Marketing Channels- Managing Conflict to Increase Channel Coordination

Marketing ChannelsMarketing ChannelsChapter 7Chapter 7

Managing Conflict to Managing Conflict to Increase Channel Increase Channel

CoordinationCoordination

OutlinesOutlines

• What is channel conflict?• Measuring conflict• Damage to the channel• Source of conflict• Gray markets• Fueling conflict• Conflict Resolution Strategies• Institutionalized Mechanisms to Contain Conflict• Conflict Resolution Via Incentives

What is channel What is channel conflict?conflict?

Channel conflict is behavior by a channel member that is in opposition to its channel counterpart.

It is opponent centered and direct, in which the goal or object sought is controlled by the counterpart.

Level of conflictLevel of conflict• Latent conflict• Perceived conflict• Felt or affective conflict• Manifest conflict

Measuring ConflictMeasuring Conflict• Measuring conflict is a Four steps process1. Issues2. Importance3. Frequency of disagreement4. Intensity of dispute

N

i=1

Conflict = ∑Importancei x Frequencyi x Intensityi

Damage to the Damage to the ChannelChannel

• High levels of manifest conflict damage long-term relationships in the channel

• Conflict leads too Decreased economic satisfactiono Decreased non-economic satisfactiono Loss of trusto Reduced commitmento Coalitions

Sources of ConflictSources of Conflict• Goal conflict• Perceptual conflict• Domain conflict

Sources of ConflictSources of Conflict• Goal conflictAgency theory underscores how competing goals

create conflict in principal-agent relationship.

Manufacturer (Nike) Retailer (Foot Locker)Higher margin for self Higher margin for selfHigher price to reseller Lower price to resellerLower price to end-user Higher price to end-userReseller holding more

inventoryReseller holding less

inventoryNo allowances More allowances

Increase unit sales Increase unit sales

Sources of ConflictSources of Conflict• Perceptual conflictDiffering perceptions at even very basic levelsInaccurate expectations of actions of the otherDifferent focus

Manufacturer Channel memberown processes and

productown processes and

customersLack of communication

Different cultures

Sources of ConflictSources of Conflict• Domain conflictOccurs when one channel member perceives that the

other is not taking proper care of its responsibilities.

Manufacturer Retailer

Sell to multiple segments Retailer’s target segments

Intensive distribution Selective distribution

Category exclusivity with full line of brand

Assortment of best-selling models of various brands

Sources of ConflictSources of Conflict• Multiple channels

o Now very common• Heightened competition• Fragmented markets• Technology allows management of more channels

o Suppliers like multiple channelso Customers like multiple channelso Resellers don’t like multiple channels

• Free-riding• Customers do not stay within their intended

channels

Gray MarketsGray MarketsSelling authorized goods through an unauthorized channelOccur when:•Differential pricing to different channel members•Pricing differently to different geographic marketsEffects•Manufacturer cannot effectively sell at different prices in different markets•Erodes potential volume for authorized dealers who may also provide after-sales service

Gray MarketsGray Markets• Growing quickly• Often tolerated• Violations difficult to detect• Gray markets sometimes give more category

exclusivity• Costs of taking action against gray markets often

more than the benefits• Manufacturer gets greater market coverage• May be an intended channel

Fueling ConflictFueling Conflict• Conflict creates more conflict• Bad history• Threats

Conflict Resolution Conflict Resolution StrategiesStrategies

• Institutional mechanisms to contain conflicto Information-intensive mechanismso Share informationo Joint membership in trade associations

• Co-optationo Personnel exchangeo Third-party mechanisms

• Mediation

Conflict Resolution Conflict Resolution StrategiesStrategies

• Institutional mechanisms to contain conflicto Building relational norms

• Flexibility• Information exchange• Solidarity

Conflict Resolution StylesConflict Resolution Styles

Compromise

Collaboration or Problem Solving

Competition or Aggression

Avoidance

Accommodation

Conflict Resolution Via Conflict Resolution Via

IncentivesIncentives• Economic incentives

o Effectiveo The package of factors that collectively create

financial returns for the channel member

Q&AQ&A

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