Chapter

13
Channel Management

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 Learning Objectives
• Understand how and why channel conflicts
occur
• Look at ways of managing conflict
• Channel practices followed to resolve
conflicts
• Principles of channel management
• Various parameters on channel policy
• Way in which services use marketing
channels

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 Channel Management
• Is in three broad phases:
– Use of power bases
– Identifying and resolving channel conflicts
– Channel co-ordination

Use of power….
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 Use of Power Bases
• Channel system has a set of players:
– Not equally motivated to implement the ideal
channel design
– Whose expectations from the system differ
• Use of the 5 power bases brings diverse
channel partners in line for effective
implementation
– 5 power bases are: reward, coercion, legitimate,
expert and referent (French & Raven)
– Two more power bases in the Indian context are
support and competition

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 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 –
reward, coercion, expert, reference and
legitimacy. 2 more can be considered as
support and competition.
• Extent of dependence defines the power base
which is appropriate.
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 French & Raven

“Power” of Motivation
• Reward – incentives for good performance
• Coercion – threat of punishment for non-
performance
• Referent – benefit of sheer association with a
strong company
• Legitimate – arising out of a contract
• Expert – specialized knowledge
• Support – additional benefits for better
performers only
• Competition – created between channel
partners Countervailing power……
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 Countervailing Power
• Balances the power exerted by one channel
member. It is not a one-sided equation.
• Both the channel member and the principal
can have influence on each other.
• Results from interdependence within the
channel system.
– Company exerts power on the distributor to get its
coverage and revenues
Examples

– Distributor has enough influence on his customers

and this is critical for the company also
– Weaker partners do get exploited – ancillary units
SDM­ Ch 13 Tata McGraw Hill  Co­ordination…
7
 Channel Co-ordination
• Channel system is well co-ordinated if each
member understands his role correctly and
performs it to help the system achieve its
customer service objectives.
• In a co-ordinated channel:
– Interests of all channel members are protected
– Actions of all are in line with overall objectives
– Flows are streamlined to desired customer service
objectives
• Channel co-ordination is an on-going effort
Conflict….
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 Channel Conflicts
• Conflict is generated when actions of any
channel member come in the way of the
system achieving its objectives
• Three broad categories of channel conflict
are:
– Goal conflict – understanding of objectives by
various channel members is different
– Domain conflict – understand responsibilities and
authority differently
– Perception conflict – reading of the market place is
different and proposed actions vary

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 Channel Conflict

CONFLICT

GOAL DOMAIN PERCEPTION

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 Channel Conflict
• Situation of discord or disagreement between
partners in the same channel system – has
negative connotations and is driven more by
feelings than facts
• Conflict 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 results
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 Conflicts Result From…
• Each channel member wanting to pursue his
own goals
• Each wants to retain his independence
• There are limited resources which all of them
want to utilise in achieving their goals
• Features of conflicts:
– Initially latent and does not affect the working
– Is not normally possible to detect till it becomes
disruptive
Four stages….
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 Four Stages
LATENT

PERCEIVED

FELT

MANIFEST

Each stage is progressively more severe than the earlier one

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 Types of Conflicts
• Latent 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

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 Types of Conflicts
• Felt 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 personal
– Needs 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
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 Reasons for Channel Conflict

• Roles not defined properly

• Allocation of scarce resources between
members seem unfair to some
• Differences in perception of the
business environment

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 Reasons for Channel Conflict

• Future expectations not likely to materialize

• Decision domain disagreements – who has to
decide on what (key account pricing)
• Channel members do not agree on objectives
• Misunderstanding or mis-interpretation of
routine business communication

Resolving….

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 Resolving Conflicts
A 4 Stage Process
Understanding nature and intensity

Tracing the source of the conflict

Understand the impact of the conflict

Strategy and plan of action for resolution

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 Conflict Resolution Styles
Avoidance Styles are a combination
of assertiveness and
Aggression co-operation. 

Accommodation

Compromise

Collaboration

Least effort and Maximum effort and

results Best results

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Kenneth W Thomas
 Avoidance
• Used 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.

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 Aggression
• Also known as a competitive or selfish style.
• It means being concerned about one’s 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.

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 Accommodation
• A 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
exploitation

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 Compromise
• 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.

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 Collaboration
• Also known as a problem solving approach
• Tries to maximize the benefit to both parties
while solving the dispute.
• Most ideal style of conflict resolution – a win-
win approach
• Requires a lot of time and effort to succeed.
• Sensitive information may have to be shared

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 Channel Policies
• Defines how the channel is required to
operate.
• Normally framed by the channel principal to
guide the operations of the channel system
• If not framed properly could prove the starting
point of channel conflicts.
• Some subjects of channel policies could be
as seen in the next slide:

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 Channel Policies
• Markets to be covered
• Customer coverage
• Pricing
• Product portfolio to be handled
• Selection, termination of channel
members
• Ownership of the channel
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 The Services Sector
• Twice the size of the manufacturing sector
• Services offered are to be in line with
customer demand
• Services have to be presented in an
appealing manner to sustain customers.
• Needs specialized channels which
understand the characteristics of service
delivery

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 5 Characteristics of Services
• They are intangible – can only be felt. No
visual features like size, style.
• They are inseparable from their service
providers – a 3P cannot deliver
• They cannot be standardized – custom made
and delivered
• Customers are involved to a great degree –
define the services
• They are perishable – cannot be stored for
delivery later. Salvage value of an unsold
service is zero.
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 Channels Used
• Shorter channels than for products
• Some channels used are:
– Direct from service provider to user
– Agents or brokers to bring buyer and seller
together
– Franchisees or contractors
– Electronic channels
• High degree of customization is provided

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 Key Learnings
• Channel management is done by: use of power
bases, identifying and resolving channel conflicts and
co-ordination
• Channel conflicts could occur due to: goal conflicts,
domain conflicts and perception conflicts
• Channel 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

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 Key Learnings
• Channel conflicts are resolved by joint membership of
associations, exchanging personnel or arbitration
• Channel management involves the four steps of
planning, organisation structure, control of the
channels and measuring performance for continuous
improvement
• Services 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.

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