MODULE 5

CHANNEL MANAGEMENT

OVERVIEW
In this chapter we will try and understand some of the aspects of management of the channel
system.

OBJECTIVES
At the end of this chapter, you are expected to:

1. Enumerate how and why channel conflicts occur

2. Distinguish the channel conflict and illustrate to resolve conflicts
3. Categorize the principles of channel management
4. Express their ideas in resolving conflict

DISCUSSION
CHANNEL CONFLICT

Channel conflict is a situation in which one channel member perceive another channel
members to be engage in a behavior(or activity) that prevents or impedes it from achieving its
goals. In other words, channel conflict is a situation of disagreement or discord between two or
more channel members.
According to Havaldar, Channel Conflict is a situation of discord or disagreement between
channel members from the same marketing channel system. Conflict always has negative connotations
and is driven more by feelings than facts. Conflict is considered part of any social system. A channel
system which brings together disparate entities to form a working relationship, is also a social system.
Conflict could be the result of:
a) each channel member wanting to pursue his own goals
b) each wants to retain his independence
c) there are limited resources, which all of them want to utilize in the pursuit of their goals
Stages of Conflict

LATENT

PERCEIVED

FELT

MANIFEST

Fig. 1.5

Latent – some amount of discord exists but does not seem to be affecting the working of the channel
partners, nor affecting the achievement of the customer service objectives.

Perceived – This is the stage where the discord becomes noticeable and the channel partners become
aware of the opposition. There is still no cause for worry, but the opposition has to be recognized.

Felt- Here we are reaching the stage of worry, concern and alarm. This stage is also known as affective
conflict as channel gets affected by the discord between the players. Channel members feel upset tat
the other parties do not value their feelings of discontent.

Manifest- This is the last stage where the conflict has escalated to a level which reflects the open
antagonistic behavior of the channel partners who have a dispute. There is an open confrontation.

REASONS FOR CHANNEL CONFLICT

• Role ambiguity – refers to lack of role clarity of different channel members. This is quite
often the reason in multichannel conflict and more commonly occurs in industrial
products . Ex. One of the distributors of a well known automobile component
manufacturer by passed large wholesalers and started selling directly to retailers
through its mobile van.
 • Goal incompatibility – occurs when the objectives of the manufacturers and channel
members differ or become incompatible.
• Market perception mismatch
• Target setting problem
• Competitor inducement

Types of Channel Conflict

1. Vertical conflict – occurs when a channel member at one level is in conflict with another
member at the next higher or lower level. Ex. Conflict between a manufacturer and its
distributors; conflict between wholesaler and retailer
2. Horizontal conflict – occurs when two or more channel members at the same level in
conflict with each other. Ex. Two wholesalers are in conflict over coverage of retailers;
two distributors are conflict over territory jumping
3. Multichannel conflict- occurs when more than two channels and more than two levels
are involved in the conflict. Ex. Distributors or wholesalers may be in conflict with a
manufacturer who may be also selling through its own franchise outlet.

CONFLICT RESOLUTION METHOD

Avoidance

Aggression

Accommodation

Compromise

Collaboration

Minimum Efforts and Maximum Efforts and

Results Results

Fig. 2.5 Five Style of Conflict Resolution

Avoidance – is used by weak or disinterested channel members. Solution of the conflict problem or
issue is postponed or avoided with no results.
Aggression – is used by selfish channel members who are only interested in their personal goals or
motives without caring for others.

Accommodation -is a solution through surrender- one channel member allows the other party to
achieve his goals without being concerned about its own interests.

Compromise- known as the golden mean, is a situation in which both the parties sacrifice partly to strike
a mid-way solution.

Collaboration - is the most professional way to find a solution. This is a win-win approach with
maximum benefits to both the parties.

Various methods of conflict resolution along with the stage or intensity of conflict are summarized in
Fig. 3.5

Latent conflict Institutional approaches

• Joint membership of associations

• Exchange of executives
• Cooptation
• Dealer councils

Felt Conflict
Third party mechanisms

• Mediation
• Arbitration

Manifest Conflict
Negotiation

Fig. 5.3 Conflict Resolution Method during Different Stages of Conflict

MOTIVATING CHANNEL MEMBERS

To avoid channel conflicts motivating channel members may often be a good preventive policy
or strategy. If channel members are motivated to perform many potential conflicts may be prevented
from developing into real ones, because sources or reasons of conflict are quite often lack of
commitment or motivation .
Companies can adopt many ways to motivate channel members. More common practices are
financial and non-financial rewards or incentives.
Power Motivation can be used to motivate channel members or make their performance more
effective. The five forms of power motivation are:
1. Reward power- As the name implies, companies provide incentives to the channel partners to
perform additional tasks at specific point of time. Reward is a benefit given to a channel member for him
to conform his behavior in line with the system. The reward could be:
• Financial or otherwise recognition
• Incentives on achieving sales targets
• Best distributor award in the annual sales conference
2. Coercion power- is the hint of punishment for the channel member if it does not fall in line with the
requirements of the channel principal. This disincentive could again be economical or non-
economical. This could be:
• Withholding of incentive payments if the infrastructure promised by an industrial distributor is
not buildup
• Pushing the distributor on purchases through demand drafts against earlier permission to
purchase on cheques.
3. Expert Power – This implies that the company has some special knowledge that is value adding to the
channel partner. This support could take the form of specialized knowledge on developing business in
which the company may train the sales personnel of the distributors. Without this training support, the
intermediary would not be able to perform well.
4. Legitimate Power- This is enforcing any task expected of the intermediary as per the agreement or
contract signed with the company. The company has the right to get this work out of the channel
partner and the intermediary has the responsibility to deliver this expectation.
5. Referent Power – This power emanates out of the eminent positions that the company hold in the
industry. This power generates instant recognition and respect and any intermediary associated with
this kind of an organization will automatically get a favorable rub-off of the image.

EVALUATION
1. What is channel conflict? What are the four stages in which it evolves?
2. What are the steps to be taken t0 resolve conflicts? Explain with example?
3. What are the methods used by companies to motivate their channel partners?

REFERENCES
Distribution Management, A Nag
Sales and Distribution Management , Krishna K. Havaldar