569

MAtoChanr
of Distribution
ple,
cess
theors break
of breaking
up similar supplies
up aa nomogenous supnbe
break upP es into smaller lots. For exampe
intoand
supply of goods sell small lots to
er a s ther break up the lots into smaller quantities to sell too Cus sell to customersS.
form
jatterfers
re
to the process of putting together various products in
the
package
ting
for the purpose of reselling.
involve
Making transactions routine: Typical activities in a
Making tran
and
transaction
services
o f goods or services, fulfilling orders and paying for goods
dening o f
terms and
dof availed. Both the buyer and the seller must accept the
a s e d

or avail
transactions
o f the sales transaction. Channel members help in making setting a
through standardization and automation. Standardization
means
standardization of
for performing routine activities. For example,
a i n e
pattern efficiency
SUch as placing orders, lot size, payment, etc helps increase etc helps
ormance. Likewise,
t erTOrs. Thus,
automation of processes such as reordering, ncy aand
channel members contribute toward increasing efticiency
pever
distribution
-
costs.
imizing
relationships
In a marketing channel, several
4,Contractual efficiency: various channel
members.
transactions or exchanges that occur between
d t from the manutacturer
channel involves the product flow from
tansaction in a distiDuion retailer and finally to the customer i.e.
Manufacturer
the wholesaler to tile At the same time, money might flow
through the
wholesaler- Retailer-Customer. Customer-Retailer-Wholesaler-Manufacturer.
reverse direction i.e.
dannel in the number of exchange relationships
have
to optimize the
hannel intermediariesa transaction. to interact with
If each channel member has
reQuired to complete then the number of relationships
would be huge. The
other channel members, this number and makes the process
simpler.
intermediaries reduces
presence of a certain point might
result in inefficiency
adding intermediaries beyond
However,
returns will set in.
the law of diminishing
18.22. Channel Functions
activities by means of which products flow
functions involve all the
Channel the materials that go into the
manufacturer to end users. During the flow, material into the final
rom transformed from basic raw
making of the product are role in determining
channel structure.
an important
HOCUCt. Channel functions play different stages in the marketing channel, various
ne product moves through various functions.
uEmbers in tile channel perform
channel can be broadly categorized
functions of a marketing
htne most common Buying and selling are part of the
and facilitating.
and storage, while
Brchdnge, supply or logistics includes transportation
gange functi
e function. The logistics function risk bearing and providing
and grading, financing,
arclitating includes
arng includes standardization
Market information.
 Sales and Distribe
on Manageme Channe's of Distribution
channel are desce. dex
marketing d in
The functions
performed by a
of Channel
Aim
Ma. detail t market
In/
formation. Most channel
embers, despite 571
olace, do not have
Marketeow.ng
Strategic
members a n d r s ystemsIn
complete
Facilitating
1.
the
aim of channel elp planning. G naving Electronic Data Processing
banks
them attain Current data
a n d
the strategic arrangement,
n a l y s l sa
channels facilitate "bancassurance
Sell insuraneve asas marketina Taventory management required for makee
For instance, in
a
In this role, ankS
goais.
Channels for
companies.
insurance
companies
their strateaic
fuinill their
fulfill aim strategiC of to ther evice

7,
a n c inufacturers'
mahannels
One
ndThe channels proritability Is the
critical factor
that affects customer
insurance have to inventory
customers
market share.
and
2. Fulfilling the

help
Interaction
Process: Marketing chann.. increasin
nels coordin 0

hanne
e e

S.
stomer ands. This
maintain
level
a
certain
shouldd be ssuch
tv
afanced,

levels
level
maintained
of
e l of
invoeDy
inventory
by tomarketing
be able
idity and profitability
and merchandising and
help fulfill the interacton thehich
vhich in turn
will
turn Will
affect the
delivery timing he ate Inventory marketinn"nory might lead to blocking of
ordening systems, s
d Complex process
ndsdeguate inventory
process with the
customer. Distribution
activities. Marketing
channels, by coordinatino
members and their facilitate the smooth fiow or products and goode
Ovina
aspects sevethe fnaoRIsinesses are might
mers noW
lead
lead to
to
depending
del
delayed nners profitability. At the same
on
delivery of
products and anger
distribution process,
mana inventories.
information systems to efficientlyy
en
Risk taking: If the
to consumers.
and Product Availability
: A marketin. sibility fof distributidistributing
finished
manufacturer were to
3. Market Coverage
and the availability
of the ing channel t of goods
in transit or products, there would behims
mself undertake the
storage, physical exposure to risks such
to ensure market coverage
marprovides
keting
spoilage
channel does this by contacting
existing and potential customers It also temsand p obsolescence. Such risks can result damage
oroduct
in
to goods, misplaced
of credit, delivery and enefitsof selling manufacturers
Customers support services in the form nical advice products. Marketing channels, not reallzy
by
and profitable to companies. The
manufacturers' risks.taking tile responsibility
customers, reduce
at thectribution to on
prices affordable to customers number of
channels required to ensure adequate
rage depends on
market covera of
market potential, the manufacturer's market share, quency of purchasectors like 18 Channel Participants
product, technical knowledge required product and extent
to sell the the Eallowing channel formats are normally followed
differentiation. by the marketers:
Stokist Only stocksS the goods; either of one
-
4. Market Development: Apartfrom making goods and services marketer or many marketers.
availat Normally stokist has his own godown or warehouse for stocking purpose.
to existing and potential customers and providing support services, the chcOe
channels Distributor- Transports the goods from manufacturer to dealer or from
also contribute towards expanding the manufacturer's market
share by sol
new business from customers. New customer accounts solicited by the cha Soliciting wholesaler to retailer
hannel
intermediary add to the company's market share. Wholesaler -
Usually sales in bulk to institutions and
retailers and to in ones
and twos
5. Technical support The extensive use of computers in almost evew
sphere of society has made the world highly dependent on technology. This d) Retailer Usually sales to end users as per their convenience.
-
dependence has made it mandatory for marketing channels to offer customers the
(e) Carrying and Forwarding Agency (CFA) Full Service CFA transport the
goods
-
needed technical support in addition to seling the product. Many end users willneed from Manufacturers to warehouse; stock I warehouse for certain time
require technical information on how to use a product. Technical support is required period
and further transport
from warehouse to retailers or dealers.
for optimal product performance, usage and the
important task of maintenance.
Technical support is required more for
technologically sophisticated products.
Hence, () Agent Normally books the orders only and does not carry the title.
marketing channels should ensure adequate technical support to end users.
18.3. DESIGNING MARKETING CHANNELS
6. Marketing Information Channels be
: can a valuable source of market
information. As they directly interact with The long-term commitment of a business towards the market affects its
customers, they play a pivotal role n Cnoice of marketing channels. The design of a marketing channel is influenced by
providing valuable data on customer preferences. analysts
marketing channels are yet to reach the desired level However, fee at ictors like technological advancement, changing demographics and competition.
of in proviuy performance inere are several dimensions to choosing a channel design, which include:
 Sales and Distribution Channels of tribution
572
The
channel
length:
the
number
or
intermediaries he
between Managemet
the prod Y
reach their customers
Amchannel to make their roducts
direct
get toselling. These
573
and the customers.
of outlets available
no
ne level channel, the manui customers' companie use a
stomers. hands
number In a on
the
Channel
breadth
particular channe ho in turn seis them to end-icr
in selecting
a theretailer,
axists between the manufactiroS. A
tes tile products directy to
The costs
involved
made taking
into consi.
etaletly used by automobile single channel intermediary
u s e d l o n th
decision is
intermediaries at the channe t h er
d h a n n e li sm o s t l y
neOne level
marketi
and the type of els of channel interme each dyog
design Udy Limited
channel
(uL) ers and
es level.
A ruti
intensity
of levels Showroom
S. Showroom dealers directy
direct
supplies its cars to dealers,
structure,
channel
refers to the
number
the total ndries (distributor Whle xamcustomers.
petroleum companies likethe single channel wno
structure rerers
to ase of serve as
channel intensity
channel
wholesaler, retailer), each level.
The type of
inter t
channe
each level L Inctan Petroleum Bharat Petroleum intermediay
required at representat then sell it tocorporation
consumers.Limited, etc, the Corp rue
ho ther
company supplies el
manuracturer's
intermediaries force, who
manufacturer's
sales
include dealers,
to two level channel, there are twO
level the
distributors.
or Direct the
In a
manufacture and the customer. These channel
are the
intermediaries present betwee
Zero-level channel wholesaler and the retailer. n
**************************************************ss.... *******
manufac
f a c t u r e r goods to the wholesaler, who sells them to the
**
then sell ells the goods to
consumers. A typical two- level
retailer. ine
One-level channel retaller
manufacturers of fast
moving marketing channe
that used
consumer goods such Hindustan
Retailer
.
************
.
***********
Bajai, Godrej, etc. as
A three level channel is
by thecharacterized
Aaries between the manutacturer and the customer. presence of three channel
Two-level channe The three channel
Retailer nterriaries in a three level marketing channel are the wholesaler, the agent and
Wholesaler ************************************************
ntermr An agent mediates between the wholesaler the
thele are commonly found in the pharmaceutical industry. Inretailer.
and These
this
cha representatives act as agents of pharmaceutical companies and industry,
il
ail drug stores tO purdnase rom the manufacturer, drugs manufacturedpersuade
CFA medica
Three-level channel by their
amoany. Figure 3.3l shows à diagrammatic representation of tile various channel
Com
Agent Retailer c o n s u m e r markets.
Wholesaler levels in
In a zero level channel in industrial markets, producers directly sell products
in Consumer markets
o industrial customers. In a one level channel, manufacturers sell tile products to
Fig. 18.31: Channel Levels
industrial distributors who sell them to industrial customers with an increase in the
18.31. Channel Structure channel level; the number of intermediaries too goes up.
The channel structure adopted by a company depends on the number oi Products usually flow between channel levels. in a forward direction. But, of
intermediaries it uses to distribute its products to end users. These intermediares late, the reverse flow of products has also started to gall prominence. Reverse flow
give rise to channel levels. takes place in two circumstances one, when the manufacturer opts for product
The recycling and second, when there is product recall. Many manufacturers have
length of a channel, described above, differs from
to industrial markets. The
consumer markes realized the significance of environment friendly manufacturing and have opted for
possible channel level are zero level, one level, two leves
In recycle management, products flow in a reverse direction from end
and three levels. ycing.
USer to the manufacturer. The reverse flow is generated when the products are
In a zero level channel, the manufacturer directly sells to the end cus
mer
the manufacturer after use by the
r Pducts oinclude
Examples consumer. of such
through door-to-door selling, soft drinks and mineral water containers and paper products.
telemarketing
and so on. Companies like Eureka
rdes
 Sales and
istribution d e t i n gC h a m e l s
of Distribution
574
requests itsMana
manufacturer
situation
arises
when
in exchange
d for
r a ref
nd, repla
ur hey
get greate
get
alty and
A product
recall
poducts
ifications
n e c e s s a r y modific more
r e t u n its
determune
el intermediary.
or distributors to out dnanine 575
after camying derective qualih
of the product
this owing to Drod ve distributive
selective distri
eling of heir
retum
manufacturers
resorted to
have
noteworthy product
recalls are th
at of
the
.
he election distribur
products by the
the market.
Examples of
tyres (2000)
Computer's notebo
and Dell Co
policy falls
diye distribution. Selective
in
Pfizer (in
(in 2004).
JUon betwe the eyer
Cocas- Cola
Firestone
Gelusil by Pfizer
cans by liquid
antacid
Com endusive
to adequately
influence is
batteries (2000) and the
Oroduct. the adopted wnentremes of intensive and
mospt
Instead
r o m i s i n a n g e
e a A
of
of
diluting theDolides of all intermedia
the ma
tdets. In possible outlets, the
18.32. Channel Intensity aTOSs a wide
diaries who carry can
refers to the number of intemediariesDe
presen in distr selective anufachirastibuting products
Channel intensity market exposur osure sought by retailers selected distribution,
retailers selected stribution manufachurer
or marketing
channel. The
degree of
important
consideration while the
forDependiv
mulating cOmper
chare
y to . Specific
the
on the
basis f
the
manufaturer concentratesdts
distributs pi
the
requiremanufacturer's selective
To fulfill the
for its products or
services an
or intermedlaries
to be used defined criteria.
the number
example,specialized resources todistribution
temediarie
policy and determining of market exposure
and the degree ctively. For
store andrequirement ents, chann
eeze facilities ntermedianes
intermediaries
of selecti
number
between intensive,
exclusiIve or
elective distributingg frozen market the
stibuion.e to keep
deep freez
manufacturers can choose the Drod
us discuss this.
have
ld Det. displayea prominentty so that Istr 0frozen food
products
products
condition. The
should
The recent deep freeze
Intensive distribution o ft h e
controversy învolving the recallnvinced of the freshness
prohich were fOuNd
while making worm- of Cadbury's
Customers consider the
time and place utility
cts stock the
purch decisio channel intermed to infested, is an Dairy Milk
Dav
intermediaries follow proper storage example of hoW essential
of convenience products 1ard es it
Taking this into view, producerSis termed intensive distribution. Plac900ds in as disregard storage norms, norms. Chocolate
many outets as possible.
This Guality chocolates reach resulting in
customers asdisrepute to retailers
follows: manufacturer
Producers of such Drory plav defectiv
rers when
convenience products.
significant role in selling
and cigarettes try to maintain a like oducts Retailers Fail to Abide
confectionery, soaps, detergents pens hocolate
with
Storage Norms
outlet tO generate maximum expos The recent controversy
products at every possible retail involving the recall of
it convenient for customers. An
intensive distribution polity is driven
by t make Chocolat
tes manufactured by Cadbury' s India worm-infested Dairy MK
is an Opportunity to buy, and that e belie ard paid to Limited ahs brought to the
exposure to a customer storage retailers in the country. Andforefront
that every norms
in the customer's mind comnaroage Eoailers who seem to be at by
of the outlet occupies less prominence d to the just e fault. it's
not
the controversy found that in India, there
Experts who conducted a study
utility offered by the product. are no
storage
following
age norms laid down by the
Exclusive distribution: Cvernment, whicn wouia make It mandatony for retailers to follow them. Moreover,
Was also found that companies manufacturing chocolates in India were equally
Producers of some products limit the number of intermediaries handlina Hner nlle in their instructions
vague to their stockists and
retailers on product storage.
product to deliver maximum senvice quality to customers. They try to jelop a
superior brand image for their product in the process. This is known as excusie Undoubtedly, it is the chocolate manufacturers' responsibility to make channel
distribution and is often used in conjunction with exclusive dealing. In exclusive intermediaries aware or how
a product needs to be
transported and stored.
distribution, the manufacturer grants exclusiv rights to some dealers, allowing then However, in India, feW manufacturers seem concerned about this aspect. Chocolates
to distribute its products only in a certain geographical area. In an exclusive dealing should be transported in cartons and stored in glass cabinets. This fails to provide
the necessary cool setting, especially with temperatures the country reaching up
arrangement, the manufacturer requires that the dealer should not carry competing in
to 45 degrees Celsius in summer. Among the chocolate manufacturers, Amul is the
lines. Car manufacturers usually have exclusive dealing arrangements with ther
dealers. In both exclusive distribution and exclusive dealing, it is the manufacturer's only one, which specifies that its chocolates have to be stored in a dry place at
plus 15-degree centigrade. Despite being a multinational company, Cadbury's is
responsibility to ensure that the distributor is able to provide appropriate repait Vague in its instructions to retailers on storage norms. In its instructions, the
Service and warranty handling facilities. Exclusive distribution allows manufactue
greater control over intermediaries in the of price, credit and
interpretation of which can vary, Cadbury's only specifies that its chocolates need
areas promotion. n
 576
Sales and Distributio h a n n e l s o f Distributir
AAegames
in a cool, dry and hygienic place. What
ic bution Man 577
to be stored
company. Yet
another multina meant by
national compa mayselSyrinas for another
clear by the
to its retailers.
ool is no inge
ess sales representauves
representatives fact
tact as
as a made by a third company.
instruction I this regard
All retailers need specialized
resources to meet t
the selectiv
Nestle, ques t facturer
Maruiac
work for
base salary but instead agents for
vices. They operatereceive a fixed
rers. They do
manufacturer
ular case of
manufacturers. In the particula
notwork
for
c o m i m i s s i o nf o

their service
within a portion of the sale as
requirements of pha macet rer's sales force specific geographg
hical territory.
certain ethical standards and
manufacturers abide by
advice on Cormpari
intermediaries with capabilities to off that Manufa.
Manufacturer'ssales
their products only to
a
rce
comprises sales persons who
salesrepresentative fixed salary. Although
limitations of the product. Such products are therefore are on the
t company's
distributed to the we ey
the first
reces- is an optimal solution for alternative -manufacture
alone.
The manufacturer also ought to be concerned about
should prevent them from distributing their product about the brand pnarmar olls
itS
Owr
cales force, there are many
wn
ISe of the inherent flaw in
companies that lack capital
companies which prefer a direct sales
Jct to getting the services of manufacturer
i n
to intermediaries
T his is because
mage. This ives. These people usualy represent
invest
doubtful records or capacities. Some intermediaries may resort
sort and therefore rarely develop several companies, have to
force epresent
in discount outlets or displaying
them in a nctional way, to to stockind sales
product
selling the product of one company. This expertise. They cannot
erneadsproduan
the final price, regardless of the damage it causes to the Po OVerh becomes a hurdle for
tending to increase Its
Sell
image. Therefore, selective distribution, to outlets with good f e i t and sales. A manufacturer's sales force, on the
image, is the best means to create a favourable impression facilities, resourcesDrandan
ut the prode
npany votes
and, devotes its time and
as aa
serves as
efforts entirely to
powerful
tool for the
selling that manufacturers
the customer's mind. An example is 'up market
brands or
other
roducts and
company to increase profits.
of such brands distribute the product to select retailers, perfumes.
who Manifn dustrial distributors
enhance the luxurious image of the brand. Some whose outlets wil
manufacturers go to the tributors are independent firms
tustrial distri
consisting of sales and support
of preventing retailers from selling their products online. For
St Laurent Perfumes Company, France, a manufacture
examniaple, in etent onnel. They differ fer from manufacturer's representatives in that they take
of
perfume, modified its, contract with its retailers to specify the premium 2001,
tves
brands possessio
of the produ
manufactu M
ducts they sell and have a partrnership
arrangement with the
Manufacturer's representatives, in contrast, do not take possession
which products could be sold on their (retailers) website, Retail tions undert acturer's products. A large portion of the sales in companies like
nanufact
selected previously for physical point of sales were who were
only if they satisfied certain conditions.
allowed
to sell
perfumes onlineins
of the
Norton, Pfize 3M takes place through industrial distributors. Their use by a
distribute its products has its advantages. First, associating with an industrial
elps the manufacturing firm to gain access to specialized knowledge
stributor helps
18.4. TYPES OF CHANNEL INTERMEDIARIES AT
EACH LEVEL about the market, which would have been costly and time-consuming to get on
While designing a marketing channel, the the distributor's
available at each level
type of channel
intermedar ts Own. Also, association with name and reputation helps the
must be considered. Businesses can choose
manufacturer overcome initial reluctance among customers about unknown suppliers.
any from th
.
types of channel intermediaries manufacturer's sales force,
-
thre However, there are disadvantages too. For instance, an industrial distributor
representatives and industrial distributors. manufacturet may just stock the manufacturer's product and might not sell it as enthusiasticall
Manufacturer's representatives as the manufacturer's sales force would have. Second, high profit margins c
own
Manufacturer's representatives, also known as the industrial distributor might increase the price at which the product is offere
representatives, account executives or sales engineers sell manufacturer's sales to the customer, resulting in poor response. Third, the use of industrial distributo
products to wholesalers and retailers, other businesses the manufacturers might distance the manufacturer from the customer.
and also to institutions such
hospitals, libraries and schools. All most
of these
representatives to distribute every manufacturer uses the servcs
products. Manufacturer's sales representatives
18.5. CHANNEL FLOWS AND COSTS
may represent more than one manufacturer. For example, a sales representane Marketing channels ensure smooth goods and servicesf
flow of
in the pharmaceutical industry, manufacturers or producers to end users or customers. They reduce the gaps
who sells
painkillers manufactured by one company. CSe in the flow of goods between channel members. The flow of proc
 S and
additional market deliverables that help she desires.
of Distribution
and information istribution Manao,
away from manufacturing stages to conomy ha
a s
Individual and institutional customers are likely to prefeeviceod stand purchase beh
U n d e
brands, that offer value additions to them. efer those orga ers to asses 585
oentedradualhyecoO. utactu
eded manufac customerS to find
anufacturers should nd
duct a ner users: It is
to
Marketers need to look at customers more closely tor
For this, channels are better equipped to customers. survey to most preferredessential
interact and understa clear visio
the
customers think about services
anayse the purchase channelhabitsIf
products and offered dnderst and ther Develo ion:
e n du s e r s s o Manufacturers
and frequency of contacts especially for products and se better stand vat t peers so that they an select the have to
universe. For
marketing success, what customer this is due to pro understand thethe needs
ds of end right kind ofunderstand the expectations
nderstana the e distributors.
company thinks. The unique value that the customer wantore importa ge orst ectations Or ena
users customers
so turers have to
with continuous interaction, enabling Customer to take
distributors. that they
creating value addition for better acceptability. can
Manufacture
select the rignt ght kind
rtise on the
G a i n

the process
nderstand whar
CRM strategies adopted by manufacturers often
do
cO-Get a t makes
distributors distributor's business
motivate
em to successful in their Manufacturers must
to
required by the channels. Channel membe need to be not
done
inv olvedreflect the perform better. business and what shoud
implementing CRM programmes. In thisdirection, the Par in ne
efons Gain better insight on t
Management (PRM) efforts maybe linked to CRM activities es rship planReaionshin markets
to ding of the LeavinUrers have to gain better
not operate exclusively. This would also synergize all efforts ensure that an tor will be disading. e r y t h i n g ah
create value different from the in marke
to the distributor
propositions rest of one uets have abouteous
t thorough disadvantageous to the company. A
knowledge
n r o e about the
company's
Channel members' role in the Competitive manuracturer
environment will direcion the ny's products in the market, sales
nioyed by distributor's patterms, weightage
keting s t r a t e g i e s
change when they are associated with the dergo asignific and so on.
manufacturers in the Knowledge of these
product line, the distributor's
approach of jointly trying to create value addition at front select and manage the factors significantly helps
operations. Channel members' involvement is essential end of Organizations
CUstomer-centy Involve distribr
right channel partners.
customers and in devising was and means to meet in ident ibutors in
them. Chann ing SODs ot in
planning: Manufacturers
cipation
is that of a partner in achieving Invof distributors planning. Developing plan on should seek active
CUStomers
target and key functions of eadh
which markets and
to
marketing success of the brand members role
of
channel member are some issues
are an ntegral part planning.
that
18.7. RECRUITNG CHANNEL MEMBERS
common nevelop programme :
To be successful in the market,
have to
Manufacturers should coordinate with
core competencies and outsource other
companies focus on strennt members to
dhannel
develop common Strategies to cut
activities. Distribution channel na etrategies,
costs and enhance profits.
a key area that can be communication strategies and inventory strategies can be commonly
outsourced, but channel members have to nng
select developed by both manufacturer and distributor.
3nis Media
as
This is very important for any
company represent the
market. Replacing existing channel members is they a
company tt he Develop distributor assistance programmes Manufacturers have to
in international markets. complex phenomenon, especal develop proper distribution assistance programmes, where suitable communication
strategies are designed in order to attract customers to purchase the company's
so that an ideal
Therefore, firms have treaded cautiously while recruitina
channel member can be selected. An ideal channel member
be one who will serve the
right customer at the products from the distributors.
right time with the right attude,
For selecting channel
members, who suit the Once companies recognize the significance of recruitment and selection of
requirements, a carehu
recruiting and screening procedure is essential. company's
Some of Tips for proper channel members, they should start recruitment by considering some
Channels are as follows Management of guidelines that should be followed for effective recruitment. The first is to assess
the exact role to be played by channel members, 10 other words, the natureof
Tips for Management of Channel Partners thejob they have to perform. Then, the qualifications of the channel member have
For managing distribution b be analysed in terms of the firm's requirements. Subsequently, the authority
channels effectively, the company should devse 0 De delegated to channel members needs to be specified. Finally, changes that
Suitable strategies. Some key distribution management strategies for manufactures
re
 O h a n n e l so f D
Distribution 587
Sales and Distribution
&nancial and
suraegic support during stages
the initial

memberanageme.
played by
ole played
the role
e a t o n s h i e o

pany can extend such support, if

regard to annel members it feels that the ac
ued

s
with

occur
in the
future
will offset the
i p
Costs involved. Otherwise, the company should screen out
n e f i t s WIl o f f s

may
to be specified.
Continuous Process applicants.
as a
18.71.
Recruiting
should be aa continuous
continuote
ria For
18.72. Criteria Selectin Channel Partners
channel
members
maay process
for
Recruiting
obvious one
is that
channel members
chve leave
the two ening is over, the firm will be left with a small list of potential channel

reasons.

The other
The first,
is that the
organization might

Therefore, recruitment
of
feel the need
channel members h
to

c a n be nume
to be a organizhanneatk member
ers for sele
O n c e .
on. From this list, the company has to spot the most
ors who will best fit ts requirements. Some criteria for selecting
channemember
su
table

members.
Factors
influencing these
reasons

need new types

nerous Fori
of channel anc
continu e lp a r t n e r s
sales, product, experience, administrative and risk factors. Le
process. product policy may dhanner
the company's preferences will also inf.
these.
change in tastes and
c e the Cob
aborate
customers'
Aiterations in

change existing
channel
members if they are unable to
cater to compar
the s a l e sF a c t o r s

factor to
to be considered while selecting channel members is tie
conditons.
chanoe primary
factor

to sell the company's products in the market. Apart from sales

The

nel member's knowledge and expertise of the market are also

18.711. Recruiting Manufacturers member's a b i l i t y

channel members. it tors, the

preconditions for selection.
manufacturers only recruit t can be
It is not that number of
growing the
way round
too. In recent times, there is a
their sales.
othe
retailers who choose important

manufacturer for maximizing

P r o d u c tF a c t o r s

the right kind of

huct factors involve the channel member's expertise and knowledge of the
Screening9:
Produc

o lled. The channel partner's ability to handle products effectiveey

be handled
that
for the process of elimination. In the chs ducts to teh e required after- sales services to customers are primary factors
Screening is done membe
anddeliver
involves elimination of applicants who of a channel member.
recruitment process, screening selection

set criteria. There are

certain guidelines for screening channel Ot match termine
Ceten

on the market segments the channel marS, he

channel members have Experience F a c t o r s
foremost is to screen based Assessing the
the channel members capability to
to serve. The second is to assess
ability
serve important to have a look at the distributor's experience.
ic a
the past and their satisfaction levels will provide
with the products stage in the product hife the
Te

market and compatibility of service

the different stages of the ntYCle,
FCUStomers handled in
selection of channel
members.
As distribution requirements change during Yd insight and help
cycle, it is essential to select channel members who best suit these requirem g0o0
Administrative F a c t o r s :
is launched, It neere h
For instance, if a new type of air purifying equipment member is
specialized distributors during the initial stage of the product life cycle. Thevch factors such as the amount of work the channel
Administrative that have to be
be able to explain technical intricacies to customers clearly. Once the prour distributors pricing patterns are some factors
reaches the maturity stage, specialized distributors are not needed for demonstratio handling and the
for evaluating channel members.
rating
technical details to customers, as they are well aware of the product and its usage considered at this stage
Usually, manufacturers tend to select distributors who are successful in the market Risk Factors
the potential channel member's past
But, successful distributors carry a large number of products and may not have Risk factors include evaluation of progress,
space for more products. However, this does not mean manufacturers should settle to the organization's
performance, the channel member's commitment
for sub-standard or ineffective channel members. Instead, they should select costs incurred in selecting a
member and subsequent dealings with all stakeholders
appropriate channel members who can allocate sufficient time for effective distribution of the company.
and improve sales. This is especially important in the present environment where
Customers are keen on convenience and service while making purchase decisions Channel Members:
Finally, the last criterion for screening channel members is support. If channel 18.73. Motivating
between manufacturers and end
As channel members act as intermediaries
 (eting
aanels of Distribution
C h a n m e l ko r .

589
Sales and Distribution The distributor's abil ability to manage sales, finances and
588
to ensure that channel
tion Managenmer tributor's ability to meet
inve operly.
consumers,
companies
have

in their best. To
develop motivatior embers are motiNat
ational measure
The distrit

management sales targets fixed by

by the companys
enough to put different needs of ch channel member: itandt
is Imr
firms to first
they face from
understand the

time to time. For instance,

media for effectively
ntel decided
Inte
aching out to
to
its
ootart 'a
let channene prddltem The
distributor's shar

distributor's
tor's
willingness
of the market in the
to carry all
assign
gned area.

blemCustomers.
rs.Dispteibrtbutery cormpany aand
choose the advertising problem products of the
Channel membe
determine the needs and customers' needs
councils help firms f all
advisory
s e r v e

Distributor Advisory Councils: distributor's annual inventory turnover

The

As said, distributor advisory

cOuncils are necessary to dats. dstributor's warehousing facility and efficienoy.
and problems of
channel members. They help in information termine the
exchanao ancial condition or the distributor relating to criteria such as fixea
channel members and
manufacturers SO that both parties
can ge e needs assets, payment records and so on
responsibilities of one another. The role of the distrih unders
ddvisor and te
duties and distributors ablity to grow in the allocated market.
members to contribute significantly to th
The distributoj

is to encourage channel
and improve channel performance. Thus,
these councils aive ehlannina
sense of belonging, which motivates them to put in their bes
COUnKd
annel membprocess manufacturers evaluate performane to assess capabilities in carrying
Usua ro
time to time. For instance, IBM evaluated the performance or
Personal contact with channel members also provides sufficient itforma u c t s

its distributo utors and retained only a few to carry its new PS/2 range o
manufacturers about their needs and problems. Some other nformate several o f i t s

be used for motivating channel

members arestrategie ation t
ationship that
Dersonal c o m p u t e r s .

marketino
manufacturer will try to forge stronger relationships with distribuito MODIFYING CHANNEL ARRANGEMENTS
their performance. The company should offer appropriate benefits an ehance 18.8.

to distributors to help them improve the upply chain, reduce the canital entivee nies tend to relax once channels members
Companies are in place. But this is
lower the operating costs, lower the risks involved, enhance custompoyed and to be constantly evaluated. Further, the
channel members have
schemes and engage in sales promotions. customer finance not 5ation should keep an open mind on modifying existing channel arrangements
orga allN,This is necessary because of constant changes in customer preferences,
18.74. Evaluating Channel Members: perioua cOmpetition, expanding markets and other environmental factors influencing
emer erformance. Channelmodifications can be made tllfough product life cycle
Once channel members are selected, they have to be
and based on their performance, the company
constantly el
mo. customer-driven refinement of existing channels and growth of multi-
retain them or fore ae
can channel marketing systems.
with new channel members. Channel members can be evaluated using nares
like sales quota attainment, average inventory levels, proper managem PLC Changes
inventory, channel members cooperation in promotional and training programme It is important for companies to understand that distribution requirements for
etc. It is essential for the company to counsel channel members whose
is deteriorating, provide them additional training and motivate them
performanra a product keep changing according to its stages in the product life cycle (PLC)
before decidinn life cycle. If
to discard them. Terminating the relationship should be a last resort if No single distribution model will work for any product during its entire
it needs a highly
all thee the product is in the initial stage, and is a technical product,
measures fail. Simultaneously, the firm should also identify channel customers have to be told about the technical
members who specialized distribution channel, as
are putting in profitable performance and reward them the distribution
suitably. Some parameters aspects of the product. During the maturity stage of the PLC,
for checking cllannel member's performance are as follows channel need not be so specialized as the product omes standard and customers

Evaluating Distributors A needs different kind of distribution channels at different

get used to it. product
Distributors stages of the PLC. For instance, if we consider toothpaste in the introductory stage,
can be evaluated on the following parameters is successful
personal selling might be appropriate. When the product reasonably
The distributor's and is in the growth Stage of the PLC, it can be sold through conventional retail
experience in providing quality customer service
The distributor's capability to cover adequate markets and to search tor
new customers.
 es and Distributie h a n n e l s o f Distribution
590
reaches maturity and is mo
ion Managet 591
outlets. Once
the product distribuãon channels to toward.
desine,
new
thinkk of adding act nev us onfict
company may
of Existing Channels cnment e embers
hannel membe
are woking in a way tat al
Refinement vill ieopardize e
.
Customer-
Driven hannel
other cha
members, Conflict is y
bound
el conflict e
atecive/perceptual stage andarise. There aree
is an essential element for a firm's
to
Channel modification
are not
modified from
time to time, they stagnate and wil SuCcess.
lookout for better chot meehan
of dhannerceived that confiid
sages
t,
eists. In
. A channel members behaviour,thevhich
the manifest
aken sbased
second, ation is takKA
expectations. As a result, customers WIll
e first,
which cannot mnnels, u
inment
the required
value. Eventually, companies, anthis
percnel memDers, ¥l ead to manífest confic.hampers goal atain
chani
It is therefore vital that comna Other
channels, will fail in the market.
customer requirements
and demands.
meet their Usually ipanies identify chan Powwer:
becauseof stiff resIstance from existina cdificult member's
capability to change he behavior of another channe
existing channels A
channel
termed channel power. There will
Marketing Systems be no question of power exisung
Growth of Multi-Channel
Multi-channel marketing system is the process by which r
eber
channel members
embers completey
complet
agree on all issues. A dhannel member becoE
powertulifi t ossesses resourdes that are valuable to other
channel mermbe
one distribution
channel to reach more customer seam
one or uSe more five common t y p e or power relationships:
on one distribution channel f Trad
companies used to rely onily
market. Of late, due to increased segmentaüon, companies are aditiorah
selling goods rcive power : CoerCive
power eists when one channel member (A) has
Coy to punish the oher (8), if (B) is not willing to accept what (A) says.
than one channel for distributng goods effectively. The practice.ying On e ap member can extend coercive power on another by decreasing profit
than marketing channel is also called dual distribution, Fim adoptina
one
add mre Adha by withdrawing exclusive nghts given earlier. For instance, manufacturers
leverage the benefits of increased market coverage. If existing chansnannes
annels canng
reach potential new segments, the firm has to employ a new distribut
argce profit margins for certain retail
may r e d u c e p r o f i t
of service.
outdets if they are not maintaining the
standard
that can reach the new segment. Multü-channels are developed toon chang pedfied
customer segments using different strategies. For instance, reka Forbes,differe Exoert power :A Channel member can acquire power if it possesses
whi edde relevant to other channel members. Expert power is held by a channel
is into water and air purification systems,may use personal selling
and institutions to sell its products, as they buy products in large numbers
for noer when it has special knowledge required for proper functioning of the
. It may
resort to telemarketing for selling products to individual customers. nne. For instance, manufacturers and wholesalers provide retailers with training
ra ales and promotional activities. Expert power, however, cannot be retained ror
is passed on to other channel members
18.9. MANAGING CHANNEL RELATIONSHIPS long periods, as tne required experkse to retain expert power by methods like
Once channels are established, they have to function smoothly aradually. Channel members, therefore, try
share of expertise and continuously updating themselves on the
latest
witho imiting the
hiccups. Managing channel relationships, therefore, becomes an organizatiord so that they can pass this on to other channel
members.
primary function. Good channel relationships can be maintained with the help information
member exerts
mutual understanding between producers and intermediaries. We will now disos Legitimate power: This power exists when one channel channel
on legal authority. A contract between two
some factors influencing a firm's channel relationship. power on the other, based 'A asks hannel
members can be a source of legitimate power. If channel member
Cooperation and Coordination member 'B' to perform according to the contract, then it is legitimate power
wielded
retailers.
Maintaining proper relationships with channel members by actively seeking Manufacturers and wholesalers possess legitimate power over
by 'A.
their cooperation and coordination will be advantageous to the company and hep member's assodation
Referent power : This is power based on a channel
it utilize its resources optimally. Here, cooperation can be defined as a channs or identification with other channel member. Referent power a n
be found in
members willingness to work with another channel member by developing simiar where manufacturers feel proud, if their products
are carried
policies, strategies and procedures. For cooperation to exist, it is first important tor marketing channels manufacturer of apparels may take
channel members to coordinate with each other. Coordination can be caiied o well known outlets. For instance, a small
leading retail outdets like Shoppers Stop
ide if his or clothes line is displayed incan
combined efforts of channel members to achieve the channel exercise referent power over other
objecuve restyle. Thus, the manufacturer
channels.
 Sales and
Distributio n Managemer
Reward power:
Reward power
is exercised h, a channe
them.
Manufar"Chann.
Manufacturers Manage.
others
when it
has the ability
to reward
members who are
are performing better
pennal
Wield T
hese merrber
rewa tisS Canpone be
rewarding
terms

channel
of higher
margins, allowances, discounts,s, dt.ok.
different
allowancecrewa
promotional
bases exercised hu
the variouS power by channel
These are in combinannel
achieve their objectives.
In they
practice, combination
are used
for ember
bette s
18.91.
Distributor Margins Based on Unit Ratee
FMCG
e/MRP resu
distributors of producte
of about 25
A survey
distributors get their margins
in some percentage that is revealed that
dirert.evealed.
directly propo
These distributors deal in multiple brande'
price of the product. margins were calculated
some
the same produn
The
category. The only
difference was,
direrel The distribution mark on
On
whereas some were
markdown. The distribution were not even
aware as to e markup
particular percentage was
offered to them, and why not higher
or l st
ner or
they had their own calculations about their estimated gross m lower.
a
margins, there was no0 systematiC
evaluation of the fund fons an
N in the entre
nargins Alanthou
distribution process. Given a particular gross margin, the estimate
differed from distributor to distributor, and there was little to
to justify th et
justify thei margins
overspending
operating estexpenses
imates
As a resut, some distributors were on their
whereas, some others were underspending even to the extent of
quality of service and thus resulting in loss of sales. affectin
Let discuss the examples given in Exhibit. The
us exhibit clearly diemnn
that when the gross margin is calculated as a percentage of
price,
monstales
in the price of the product directlý affects the distributoY's any chang
margin in
terms, and alters the gross earnings of the distributor even if absoluteerupe r
margin and business volume remain the same. the percentas
Exhibit: Variation in Gross Margin in Proportion to Change in Price
Situation Unit price
(Rs.) Distributor'sDistributor's
Margin
Business Distributors
or MRP Margin Volume Gross Margin
(%) (Rs.) (Units) (RS
A 90 10 9.00 4,500,000
B 500,000
100 10
C
10.00 500,000 5,000,00
110 10 11.00 500,000 5,500,000
he
TOOWing aspects apply to the situation
shown in ExhiDIt
kewde

Chapter
20
n i a t s
pnnel
com

p e n oim
tyao
ncfe
coof 1ict influences
nC E
thanSDo,frduAf
ntensity of channel membersnannel nembers' performan
del, i.e., causes
confiict mnodel,
of will exert 625 eD-
uSsed in detail in Conflict. Thinfluencee.
subsequent sectionns. turn,in the
actual

Channel Conflicts ent On the

1. IRCES OF CONFLICT: aspects of first aspect of the
the Conflict model
201.

many reasone
There are many reasons why
m is the first ste
about

design. Conflicts arise in

difelictSi

faully
from attit Tne diiferent sources o
attitudinal differences and distribution channels.
stribution
nctscadly chan Learnin9
Ose
arising
members. Strii es and tOnflicts primarily arise becar
onicts can be broadly divided
because Or
n a channe into
mpatibility among channel
nel ses arise maom structural differences
members,
ater Control Dy Cnannel memh. diveraene

technological support), f eespecially eTton

t o w a r d e a l

arise c i a l fr
nancial,

20.0. INTRODUCTION system:

Tor Scarce
channel
resources
differencmanufactirennel resources
Communications. Uneynm
Communicatione

annel
Several studies have tried
channei

umemers and markets, nexpected changes in perception,

differences in econom
in
anges in the channel roles and
distribution to
explain the bers,
channe members, etC. also lead economic and competitive environment
channels. The strategies
to
conflicts. ideological objectives
dynamic process. In this concept can be bettersource and causes among
ket channel:
ca markaf adopted by channel In addition to external change
approach,
beginning with incompatibility, conflict in the understood if it Confict Source channel cones, Ome common members are also an
importan
become a cOUrce
source of
Of conTiict
and finally transforming distribution cha Vewed Derween the marketingchannel strategies
reaching the outcome into affective
conflict follows: manufacturer intermediaries
and
that
stage. The
and disturbance outcome of any confirt Seen
among channel members are as
M a r k e t Channel
distribution channel. in the Con rategies as a
Source of Channel Conflicts:
The effective finctustratgn
relative perception of the intensity and frequency of conflict Rvpassing strategy: Manufacturers
conflict situation
pitfalls associated with channel among channel varies dencnd 0t
nediaries appointed by them to may sometimes
bypass existing
the causes and conflicts, channel members. Tn be force or a factory outlet. Thissellhelps directly to customers through the company
impact of conflict and take members must larger customer base. But, t leads to manufacturer save costs and cater
activities. They should necessary measures toclearly unde to
great dissatisfaction among channel
develop conflict management monitornderchanistnaend
intermediaries.
channel members to
manage
through collective effort. The conflicts effectively and be techniques. This wil e Large number of resellers:
Companies may sometimes permit a large
model for better conflict process can be able to fulfill individualenabe ok number off intermediaries at various levels of the
understanding. See Figure 5.1 for viewed in the form of asimd oroducts. This can lead to over-saturation, where channel to sell the
no dealer
company's
The model is based the channel
conflict mode by selling the company's products. This leads to conflicts. gets sufficient profit
on three
level of conflict and the important
outcome of conflict. Causespremises the causes of confit Channel structure : If a manufacturer has a
very long channel structure
issues in conflict.. The causes of must not be involving many levels, the chances of conflicts are higher. This is because
members. Issues in conflicts conflicts may not be realizedconfused wih greater the number of intermediaries, the
the
will be the
includes aspects of a situation by channel greater goal incompatibility
have observed or that channel membes among them.
stated clearly to other
from the covert channel members. The causes
stage
channel members can (conflict causes) to the overt stage (conflict issues).
progres Equal importance to all channels : Manufacturers may give equal
measure the levels off Hee importance to all channels of distribution in terms of resources and time. But, this
requency of conflicts and the relative conflict from the intensity ä may lead to conflicts when one channel member may view another as inferior and
differences in perceiving situaions. i
 Sales and Distributio
627
626 of resour
the
same amount
of conflict.
and support trom ronpatble he.
a channel nernber has a are
of sharing t goes and o j e c t i v e s that
A
not worthy
This will
act as a
source arises w

hd enbers, T and obev

may
n a
with
manufacturer.

olehannel in
Conflict Management
afiict
member acting
nel member acun9 a
way that is detrimertal to goal achieE
be cna member. This may ocur without t e are
former being
Techniques t o

n o t h e r
on the latter. v
s impact er within
y
organization.
differ an
The goals dedided by top
als maaperational goals that are set as a manag 2
Level of result of day-to-day opera
conflict fro it is necessary o erisure that operational goals are aligned
Causes of
confict Outcorns
ot conwA
.
vary
polces. H t h e organizatúon.
of
the

measuring goals is ancother reason for goal incompatibility, leading

goaIs

Competing roles Vertical conflicts in

Clashes over Horizontal conflicts ther
oifficunfiicts. It becomes irnpossible for channel members to compare u e
Multi-channel conflicts of other
a n n e l c o n

performance
domains
sen e n t of
customer serice levels. Such lack of awarene
pa bileyhers.
embers. For example,
exampie, austomer
Differing perceptions
compa
of realityy dhannel

ference in goals also comes up due to inherent conditions in the

Fig. 20.1:Channel Conflict Model The a channel member will have certain constraints (resources, expenses,
a
evel in the distribution channel. As the constraints are limited
s o u r c e s of conflicts in disteit..
will discuss some prevalent
Now we
incompatibility, differing perceptions of Dution
and reality cha. )atevels in the channel, members at each level will develop individual goals
They are goal dashes over ularthese
arti constraints. These goals will be different from the goals of oner
con these

domain. by
haped
hannel m e m b e r s .

as
conflict is widely prevalent in principal-agent relationships. It is known
Goaationship, where the principal is dependent on and directs the agent to
gencyhannel functions on its behalif. Conflict arises in this relationship in the
when

Differing Perceptions of peroats against the principar's interests. Again, the reason is difference goals
Goal Incompatiblity Clashes Over Domain gent acetives of the agent from that of the prinipal. Goal conflicts in an agenoy
Reality
(Domain means producd
Goals of Mfger may not Whenever channel
range. and ooenip can be reduced by designing contradts that are mutualy beneficial
for
be understood or agreed memberS wrongly perceivee territories topopulaton
be
and
and structure
must consider the functions and
upon among channel the role of another .
Clashes dueserved)
to
ne conract
oth tile principal ana agent. within the channel and tile compensation on achieving
memberss horizontal channel of prOducts, large
mayno. Dnership arrangements
Goals within the member regarding channel channel leveis Tor channel inmembers part of the agency relationship.
members ceuired performance
agency relationship is to ensure that
organization of Mfger functions, flows (Example
catering to only one or a
Thus, the solution to reucing conflicts an
across top management, ldea's Bhandarkar Rd.in particular consumer with the prindipal's goals.
middle management and
Junior management differ
Channel, perception
mind of other channel
segment and expansion
of
the agent's goals align
existng terntories Differing Perceptions of Reality:
member
adDointina new channelsby distribution channels. It is
This is another prominent source of conflicts in
to anticipate future events and
Fig. 20.11:Sources.of Channel Conflict perception of reality that guides channel members members to develop alternativee
their consequences. This, in turn, induces channel
Goal Incompatibility: COurses of action and estimate the probable results. The perception of reality also
Conflicts may arise
channel
due to differences or incompatibility of goals
among has an influence on the goals and values of channel members. However, perceptionsS
be:
members. Differences in policies and of a channel member may of reality can vary. Some different perceptions of channel members may
be procedures
problematic and impede the progress of sther channel members. Channel
 Sales and Distri 629

628
channel
member wrongly perCei.
es the ro
ton Managem
When one
member regarding
marketing channel functione rolehe o an nperations to adapt to changing local conditions.
of
o p
loss

channel vomers, thOugh not in the

m o d e

Henceromes
CUsaf conflct. For example,franchisee's
tory, become
Ros, to ootential
or assigned erican
territor
food retailer,
arise.
flow among
del

otentia so Taco Bell, the American Ame

communication

channel many of its PupN Taco and

rancisinroe drive-up unlits that were franchise

man
Lack of proper
way reality
is perceived by
them.
members
oers iets take
over
company-Owned Taco Bell outlets
when eral franchise
severa
competition from company-owned outlets. Conflicts are
h e m

influences the decision-making

to
c o v e nthe

ontent about
Information
of channel members.
cess, whic afets epresseddis format franchising because the franchisee has the flexibiy
oroducts and is
behaviour
proun. The
odiyoperations, franchisor only gives the rights to market pro
ent approaches
owei
r n

channel members
have divergent annre
the mode of business
Thus, when and goals icts arise
set, conflic concerned
with

operations.
decisions made
information,
Clashes Over Domains:
among d
nter rety
mebks ot ance of channel functions: In
oerfoain functions based on
a
interdependence and common expe
channel, members are pected

reciprocate

Conflicts in marketing
from the domaf
channels stern eformhannel members may feel that they are being asked to re
gometimes, channel

extent to which
other channel
elements. They are
The dom. of
members accept it. The
product range,
domain defchannel
init on ant functions incompatible with their organizational goals. This happen
erformumembers prefer to undertake only channel functions that help tne
consists of three
Oenbers als. As these goals are not common to all channel memben
henc h a n n e

or duties to be performed. Differe

inanddomalr
teritthe vidual goals.
functions ces
served, and
automaticaly lead to
conflicts among channel members. functional
attaln
nflicts arise. For instance, manufacturers have a strategic outiooK
conflic

spects.
keting their products, while retailers concentrate on operational
Product range: Handling a
large number
of products lear
ads to redut
w a r d sm a r

let us consider
the product refund policy. To avoid inconvenience or
channel members. Distributors cannot show the ample,
train their personnel to identify whether a product
loyalty among
all This variation in
manufacturers. ame level of lopah orexa retailers may not
refund customers.. Owing to this lacuna,
towards the products of loyalty will eraui genuinely fauity, and then
conflict of interest between
manufacturers and distributors. retailers nave
returnerers will face losses when many products are returned and causes
Population and territory coverage: When there are
manufac

Thus, a difference in roles among channel members

ensated.
to b e compensate

members catering to a particular

consumer
segment, Conflict onany chann
to arise. Channel members er custome
Contict.

accounts and territory coverage is bound the channel structure

than the above-mentioned sources of conflicts,
Other
certainaccounts and other channel members may compete for cy the Sei to conflicts among channel members.
tself can lead
Unless clearly defined in the terms of the contract, channel
members do not
to share accounts with other channel members who have recenthe: preter
by ccounts
ucture as a Source of Conflict:
Channel
A properly
channel. Hence, it is necessary for manufacturers or suppliers to speci te the channel structure can be a source of conflict.
The design of
for channel members. territories
decianed channel
structure helps improve coordination and control among channel
channel systems through inter-organizational
Thesame is true in franchising. Market territory expansion is a maine. mambers. By developing cooperative
source conflicts can be reduced considerably. Over the years,
of conflicts in franchising. The franchiser's decision to increase market pene relationships, channel channel performance, improve
with the help of new franchisees may reduce the sales of existing diferent channel structures have evolved to increase
franchisees
This better control over channel activities. Increasing
channel
may occur despite the franchiser protecting the territories of existing franchis stability and provide and yet
channel members seeking better ways cooperate
This is because a franchisee attracts customers from beyond the assigned tertri conflicts have led to associated with the traditional loosely-
too. When a new franchisee enters the region, customers beyond the maintain their independent status, which was the best
actu Vertical channel systems have proved
territory may shift to the new franchisee due to proximity of location. Hence, even integrated channel arrangements. coordination and in maintaining the
of cooperation and
though the franchiser does not infringe the contract, franchisees become dissatisie. arrangement in termschannel members. It includes corporate-owned;
administered
status of Independent
Franchise conflicts regarding customer and territory coverage are greater in and contractual vertical channel systems.
business-format franchising than in product-format franchising. This is because in within the channel structure. It may
the former, the franchisee does not have the Conflicts may arise from different sources from
flexibility to modify the bushes retailers. Conflicts could arise
be related to wholesalers, manufacturers or
 and es
630
schedules, huge
delivery in ution Distribu a n e lConthkts

different channel functions

products,
hard-selling by
like
sales personnel of channelntories d
Situations, absence to umer pr
rs, reauent
Managem.germar entified
and
nflicts
with
dealt wit
is the immediately.
method One major
631

pingtandard
increase, order errors,
out-of-stock ideni
by which agents issue
of develstanda
have concluded that the probability b e

should be eva
etc. Studies
structures. Vertical conflict credit
rtical channe
contr
r orincipal and
agent while deeier instance, differences may
across diterent channel polie
2ct

sources varies
situations, where due ner
betwee a
have conflicts mostly from out-of-stock ulti-chuc to hthe eennnel
rSon ouner or
ractating agencies E ompensation programmes
conflicts from untimely price chanc er, had to adandon its Porsche, the L
may have frequent
nges. annel structur car manufac
fac nts in the Us, plans of
nearh converting
of co its es into
cONFLICTS:
sSion ag9
for ddamages
ovwnen neary 80 per cent of the
a m a g e s over
e n
this move.
franchise IG
ees sued
20.2. TYPES OF
ro
corompany fran
Channel conflicts can be divided into different
types der the
t both stages or the
channel
levels of the channel. They are pre-contractual and DoPending mus relationship, it is necessary to
conflicts to ensure proper channel ntify
ual ming ar necessary coordination. Channe
m a n a g

multi-channel conflicts. We will

vertical, horizontal and briefly discuss e all
precauuons to
to prevent them. identify possible sources of conflicts
conficts
and

in the following
section. ss ea
each aspec ustmechanisms a
channel Level Con
Conflicts
Conflicts can take place at different levels of the channel system. For
rer and
retailer,
nufacture wholesaler and instanc
level and so On. Channel retailers,
Vertical between two wholesae
Pre-
Post-contractual
Horizontal
De etailers at the same level conflicts divided
contractual
After contract When Mfger Clashes due Multi-Channel reta can be
rizontal and muit-ieve channel conflicts. Vertical and horizontal types into o
at the time
or to product- are commonly calle intra-channel conflicts.
At the time
Whenever
vertical,

of signing way
evaluation
or
of
additional
dealers or range and morera cha
contract
retailers
commission Partners "nnel ertical c h a n n e l c o n f l i c t s :
as he pertomance offered to approac
and
making Customer, rical channel conflicts ocur between channel members operating at different
conflict arisethe
dealer another ame
payment for Verti
same level
compensation channel the time within the same channel structure. For example, conflict between manufacturer
making payment leves hitors, when the manufacturer tries
to enforce
pricing and service
of vertical channel conflict.policiesS
dist
and
Fig. 20.2: Types of Conflicts
on u
distributor or epands distribution, is a type When
rauss decided to allow Sears and J.c Penney to sell its branded jeans, t
Pre-contractual and Post-contractual Conflicts: Leo conflict with the 12,O00 small retailers who were earlier exclusive sellers or
led t
the b r a n d .
Channel conflicts may arise at two different points of time in
the ch Horizontal channel conflicts:
relationship. It could be before a relationship develops or after it cOmo
between channel members. These conflicts arise whenever channel
into new relationships. It is frequently seen in agency members enk
enter
Horizontal type of channel conficts arises between channel members operating
relationships. at the same level within the channel structure. For example, a conflict between
Pre-contractual problems crop up when the two franchisees over clash or domains comes under this type of conflict.
contract to an agent. The major issues here are whether a principal decides
to offer a
particular agent has Multi-channel conflicts:
the characteristics the principal wantS and what
strategy the principal should
to find this out. For
example, these problems occur during recruitment employof new
Multi-channel conflict come to pass when the manufacturer has
two or more channels catering to the same market. For example, conficts arise
established
salespeople marketing personnel, selection of dealers for their distribution channels
or
and choosing advertising between the manufacturer and wholesalers, when the manufadturer
tries to bypass
agencies.
Post-contractual conflicts happen once the
wholesalers by resorting to newer channels like the Internet or direct mail. IBM
begins. The causes are generally unforeseen relationship between channel members
events or contingencies, which must
avoided potential conflicts in its multi-channel distribution system by deciding to
restrict the number of dealers selling its microcomputers to 2,500. It wanted to
avoid excess number of distributors. 1BM also decided to sell all but three of its
 Sales and Distri 633
Conticts
632 beneficial to dealere
as they did
bution Managemes a1Sprogrammes such as
company-owned
stores.
Ihis was
outlets.
co-optation. The second of conflict
resolution
from company echanismSi s ,
dutudinal reegory
Esponses channel leaders
have
face
competition
ved as dysfunction in aa distribution ch
distribution channel. These
generally
perceivec
al, a compl conflicts
responses of
hougn
Though
conflicts are
members is not recommended. xe dirlina cointo channetgjes.
problem-solving, persuasion, bargaining and politica
tical strategie
ofconflict
among
channenlacent
channel
become
in developing
inoffectively.
complacent
symbinkhis is because
tic
relation
effectively. Inne
tha
Strategies implemented under
discussed in
the
Innovauon mayships ith ot
members may
U
categories are
will not compete
members and
Som
mechanismalso cha
conflict acts as a constructive
w i n gs e c t i o n s
channel of
certain level olown
Hence, a of functional and
dysfunctionat
relationships.
channels are

The aspects
as follows:
conflicts in in arte
Conflicts
Dysfunctional
FunctionalVs Behavioural and attitudinal
Dysfunctional conflicts: Also called destructive co
stematic Mechanism
ed o
on
responses mechanisms
n the
or
based
prompt channel members to
these situations
pathodorjea
policies
that
that
channel
char
is
conficts because
oroach leadsaveto mwasS tha
hich
eaders mpiement o
channel members. This approach
go against
the actions of other nrough
resolve contlict t h r o
behaviour directed at thwarting or destroying the are loss other.
T
growth of
channelopporturisi
more
and
of dysfunctional conf of
Other negative impacts
from emotionsi disturbance amon distribution embers interaction
more
communication and also Political
and confidence stemming
Functional conflicts: These are also called constructive efideng
emberas
througnexchange
between two
of Problem
solving
Persuasive
mechanism
Cooperation Negotiation strategies
levels of confict motivate channel members to adapt grow and seize he conflicts. Moder person
or more

channels,
distributor-councils
Conflicts inspire channel members to be on the vigil constantly and opportir
to improve existing
channel functions and relationships, conflicts arch for vage Fig. 20.3:Conflict Management Techniques
members more innovative, which improves the competitive a make channe
distribution system. Negotiation (Bargaining)
method of
20.3. CONFLICT MANAGEMENT TECHNIQUES: Negotiation or bargaining is used by channel members as a discounts,
nlving conflicts. Negotiations usualy take place over price, cash credit,
mix. In negotiations,
The types of intra-channel conflicts prevailing in a distribution channal
delivery, inventory levels and other elements in the marketing mechanisms do not
characteristics of their sources have important implications for channel nnal differences are considered as fixed and conflict resolution of
Intra-channel conflicts that arise due to structural differences
require f
members mean that common goals have to be developed. The outcome negotiations vary
conflict management techniques. Conflicis between two channel membersdifere depending on the number of channel members and the extent of balance of power
either one channel
framework), can be solved by members modifying/chandins
organizational goals or by conceding some amount of autonomy/resources1
among them.
where
other channel member. Conflict resolution processes can be done During negotiations, channel members indulge in low risk behaviour,
through mubel social and
agreement or the use of channel power. information exchange is kept to the minimal to lessen the financial,
sometimes
physical costs incurred. Channel members, during the bargaining process, commitments
Conflict resolution mechanisms can be divided into two categories. In the first behave rigidly and stick to their stand. Threats, promises and conditional
ocCur under
(systematic mechanism), the conflict resolution mechanism is based on the
policies are commonly seen during negotiations. Negotiations generally
that channel leaders between a retailer and
implement to resolve channel conflicts in a streamlined maner asymmetrical power conditions. For example, negotiations
where the retailer has
These conflict resolution mechanisms are aimed at
increasing interaction and manufacturers of private store labels take place in conditions
occur between franchisers
Communication among various channel members. Some
systematic mechanisns a strong bargaining power. Asymmetric negotiations also
include joint memberships in trade organizations, exchange and franchisees.
of personnel betwetn
tWO or more
channels, distributor councils, arbitration and mediation boards ard
 je Pune e
Phule.
Sales and Distribution
634 t on Managene
in marketing
process is very
channels,
channel memb
limportant for
The negotiation because its effici
ficiency hasa
channel
ch-

direct
me
impact omberthes, esse
o j e c t i v e s:

e m a i v es o
nappens ns and both partles
try to sort out
tions. Cooperaton and coordination
1343 seek LIBRARY
differeces Dhange
costs among te in is also
present beD
negotiations. channel members are ready oncedeodity
members,u n i

purchasing
differences commonly seen uring negotiations tions to reach a to cond
Some
und asymme
mutualy acceptable solution.
power conditions are: i c a l S t r a t e g i e s

bargaining, channel members

Initial bids: During initial bids. Similarte
with greater other form of confict resolution, similar to
their partners
make more demanding eak bargainers send hise disagreed over each other's bargaining. AS
or
conditions.
olved. objectives,
This party
to
to aa third par
they agree
demanding bids acts as an
ally to the channel This
hannel members with greater power membersconflicts
orted to only when all other interpersonal methods of solving
Extent offlexibility: onditions
bargaining condition based conflict resolution
initial Compared to
channel d
Political-bas
h a v ef a i l e d . P o l i

itrators to solve conflicts.strategies involve

much from their not mediators a n d arbit
the use of diplomacy,
have less power.
Time of egotiation: When negotiati take place
in asymmnety
emoers v A
omacyIt is anto approach where each SIde
side sends a person o group
o group
nore powerful channel members are able to obtain meet i t s its
counterparts resolve the co
conditions,
less powertTul channel members. an acceptde
aqreement faster than to
ediation: lt i5 a process where a third party tries to settle conficts
Media

Communication content: Channel members with areate hannel members, either by urging them to continue negot
otiations till a
ter power freo reached, or takes into consideration recommendations made by ne
of commanding language and actions
betwe

make use during negotiations eng, solution is

channel members.
dther
mediator.

Negotiation outcome : In asymmetr power conditions, hitration: In arbitration, the two parties agree to present-their agreemenis
Arbit

with more power achieye agreements

that give them a
larger share nannel mem one or
more itrators, referees or a private and accept the verdict
judge
ofthe channel group. In this process, the overall profitability of total proh ered. Usually, channel members have a cause in their contracts stipulating the
ty of delivered.

the rbitration
of arbit In case of conficts between them. There are many arbitration
decreases.
channg resall over the worid, where organizations can take their disputes. The
Persuasive Mechanism: Persuasive confilict resolution mechan
nism is anothe Arbitration Assoclation is one of the oldest such centres in the world.
American
method used by channel leaders Ito resolve nflicts. The
both parties (channel members) towards a common set of goais, Int is to objective Co-optation

each channel member tries to influence and change the view of
member with regard to the conflicting issues. The basic approach used in
confict resolution mechanism is to highlight the importance of mutuallv hen
Common goals over individual goals and also reduce differences present in inl
goals of each channel member. However, in this method, channel members dividua
in high risk behaviour by sharing important information to arrive at a involve
This is in contrast to the low-risk behaviour observed during
comman cns0al.
Co-optation is an information-intensive mechanism, which involves free exchange
channel kinformation between aggrieved parties. Co-optation is a mechanism where a new
member from outside the organization is selected and is involved in the decisions
andpolicies of top management. A channel member makes an effort to win the
SUDDort of other channel members by including them in its advisory coundilor board
of directors.

negotiations. This rs Co-optation permits the concept of sharing responsibility so that channel
of conflict resolution mechanism is often seen between franchisers and
For instance, franchisers may have to persuade franchisees to maintain franchises members from different levels can become prominent in the entire channel system
quality levels consistently across franchises to project a uniform
produt and are committed to the programmes and policies of one another. In this method,
to
image. one channel member may have to make concessions on its policies and plans
Problem-Solving Strategies win the support of the newly elected member from other channel organizations.
This method is also used as a conflit resolution Co-optation can be used to reduce conflicts as long as the channel member treats
in
mechanism to settle confic the new individual member(s) seriously and listens to them. This mechanism is risky
distribution channels. Here, both parties share common
the criteria used for objectives but difer on due to the physical, economic and financial costs involved. Coordination and
decision-making. Open transfer of information about goals and COoperation are pre-conditions.
 637
Sales and
cha. Distribution 04.CHANNA
NNEL LEADERSHIP
636 between two or more ch
nels is als0 Manage
USedtaemer
of personnel participa
Exchange enables
.channel management can be achieved if
diast
This
ersuSed fecuors who take a broad inter-organizational channel member
mechanism.
view. Another
confict
resolution
other's points of frequ
betweeuentlyh
perspective or developing
of distributic
understand each and
trade orgaUsed eand Oroblems. These leaders
pporunitie
enectvel e a
in
and of joint
membership
are associated method confitmphasize neer for
must emphasize the need
otizadons.
her's taaF
with each relationships. Frequent
encouragement perceptions,
and retallers
the
each other's limitaie
/
neloctives
channel
e
manufacturers
h l r ochannel leaders.
example, if aware of forces channel members to take the
the help of le
become and objeci
take the
associations,
from approach

they
to
business.
channel members can reduce
Joems, goals
a n d
ership can be
C h a n n e ll e a d e
rol mix. Channel
mx.

eftective
eonly M
only when the leader judiciously plans
Channel leaders can use positive reinforcerm
Pi
as well as
to these
strategies,
hanne control to ensure that channel members
formulated
In addition actices
adopting some pract during outine he reque r einforcement
i comply with
of confiict by negative
and intensity
Some routine
practices by
channel members to avoid or
minimiZechanne
channelhuncions policies,
are:
qOnf Leadership Power in Resolving Conflicts
Role o f L e a d e r s h
g e and resolve
Channel members must striva ralst strive to leaders can use their leadership power to manage
nnel lead
Personal relationships: of
relationships to
reduce the intensity
or fiare-ups and discuss
variousdevelop
confictperson
offectively, leading ofto improvement in coordination and functioning
confiicts e f f e
channels.
The effectiveness channel leaders depends on the extent of pOW
The effectiv
rationally.
cnannel member
issues and the acceptance and attitude of the rest of the channel members
a
Whenever errs, it
must seek to reduce functional confict and levels of dysfunctionai
to theclarification:
.
Error notice of the other channel parther, so that new problems due th leaders
brough
they
Channel l e resolve
firm do not occur
channel. Channel leaders can use different methods to
in the
of awareness of the reciprocating confict
They include coercion, economic rewards and the use of legitimae,
flicts.
conflict
must deun
hanne
indicators: Channel members referent power. Let us briefly look at each aspect.
Distribution
alert those affected. The iindicators can be
elop distribution expert a n d
indicators that will înventory Reward power
value of sales ieves This is
Channel leaders can use reward power to resolve channel conflicts.
of manufacturers must
Meetings : The sales personnel be in
on the belief of channel members that the channel
leader is capable of
touch with sales personnel
of other channel intermediaries so t Trequent sed
example, the channel
of conflicts. they can tina benefits if they comply with the dictated policies. For allowances
share views and prevent eruption power to grant better promotional
or higher
member's requirements : By i c .
ader may have themembers.
leader
Appreciate each channel ting the margins to
channel
manufacturer's plant and observing activities like rdering procedur
the intermediary can gain in a clear nihd Coercive power
quality management activities, leaders can use coercive power to control the actions
of channel
potential difficulties in getting a product delivered on time. Likewise h making Channel
joint visits to trade fairs and sharing information, both parties can members. The channel
leader can uSe negative reinforcement methods like sanctions,
achieve distribution rights or decrease in margins to
ensure that
a harmonious working relationship. cancellation of exclusive
members toe the line.
Communication: The communication process within the channelstruchue all channel
and between channel members should be streamlined. This can be achieved Expertpower
by continuous sharing of information through networks. It is generally observed to align the activities of
The channel leader can make use of expert power
that attitudinal differences arise due to lack of proper communication and coordination. Expert power can be
channel members for better cooperation and are
information processing among channel members. Hence, by designing channel functions that other members
in the form of knowledge about certain
Communication programmes that increases exchange of information about unaware of, but would stand to benefit
from. For example, the manufacturer may
goals, role expectations and future plans among channel members, te which will be beneficial for
have expert knowledge about competitors products,
quantum of intra-channel confict will be considerably reduced.
dealers
 Sales and
Distribution Mar
Referent power
Channel leaders have the right to permit other channel
tions. They can
can
associations.
develop
Managerne
associated
memberships

with certain
of channel

trade
membersbers in
and regulations.

certain associatio
in certain ass
entbers v
onlypolicies
des ththat
on Con
with rules
compliance
Legitimatepower:
condtitr
Channel leaders can
reduce confiicts by using their
certain decisions and
their egitimate povwer
the right to make
gives them
members follow them.
ensure that power,
other vit
The role of the channel
leader in resolving conflicts
will chatte
sources cannot be used extensively. The extent to which be restrictedleade
the extent to which
hich channel
nel lea o
t.
effectivelyinhibit conflict depends on
the dnnel les
direct the use of leadership power over each channel memha. channel
The leveleader
leadership power has an infiuence on the performance of channellevel to
to
rucial. The channel leader's role in resolving
sources cannot be used extensively
conflicts will be nembers iewtie
restricted if