as:-

-What the attributes of the product or service are?

-What applications it serves& for which segments?

-What the competition is?

- Purpose of POP

Inaccurate expectations also lead to surprise , and frequently

opposition, when the parties fail to act as expected


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Contd. One of the major reasons for such misperceptions is focus.

Inability & lack of willingness to assemble the entire picture

from separate pieces.

Only when they share information they uncover dramatic

differences in perception.

Lack of communication exacerbates conflict

Need to have frequent, timely & relevant communication to

align perceptions & expectations.

E.g a top manager at Toyota on regular visits to his dealers said I found

out that out of ten complaints from each dealer, you could attribute fiveor six to simple misunderstandings, another two or three could be solvedon the spot and only one needed further work


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Clashes over domain

Each channel member has its own domains , or spheres offunction

Much conflict in channels occur when one member perceivesthat the other is not taking proper care of its responsibilities in

its appropriate domain. Who-should-do-what-and how-shouldit- be-done are typicaldomain disputes.

Classic examples of the same are :-

- market research

- pre & post sales service & support

- inventory

- pricing decision

Eg J. E Ekornes, a Norwegian Home furniture manufacturer


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Role incongruities

Eg role of franchisor & franchisee in a franchise

Resource Scarcities

Eg retention for house accounts by manufacturer market territoryas a resource

Communication difficulties

Eg when channel partners come from different national business

cultures, have culturally divergent ideas about what isappropriate behaviour.

Need to develop greater sensitivity to others business culture.


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Amity Business SchoolContd.Intra channel competition

One of the most serious sources of conflict occurs whenchannel members compete potentially for the same business.

Here the upstream member sees its down stream member as a

competitor since resellers provide an assortment & pool

demand of a class of products & end up stocking supplierscompetition

The more acrimonious disputes occur when the upstream

channel member believes it has an understanding or agreement

to limit competition. E.g. A California medical supply firmwon almost $5mn in damages from a distributor over a breach

of contract for promoting competitors products.


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From the downstream viewpoint , the domain clash occurs

when supplier sells through many of the firms directcompetitors in the market, e.g in intensive distribution.

Another source of domain conflict occurs when multiple typesof channels represent the suppliers product to the same

geographical market. There are many labels for this :-

-Dual distribution

-Plural distribution. E.g G.E

-Hybrid distribution( Multiple channel is not the same as intensive distribution)


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Amity Business SchoolMultiple Channels

Earlier companies used to opt for one primary route & otherroutes were downplayed, even disguised in order to avoidchannel conflict & avoid confusing customers.

Now with the explosion of multiple channels its become more

of a norm rather than exception. The reasons for the same are :-

- Heightened competition

- Helps increase market penetration & raise entry barriers topotential customers.

- Helps serve customers efficiently in case of fragmentedmarkets

The objective is to provide convenience to customers.


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Suppliers & customers can both find each other more easily.

Helps customers to pit one channel against other in search for

more services at low prices.

But it has some danger as well . Some of them are ;-

- Downstream channel member loses motivation, can withhold

support, retaliate or exit structure.

- Particularly the case when customers free ride.

The suppliers think that by offering multiple channels they can

serve multiple segments.

On paper, the same is always appealing, but the whole strategy

collapses if customers refuse to stick to their assigned

categories.


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Analyzing multiple channels

The basic question is , when should multiple channels be used &

how much without increasing conflict to ruinous levels?

Growing markets, which tends to offer opportunities to many

players

Markets in which customers perceive the product category as

differentiated

Markets in which buyers have a consistent purchase style that

involves one type of channel member

Markets that are not dominated by buying groups

Eg Coca Cola faced opposition in Japan from retailers on

installing vending machines


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Amity Business SchoolWhat can manufacturers do ?

Multiple channels dont always compete.They can help each

other by building primary demand. E.g combination of a store& direct marketing operation

Devising different pricing schemes for different channelscarefully as this at times becomes legally dubious, leads to anopportunity of arbitrage. E.g. gray markets

Offer more products, more service, more support, evendifferent products to different channel types to help themdifferentiate themselves. E.g Xerox

Offer different brand names to different channels.

Sell primary flagship product line from one channel &

remaining secondary or peripheral things through a captivechannel. Pioneer Electronics ( IT industry)

All parties should be made to realize that the environment haschanged & that market has split into different segmentsdemanding different level of service outputs


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Conflict Resolution Strategies

Channel partners can cope with the conflict through 2approaches:-

- Try to keep conflict escalate to dysfunctional zone by

developing institutionalized mechanisms( arbitration boards,

norms of behavior etc)- Use patterns of behaviour to resolve manifest conflict

( Share information freely, gain mutual access to customers,

assume joint responsibility for the total customer experience)

Institutionalized Mechanisms to contain conflictearly

-Here channel members devise policies to address conflict in its

early stages, even before it arises


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- These policies become institutionalised.

- They serve many conflict management functions.

- The same includes mechanisms like joint memberships in

trade associations, distributor councils & exchange of

personnel programs.

- Some build in appeal to third parties such as referral boards of

arbitration & mediation


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Information intensive mechanisms

Communication is the glue that holds together a channel of distribution

Effective communication or information flow is necessary for an efficient

flow of products & services through the channel.

Here the emphasis is on sharing information.e.g Armstrong world

industries which uses expertise power to avoid conflict

Joint membership in trade associations. E.g the committee jointly founded

by the Grocery Manufacturers of America, GMA, & the Food Marketing

Institute that was responsible for developing the universal product code .

Some channels use exchange of persons as an institutional vehicle to avoid

conflict.e.g Walmart & P&G. A variation of the same is cooptation. The same is a mechanism designed

to absorb new elements into the leadership or policy determining structure

of an organisation


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Co optation permits sharing of responsibility so that a variety

of channel members feel identified & committed to theprogram developed for a particular service/product.

It places an outsider in a position to participate in analysing

an existing situation, to suggest alternatives & to take part in

the deliberation of consequences.Third party mechanisms

Though co optation brings together representatives of channel

members, mediation & arbitration brings together third parties

which are uninvolved in the channel.


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The same keeps mainfest conflict in bounds. Mediation is the process where the third party attempts to

settle a dispute by persuading them to continue negotiations or

provide substantive recommendations

Gets a fresh view of the situation & is able to perceiveopportunities which insiders cannot.

Generally mediation & arbitration are supported by their own

institutional framework. E.g. (CEDR) Centre of Dispute

Resolution.

Helps channel members increase their communication with

each other regarding their goals.


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An alternative to mediation is arbitration, wherein, a thirdparty actually makes the decision.

Arbitration can be compulsory or voluntarily

In compulsory arbitration process, the parties are required by

law to submit the dispute to the third party , whose decision isfinal & binding.

In voluntary arbitration , the parties voluntarily submit theirdispute to the third party whose decision is final & binding.E.g the American Arbitration association offers commercial

arbitration rules.

Institutionalising the practise of taking dispute to the thirdparty forestalls conflict


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Amity Business SchoolContd.Building Relational Norms

Norms are another class of factors that serve to forestallconflict.

They govern as how channel members mange theirrelationships & grow over time as relationship functions.

A channels norms are its expectations about behaviour,

expectations that channel members at least partially share. Some commonly observed norms are :-

Flexibility :expectation to adapt readily to the changedenvironment , without obstructions

Information exchange:expectation to share any & all pertinentinformation, no matter how sensitive the same is

Solidarity :expectation from each other to work for mutualbenefit.

Styles of conflict resolution


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Styles of conflict resolution

High cooperativeness

Cooperativeness: Concern for theother partys outcomes

Collaboration

or problem solving

Compromise

Low assertiveness

Avoidance

High Assertiveness

Competitionor Aggression

Assertiveness: Concern forones own outcomes

Accommodation


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Amity Business SchoolContd. Assertiveness- strength of emphasis on achieving its own goals, such as building

store traffic, increasing uniqueness of its assortment, or increasing margins

Cooperativeness-concern for other partys goals, such as suppliers goals ofbuilding volume, creating distinctive image, or taking share from competitor

Avoidance- it attempts to prevent conflict by circumventing discussion. Attemptsare to save time & unpleasntness. Neither side feels the commitment for the other.

Accomodation- more focussed on other channel members goals rather on onesown. Its a proactive means of strengthening the relationship by cultivating theother channel. Signals a genuine willing ness to cooperate, encouragesreciprocation.

Competition-involves playing a zero sum game by pursuing ones own goals whileignoring the other partys goals. This style generates conflict, fosters distrust.

Compromise- repeatedly pressing for solutions that lets each side achieve its goals.Gives something to everyone. Used to handle minor conflicts.

Collaboration or problem solving- Channel member wants to achieve its own

goals as well as counterparts . Win- win approach, helps build favourable selfimage as well as favorable public representation. Its an information intensivestrategy. For this one needs to have high level of resources- especially ofinformation , time & energy. This approach is popular in franchising.

043c4channel power& conflict

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