CHANNEL POWER & CONFLICT AND

CHANNEL DYNAMICS

7th Semester – B.B.A By

Navin Raj Saroj M.b.A. (Marketing)

MEANING OF CHANNEL POWER

Channel

Power

A channel member’s capacity to control or

influence the behavior of other channel members

Channel

Control

A situation that occurs when one marketing

channel member intentionally affects another

member’s behavior

Channel

Leader

A member of a marketing channel that exercises

authority/power over the activities of other members

USE OF CHANNEL POWER

• Channel members are dependent on each other,

• The power equations between them keep them working together

• There are basically 5 types of power bases which is described further

• Extents on dependencies defines the power base which is appropriate

CHANNEL POWER TYPES

Reward – incentive for good performance

Coercion – threat of punishment for non performance

Expert – specialized knowledge

Reference – benefit of sheer association with a strong

company and

Legitimacy - arising out of a contract

Two more can be considered in Nepalese context as support and competition

MEANING OF CHANNEL CONFLICT

A Channel conflict may be defined as “A situation in which one channel member perceives another channel member(s) to be engaged in behavior that prevents it from achieving its goals”.

Conflict is opposition, disagreement or discard among the organizations.

CHANNEL CONFLICT

Vertical conflict

Horizontal conflict

Inter Type Conflict

Multi Channel conflict

VERTICAL CONFLICTS

• Vertical conflicts occur due to the differences in goals and objectives, misunderstandings, and mainly due to the poor communication

• Lack of role clarity and over dependence on the manufacturers. For e.g. Today the large retailers dominate the market and dictate the terms. Hence there are often conflicts between these giant retailers and the manufacturers.

• Wholesalers expect manufacturers to maintain the product quality and production schedules and expect retailers to market the products effectively. In turn, retailers and manufacturers expect wholesalers to provide coordination functional services. If they fail to conform each others expectations, channel conflict results.

SOME COMMON REASONS FOR VERTICAL CONFLICT

• Dual distribution i.e. manufacturers may bypass intermediaries and sell directly to consumers and thus they compete with the intermediaries.

• Over saturation, i.e. manufacturers permit too many intermediaries in a designated area that can restrict, reduce sales opportunities for individual dealer and ultimately shrink their profits.

VERTICAL CHANNEL CONFLICT

• Conflicts between different levels within the same channel. • Example : Unilever came into a conflict with its distributors in Hetauda on the

issue of Commission

HORIZONTAL CONFLICTS

Horizontal conflicts are the conflicts between the channel members at the same level, i.e. two or more retailers, two or more franchisees etc. These conflicts can offer some positive benefits to the consumers. Competition or a price war between two dealers or retailers can be in favor of the consumers.

• Price-off by one dealer / retailer can attract more customers of other retailers.

• Aggressive advertising and pricing by one dealer can affect business of other dealers.

• Extra service offered by one dealer / retailer can attract customers of others.

• Crossing the assigned territory and selling in other dealers / retailers / franchises area.

• Unethical practices or malpractices of one dealer or retailer can affect other and spoil the brand image.

REASONS BEHIND HORIZONTAL CONFLICTS

HORIZONTAL CHHANNEL CONFLICT

when multiple channels are employed and distribution intensity increases, three profit threats may confront a retailer: 1) sales cannibalization 2) margin dilution 3) customer diversion

INTER TYPE CONFLICT

Inter type conflict occurs when, the Intermediaries dealing in a particular product starts trading outside their normal product range. For example, now the Supermarkets such as Bhatbhateni chain also sell vegetables and fruits and thus compete with small retailers selling these products. Large retailers often offer a large variety and thus they compete with small but specialized retailers. This concept is called as “Scrambled Merchandising” where the retailers keep the merchandise lines that are outside their normal product range.

MULTI CHANNEL CONFLICT

• Multi-channel conflict occurs when the manufacturer uses a dual distribution strategy, i.e. the manufacturer uses two or more channel arrangements to reach to the same market.

• Manufacturers can sell directly through their exclusive showroom or outlets. This act can affect the business of other channels selling manufacturer’s brands.

• Manufacturers can bypass the wholesalers and sell directly to the large retailers. Conflict becomes more intense in this case as the large retailers can enjoy more customers and so the profit due to offering more variety and still economical prices, which is possible due to a volume purchase.

MULTI CHANNEL CONFLICTS

A single firm uses two or more marketing channels to reach one or more customer segments

CHANNEL CONFLICT CAUSES

Conflicts may occur if channel members: Goal Incompatibility: Producers want rapid market penetration

with a low price, while dealers prefer high margins

Unclear roles and rights: Company sales force and authorized dealers go after the same large customers

Differences in perception: Producer are optimistic and want dealers to carry higher inventory, while dealers are pessimistic

Intermediaries dependence on the manufacturer: Fortunes of dealers are profoundly affected by the producer’s product and pricing decisions. Creates a high potential for conflict.

MANAGING CHANNEL CONFLICT

Several approaches for effective conflict

management:

Regular Communication

Forming Dealer Councils

Co-option

Arbitration and Mediation

• Diplomacy: Each side sends a persons to meet with its counterpart to resolve the conflict

• Mediation: Resorting to a third party to conciliate two parties interest as a consultant or an advisor

• Arbitration: Resorting to a third party for a final resolution of the conflict

• Litigation: Best way is to avoid the litigation, costs a lot and takes a long time, Bad publicity for both parties, whether one party wins or loss

MANAGING CHANNEL CONFLICT

CHANNEL DYNAMICS

Strategies for gaining acceptance from intermediaries when selling through intermediaries.

Brick and Click Companies: Adding E-commerce channel

M-Commerce: Consumer and businesspeople no longer need to be near a computer to go online. All they need isa cellular phone or personal digital assistant. Many see a big future in what is now called m-commerce.

PHYSICAL DISTRIBUTION

The term physical distribution is more appropriate to outgoing (outbound logistics) or forward movement of products, services, and information from a firm’s manufacturing facility to customers, and involves defined network of transportation links, warehousing and storage, and finally delivery at the destination in a cost effective manner within the desired time. • A physical distribution system contains these elements:

– Customer service – Transportation – Inventory control – Protective packaging and materials handling – Order processing – Warehousing

LEGAL ISSUES IN CHANNEL RELATIONS

For the most part companies are legally free to develop whatever channel arrangements suit them. In fact, the law seeks to prevent companies from using exclusionary tactics that might keep competitors from using a channel.

ETHICAL ISSUES IN CHANNEL RELATION

EXCLUSIVE DEALING

Seller requires its exclusive dealers not to handle competitors products

Legal as long as it does not substantially lessen competition nor tend to create monopoly and both parties enter into the agreement voluntarily

The seller allows only certain outlets to carry its products and requires that these dealers not handle competitors products. Both party benefits with exclusive arrangements. The seller obtains more loyal and dependable outlets, and the dealers obtain a steady source of supply of special products and stronger seller support. Exclusive arrangements are legal as long as they don’t substantially lessen competition or tend to create a monopoly, and both parties have voluntarily entered into agreement.

EXCLUSIVE TERRITORY

Producer agrees not to sell to other dealers in a given area and dealer agrees to sell only in its own territory.

The first practice is perfectly legal

The second practice, whereby the producer tries to keep a dealer from selling outside its territory, is a major legal issue.

EXCLUSIVE DEALERS’ RIGHTS

Producers are free to select their dealers but their right terminate dealers is somewhat restricted.

Can drop dealers only for cause in the contract

TYING OF AGREEMENT SERVICE

Full-Line forcing i.e. The producer of a strong brand sometimes sells it to dealers only if they will take some or all of the rest the line, a practice called full-line forcing.

Producers sells to dealers only if the dealers take some or all of the rest of the line

Legal if it does not substantially lessen competition

Output of Channel Members

Lot Size

Waiting Time

Spatial Convenience

Product Variety

Services Back up

THANK YOU