Chapter 14

Channel Management

PROPRIETARY MATERIAL © 2018 The McGraw Hill Education, Inc. All rights reserved. No part of this PowerPoint slide may be displayed, reproduced or
distributed in any form or by any means, without the prior written permission of the publisher, or used beyond the limited distribution to teachers and educators
permitted by McGraw Hill for their individual course preparation. If you are a student using this PowerPoint slide, you are using it without permission.
 Learning Objectives

• Understand the use of power bases

• 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
• Some unique distribution examples

2
 Channel Management

• Is in three broad phases:

• Use of power bases
• Identifying and resolving channel conflicts
• Channel co-ordination

Use of power….

3
 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

4
 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.

5
 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……

6
 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

Co-ordination…

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 achieve desired customer service objectives
• Channel co-ordination is an on-going effort

Conflict….
8
 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

9
 Channel Conflict

CONFLICT

GOAL DOMAIN PERCEPTION

10
 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

11
 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….

12
 Four Stages

LATENT

PERCEIVED

FELT

MANIFEST

Each stage is progressively more severe than the earlier one

13
 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

14
 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

15
 Channel Conflict Types

Type of conflict Briefly explained

Producers and channel partners selling to the same

Hybrid channels customers

Between channel partners at the same level.

Horizontal Distributors straying into each other’s territory.

Between channel partners at two different levels. A

Vertical C&FA despatches goods not ordered by the
distributor in order to make up a truck load.

16
 Reasons / Sources of Channel Conflict

• Roles not defined properly

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

17
 Reasons / Sources of 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

18
 Channel Conflicts – Hybrid Channels

• Higher credit period for key accounts than company permitted to distributors
• More favourable delivery terms to key accounts affecting distribution costs of channel
partner
• Direct sales prices lower than for the rest of the customers
• Company sales people complete sales – distributor used only for delivery

Resolving….

19
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

20
 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

Kenneth W Thomas

21
 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.

22
 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.

23
 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

24
 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.

25
 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

26
 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:

27
 Channel Policies

• Markets to be covered
• Customer coverage
• Pricing
• Product portfolio to be handled
• Selection, termination of channel members
• Ownership of the channel

28
 Managing International Distribution Channels – Clara
Lu
• After prior research, choosing the right markets for the company products
• Local logistical concerns to be understood – local retailers or on-line, physical reach
• Shipping goods direct to customers – freight, insurance, goods lost in transit
• Distribution to international retailers – delivery, payments, communication
• Managing international currencies, risk of value fluctuations

29
 Developing a Channel Strategy – Ian Linton

• Choosing the right channels

• Reach – providing existing coverage. Is internet a choice?
• Cost comparison on direct and indirect
• Access to additional customer base at no additional cost – distributors and dealers
• Marketing support programs for channels
• Direct company sales people for key accounts

30
 Channel Optimization – Mark Harvey

• Identify the most profitable customer segments

• Select the strongest channel partners to serve these segments
• Most optimum mix of marketing programs to use the limited resources to be developed
• Fully exploit the internal channels of own sales force, key accounts team and the internet

31
 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

32
 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.

33
 Channels Used

• Shorter channels than for products

• Some channels used are:
• Direct from service provider to user
• Agents or brokers who primarily bring buyer and seller together
• Franchisees or contractors
• Electronic channels
• High degree of customization is provided

34
Unique Distribution Examples

35
 ITC e-Choupal

• Uses the power of the internet to ‘work’ with farmers

• Links directly with farmers to facilitate procurement of agricultural produce – wheat,
soyabeans and coffee
• Helps farmers with latest and accurate information about climate, rainfall and market
prices of agri-produce.

36
 E-Choupal Working

• Kiosks set up in villages with computers and internet connectivity (phone-lines or VSAT)
• Kiosk run by a trained farmer known as a ‘sanchalak’
• Kiosk serves about 600 farmers from 10 villages within a radius of 5 kms.
• Collection of agri-produce by ITC in warehouse hub
• Presently covers 6500 kiosks in 40,000 villages of 10 states servicing 4 million farmers
(growing)

37
 HUL Project Shakti
• Meant for empowering rural women
• Creates income generating capabilities in under-privileged rural women
• Provides a small scale enterprise opportunity
• Members of women self-help groups (SHGs) become Shakti entrepreneurs
• Direct to home distributors of HUL products
• Offers high returns and low risks
• Supports popular rural brands of the company

38
 Shakti Working…

• Woman entrepreneur buys goods from the company

• Covers households in nearby villages and canvasses sales of the company products and
their benefits to rural women consumers
• Typical distributor sells about Rs 10K to Rs 15K per month and earns about Rs 1000
• Some salient numbers: 80,000 villages through 26,000 distributors (growing)

39
 Vending Machines

• A cash or card operated retailing format that dispenses products or services

• Used normally for low value and frequently purchased items
• Eliminates use of sales people, provides 24X7 service and placed in consumer preferred high
traffic locations
• Evolved to accept bills (notes) and coins on a global basis

40
 Direct Selling – Eureka Forbes

• First company to directly sell domestic water purifiers and vacuum cleaners in India
• Selling new concepts – company decided to use the direct selling route
• Presently works with over 5000 salesmen touching about 1.3 million homes directly
and converting about 1500 new customers every day
• The dynamic and highly motivated sales people are called as ‘Eurochamps’

• EF has since started using ‘dealers’ for servicing industrial customers

41
 Amway – Multi-level Marketing

• Founding principles based on freedom, family, hope and reward. 450 products and 6000
employees world-wide.
• Manufactures and sells world-class consumer products
• All products covered by a 100% money back guarantee
• In India, sources products locally and helps set up manufacturing facilities

42
 Amway Features

• Four product categories – Personal care, Home care, Nutrition and Wellness and
Cosmetics
• Distribution and selling network – independent sales consultants who recruit similar sales
people. Each salesperson earns income on his own sales and on the sales made by
salespeople ‘recruited’ by him.
• Presently in India, has provided business opportunities to 450,000 active and
independent business owners.
• Company reaches 3000 locations through a host of logistics service providers

43
 Mumbai Dabbawalas (MD)

• Every day in Mumbai, 5000 dabbawalas deliver 200,000 meal boxes to customers without
any mix-up
• Collects the food box from the house of the customer
• Deliver the food box at the workplace of the customer
• Returns the empty food box back to the customer house
• Use simple, alpha-numeric codes for identity of boxes
• All this is done using bicycles and public transport

44
 MD Core Values

• No hierarchy in the organisation

• All members are shareholders of the organisation
• The only source of income for the members – deliver service with utmost commitment
• Expect quick customer response to maintain delivery record
• Simple processes, employees capable of multi-tasking

45
 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

46
 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.

47
 Key Learnings

• Some unique distribution examples include:

• ITC e-Choupal
• HUL Project Shakti – empowering rural women
• Vending machines
• Eureka Forbes – direct selling
• Amway – multi-level marketing
• Mumbai Dabbawalas

48