Sdm ch13

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Chapter 13

Channel Management

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Learning Objectives• 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

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Channel Management

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

Use of power….

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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

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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.

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“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

French & Raven

Countervailing power……

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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

Co-ordination…

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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 effortConflict….

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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

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Channel Conflict

CONFLICT

DOMAIN PERCEPTIONGOAL

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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

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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

Four stages….

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Four Stages

LATENT

MANIFEST

FELT

PERCEIVED

Each stage is progressively more severe than the earlier one

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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

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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

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Reasons for Channel Conflict

• Roles not defined properly

• Allocation of scarce resources between members seem unfair to some

• Differences in perception of the business environment

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Reasons for 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

Resolving….

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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

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Conflict Resolution Styles

Avoidance

Aggression

Accommodation

Compromise

Collaboration

Least effort and results

Maximum effort and Best results

Kenneth W Thomas

Styles are a combinationof assertiveness and

co-operation.

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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

• 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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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:

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Channel Policies

• Markets to be covered

• Customer coverage

• Pricing

• Product portfolio to be handled

• Selection, termination of channel members

• Ownership of the channel

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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

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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.

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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

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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

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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.