Chapter

13
Channel Management

SDM- Ch 13 1
 Channel Management
• Is in three broad phases:
– Channel power and use of power bases
– Channel co-ordination
– Identifying and resolving channel conflicts

2
 Channel power
• Channel Power is the ability of some channel members ( invariably
the manufacturer ,but not necessarily ) to influence the actions of
other members in the channel system
• Influence necessary for overall better performance of system to
deliver desired service levels
• Because :
– Not all members are equally motivated to implement the ideal
channel design
– Different channel members have different expectations from the
system and these need to be brought together
– Due to power exerted ,the channel members who are being
influenced are willing to act in ways that they normally would not
have acted
3
Situations where exercise of
power necessary
• All the channel members are dependent on each other to deliver
customer service
• Hence, all channel members have to work together harmoniously
• However , each channel member is in business to maximise own
profits when actually should be concerned about profitability of
system
• Failure to understand long term benefits vs short term interests
• Us vs them philosophy
• Failure to understand complex management principles

4
 Challenges /Impediments to using power

1)Lack of trust acts as impediment

2) Usefulness/dependence vs dispensability (of one channel
partner for the principal or reverse ) – also decides what type of
power base to use
• How important is the business of principal to channel member
( only exclusive dealer 100% dependent )
•How well the company is doing eg pride of being HUL , ITC,
Maruti distributor/dealer
•How important the channel partner ( say distributor) is to principal
is dependent on his consistent contribution to company
•Degree to which other channel alternatives are inferior

5
 Use of Power Bases
• 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
– Power is not considered negative even if coercion as it’s
a value add. Eg insisting on distributors extending credit
in mktplace may seem like pressure tactics .Similarly
today bicycle in boxes

6
 French & Raven

“Power” of Motivation
• Coercive Power
1) Reward – incentives and awards for good performance.most
popular but should not be used all the time
2)Coercion – threat of punishment for non-performance (with holding
incentives , payment by demand draft only ). May develop distrust
for ever unless channel partner is mature
• Non-coercive Power
1)Referent – benefit of sheer association with a strong company eg
HUL,Chroma .referent power helps companies with right reputation
to be selective in channel partners they would like to work with .
2)Legitimate – arising out of a contract.Is the most objective of all
powers .
3)Expert – specialized knowledge developed over a period of time,
which will benefit channel partner
4)Support – additional benefits for better performers only
5)Competition – created between channel partners
7
 Countervailing Power
•Countervailing power balances the power exerted by one channel member, so
that it is not a one-sided equation.
•Thus, distributors also has power over principal and retailers over distributors
and principal
•Results from interdependence within the channel system.
•Interdependence reduces confrontation and improves cooperation for overall
performance of channel system .
•Need for fairness ,solidarity , no exploitation , no blocking , equitable
opportunities so as to maintain harmonious relationships
•However , Weaker partners do get exploited – ancillary units
•Many companies shy away from being exclusive for a single company unless
its highly established company

8
 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 of channel
– Flows are streamlined to give customer service as desired by
customers
• Channel co-ordination is an on-going effort
• Channels are coordinated through well designed and fair objectives,
systems , procedures , policies

9
 How to achieve channel
control
• Signing a contract /agreement enforceable by law –products to be
handled , territory and customers to be covered , inventory to be
maintained ,mkt working norms ,support which would be provided ,
payment terms .
• Using power
• Structure ,systems, policies and procedures in place
• Field managers work closely with channel partners in the mkt
• Regular reports

10
 Channel Conflicts
• Happens inspite of all efforts to prevent conflicts – channel coordination
and control measures and use of power bases
• Conflict is part of any social system – getting disparate entities to work
together
• Conflict is inherent or occurs when one entity does things that affect
performance/goals of another entity
• One school of thought believes that some functional conflict is necessary
as only then will channel perform effectively .However it should not be
dysfunctional
• Often driven more by feelings and perceptions than facts ??????
• Discord/disagreement between channel members at same level or at
different levels

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

12
 Four Stages of conflict
LATENT

PERCEIVED

FELT

MANIFEST

Each stage is progressively more severe than the earlier one

13
 Four stages of Conflict
• Latent Conflict:
– Some amount of discord exists but does not affect the
working or delivery of customer service objectives.
• Perceived Conflict:
– Discords become noticeable – channel partners are
aware of the opposition.
– Even then , Channel members take the situation in their
stride and go about their normal business
– Disagreement could be on roles, expectations,
perceptions, communication.
– No cause for worry but the opposition has to be
recognized

14
 Four stages of Conflict
• Felt Conflict:
– Reaching the stage of worry, concern and alarm. Also known as ‘affective’
conflict as channel gets affected by discord between players .Channel members
feel upset that the other parties do not value their feelings of discontent
– 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. Open
Confrontation /Dispute results.
– Initiatives taken are openly opposed affecting the performance of the channel
system.
– May require outside intervention to resolve
– Even after resolving conflict, it may permanently alter the chemistry of the
channel system

15
 Broad categories of conflict
• Three broad categories of channel conflict are:
– Goal conflict – disagreement on objectives by various channel
members eg sales, profit
– Domain conflict – understand responsibilities and authority
differently eg territory
– Perception conflict – reading of the market place is different and
proposed actions vary

The sales manages ,who manage the channels, need to first identify
sources of channel conflict and then take action to resolve the
channel conflict

16
 Reasons / Sources of Channel Conflict

•Product focus –Channels prefer to invest in and sell only fast moving
goods .Company wants to showcase entire range including slow movers
•Dissatisfaction with policies- margins , servicing , returns , promotions
•Goal incompatibility eg distributor may feel target too overoptimistic
•Expectations incompatibility –Channel members expectations from each
other not likely to materialize eg of company from distributor in terms of
frequency of coverage , more stocks , distributor who is asked to give more
credit which adds to cost
• Roles not defined properly eg dealer and company salesperson both
approach B2B
•Coercion – eg C&FA sends a truckload
•Addition of new channel partners eg new franchisees , new distributors

17
 Reasons / Sources of Channel
Conflict
• Addition of new channel and multi channel conflict
• Territorial invasion eg wholesaler-retailer, distributor-distributor
• Allocation of scarce resources between members seem unfair to
some eg shelf windows ,merchandise ( fridge ,hammocks, dispensers )
• Loss of opportunity for exclusive dealers/distributors
• Decision domain disagreements – who has to decide on what (key
account pricing)
• Misunderstanding or mis-interpretation of routine business
communication eg returns, promotions etc
• Cascading effect - If unhappy with one distributor ,other distributors of
company calling on same wholesalers and retailers for different
products, also get affected

18
 Channel Conflict Types
Type of conflict Briefly explained
Hybrid channels Producers and channel partners selling to the
same customers
Horizontal Between channel partners at the same level.
Distributors straying into each other’s territory.
Vertical Between channel partners at two different levels. A
C&FA despatches goods not ordered by the
distributor in order to make up a truck load.

19
 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
20
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

21
• Nature and intensity of conflict –some may be routine and
some serious .need to prioritise based on importance to the
relationship and achievement of goals and frequency of
occurrence .
• Tracing the source of conflict ie why conflict has happened
eg goal, perception , domain conflict

22
 Conflict resolution
• Conflict resolution very important and is guided by past best
practice
• Channel conflict resolution solutions possible for contracted
channel partners only eg CFA , distributors , authorised dealers
and not with independent channel partners eg wholesalers ,
retailers ,dealers etc where problem to be solved on case to case
basis by dialogue
• Channel conflict resolution methods are –joint membership of
trade associations ,distributor associations , personal exchange
between channel partners , mediation , arbitration
• The other methods are –sharing info , working
together ,participation in planning process,( eg new product
launch), clear rules of conduct ,use of incentives and
rewards ,joint goal setting , direct interaction and supervision
23
 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
24
Kenneth W Thomas
 Avoidance
• Used by weak channel members.
• Problem is postponed or discussion
avoided.
• Relationships are not of much
importance.
• As there is no serious effort on getting
anything done, conflict is avoided.
25
 Aggression /Competition
• 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.

26
 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

27
 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.

28
 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

29
Building channel relationships
• To reduce likelihood of channel conflicts
• Most effective way is to keep them motivated so as to reduce chance
of conflicts through following methods –
• Clarity and fairness of objectives , responsibilities , treatment and
support through -
• Payment for shelf displays ,
• Higher trade discounts than competition ,
• Higher margins for better performance eg coverage ,productive calls ,
• Incentives for sales and merchandising achievements
• Strong advertising ,merchandising and promotional support,
• Support of field sales people,
• Joint planning of sales targets ,
• Protecting channel members territories ,
• Develop high quality , innovative products ,
• Assured unrestricted stock returns ,

30
 Building channel relationships
(contd)
• Sales training to distributor salesmen ,
• Subsidies for distribution to new or rural mkts ,
• Logistic support ,
• Channel members getting a share of margins on direct sale to
institutions.
• Online ordering facility ,
• Providing mkt research support ,
• Generating customer leads and pass on to channel partners ,
• Communicating promptly on all mktg related decisions ,
• Acting on relevant channel partner suggestions ,
• Capacity building in channel members

31
 Legal and ethical issues
• Use of exclusive dealers by companies is not permitted ??????
• Formally designating territory not permitted ??????
• Full line forcing??????
• Termination of contact for non performance not easy .Cause
has be clearly established .Non-performance cannot be easily
proved if dealer challenges target and target setting process

32
 Unique Distribution Examples

SDM- Ch 13 33
 ITC e-Choupal

• Purpose of E choupal is to inform,empower and compete

• 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.
• Farmers also learn about good farming practices

34
 The Services Sector
• Needs specialized channels which
understand the characteristics of service
delivery

35
 Characteristics of Services
1. They are intangible –No visual features like size, style. hence
communication ,pricing and patenting difficult
2. They are sometimes inseparable from their service providers –
hence impossible to delegate and a third party cannot deliver
3. They cannot be standardized –heterogeneity becos of
uncontrollable factors , employees and customers
4. Customers are sometimes involved and present to a great
degree – define the service atmospherics
5. They are perishable – cannot be stored for delivery later.
salvage value of an unsold service is zero. Hence stregies to
sell quickly eg load factor , happy hour
6. Customization required

36
 Channels Used
• Shorter channels than for products eg doctors
,lawyers , dentists , accountants
• Some channels used are:
– Direct from service provider to user
– Agents or brokers who primarily bring buyer and
seller together eg travel ,stocks ,real estate
– Franchisees or contractors eg café coffee
day ,education,
– Electronic channels

37
 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 .Was expected to be scaled upto 20000 kiosks in
100,000 villages in 15 states ,covering 15 million farmers by 2012
• Also choupal Saagars (rural malls ) near E choupals act as shopping
centres and facilitation centres ( soil testing , product quality
certification ,training etc )

38
 HUL Project Shakti
• Meant for empowering rural women
– Creates income generating capabilities in under-
privileged rural women
– Provides a small scale enterprise opportunity
– Helps improve rural living standards with greater
awareness of health and hygiene
• 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

39
 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
• the Shakto initiative was started in 50 villages in AP . By 2009,covered
80,000 villages through 26,000 distributors
• Also Shakti vani ,social awareness program ,was created to build social
awareness on topical issues eg drinking ,girl child ,education for girls ,
hygiene. Operational in MP ,AP ,Karnataka and Chattisgarh
• Also I-Shakti program , where desktops have been set in houses of Shakti
distributors .Software developed by Unilever -TCS, gives access to
content on education , employment ,agriculture , health and entertainment

40
 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
41
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 a
different set of brands Tornado and Aquaflow

42
Amway – Multi-level Marketing
• Founding principles based on freedom, family, hope and reward.
• World’s biggest direct selling company present in 80 countries
• 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
– In India sells 105 products

43
 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
44
 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
45
 Mumbai Dabbawalas (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 (10
seconds ) to maintain delivery record
• Simple processes, employees capable of
multi-tasking
46
 Mumbai Dabbawalas (MD)
• Harvard case
• ISO certification
• Six sigma By 1998 nforbes magazine
• Management practices are
• Main beliefs – work is worship, customer is God , time is money ,
unity is power ,
• They have zero fuel , zero modern technology , zero investment ,zero
disputes and 100% customer satisfaction
• They must wear uniform , report on time ,respect customers and carry
ID
• Decisions are taken instantly without meetings and conventions

47
 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

SDM- Ch 13 48
 Key Learnings
• Channel have various power bases
• Channel conflicts happen inspite of all efforts at
coordination , control
• Likelihood of conflicts can be reduced through
channel relationships
• 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.

SDM- Ch 13 49
 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

SDM- Ch 13 50