Channel Management

Presented by:Surya Santosh KothaAshish YadavVamshee KrishnaRaghunandan Sharma

Objective

• 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

• Channel is a mechanism which brings the product to the consumer at his doorstep.

What is a channel

When it becomes impossible for the manufacturer to directly deal with the consumers.

Minimize transportation costs, maintain service levels, reduction of stock holding etc.

Required to distribute your products.

Why Channels

Channel Management

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

Use of power….

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

Use of Channel Power

• Channel members are dependent on each other. The power equations between them keep them working together.

• Extent of dependence defines the power base which is appropriate.

“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

• 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– Distributor has enough influence on his customers

and this is critical for the company also– Weaker partners do get exploited – ancillary units Exa

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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– Flows are streamlined to desired customer service

objectives• Channel co-ordination is an on-going effort

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

Channel Conflicts

• Conflict is generated when actions of any channel member come in the way of the system achieving its objectives

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

Channel Conflict

CONFLICT

DOMAIN PERCEPTIONGOAL

• Three in 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

• Features of conflicts:– Initially latent and does not affect the working– Is not normally possible to detect till it becomes

disruptive

Four Stages

LATENT

MANIFEST

FELT

PERCEIVED

Each stage is progressively more severe than the earlier one

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

Also called as

(a)Attitudinal conflict, where disagreement occur on roles ,expectation, perception and comm.

(b)Structural conflict , which may relate to goal not matching, indepndence and lack of resources.

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.– Channel member feels upset– Causes could be economical or personal– Needs to be managed effectively and not allowed to escalate.

• Manifest Conflict: Dispute– Reflects open antagonistic behaviour of channel partners. – Initiatives taken are openly opposed affecting the

performance of the channel system.– May require outside intervention to resolve

Reasons for Channel Conflict• Roles not defined properly• Resource scarcity : Allocation of valuable resources

between members seem unfair to some of them.• Differences in perception of the business

environment.• Role incompatibility: the objective of the company

and its distributor may not always match.

Keep more stock Part with some of his margin to offer discounts and sell more Extend more credit Provide a salesforce for full market and outlet coverage.

Reasons for Channel Conflict• Addition of new channel partner.

• Target fixing

• Extension of credit to customer is another problem area.

• Multiple distributor : companies cannot legally defind the territories of their distribuors

• 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

• Clash of interest

Resolving Conflicts

Understanding nature and intensity

Strategy and plan of action for resolution

Understand the impact of the conflict

Tracing the source of the conflict

A 4 Stage Process

Conflict Resolution Styles

Avoidance

Aggression

Accommodation

Compromise

Collaboration

Least effort and results

Maximum effort and Best results

Styles are a combinationof assertiveness and

co-operation.

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.

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.

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

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.

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

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:

Channel Policies

• Markets to be covered

• Customer coverage

• Pricing

• Product portfolio to be handled

• Selection, termination of channel members

• Ownership of the channel

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

5 Characteristics of Services

• They are intangible – can only be felt. No visual features like size, style.

• They are inseparable from their service providers – like dentist,tailor,barber

• 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.

Channels Used

• Shorter channels than for products• Some channels used are:

– Direct from service provider to user– Agents or brokers to bring buyer and seller

together– Franchisees or contractors– Electronic channels

• High degree of customization is provided

Conclusion• 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