Channel Management

• Is in three broad phases:

– Channel power and use of power bases
– Channel co-ordination and control
– Identifying and resolving channel conflicts

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 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

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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

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 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
distributor/, Maruti 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

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 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

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 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, .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 or rural mkts
5)Competition – created between channel partners
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 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

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 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

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 How to achieve channel
coordination and 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 .
• Structure ,systems, policies and procedures in place
• Using power
• Field managers work closely with channel partners in the mkt
• Regular reports

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 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, perceptions, emotions than facts
• Discord/disagreement between channel members at same level
( horizontal , hybrid ) or at different levels ( vertical)

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 Conflicts Result From…
• Each channel member wanting to pursue his
own goals
• Each wants to retain his independence
• There are limited resources which all of them
want to utilise in achieving their goals
• Features of conflicts:
– Initially latent and does not affect the working
– Is not normally possible to detect till it becomes
disruptive

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 Four Stages of conflict
LATENT

PERCEIVED

FELT

MANIFEST

Each stage is progressively more severe than the earlier one

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 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

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 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

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 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

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 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

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 Reasons / Sources of Channel
Conflict
• Addition of new chanel 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 ,others distributors of
company calling on same wholesalers and retailers for different
products get affected

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 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.

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 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
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Resolving Conflicts
A 4 Stage Process
Understanding nature and intensity

Tracing the source of the conflict

Understand the impact of the conflict

Strategy and plan of action for resolution

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• 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

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

Accommodation

Compromise

Collaboration

Least effort and Maximum effort and

results Best results
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Kenneth W Thomas
 Avoidance
• Used by weak channel members.
• Problem is postponed or discussion
avoided.
• Relationships are not of much
importance.
• As there is no serious effort on getting
anything done, conflict is avoided.
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 Aggression /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.

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 Accommodation
• A situation of complete surrender.
• One party helps the other achieve its goals
without being worried about its own goals.
• Emphasis is on full co-operation and flexibility
in approach. May generate matching feelings
in the receiver.
• If not handled properly, can result in
exploitation

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 Compromise
• Obviously both sides have to give up
something to meet mid way.
• Can only work with small and not so
serious conflicts.
• Used often in the earlier two stages.

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

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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 ,
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 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

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