1.

Introduction to the Channels of Distribution:

It is the function of all business organization to deliver products and services
to the consumers as desired by customers. It includes all the activities which
are performed in the process of delivering including physical distribution.
Availability of right product at right place at right time is the main objective of
distribution.

Channel decision refers to the decisions on the selection of best routes for
moving goods and also with their promotion, selling and marketing control.
The channel of distribution is also used to refer to the various intermediaries
who help in moving the products from the producers to the consumer, it is the
most powerful element among marketing mix elements, by developing a
sound distribution – network a firm can carve out a niche for itself.

Types of Distribution Intermediary:

Different types of intermediaries that are involved in the process of
distribution before a product gets from the original producer to the final user.

These are described briefly below:

a. Retailers:
Retailers operate outlets that trade directly with household customers.

Retailers can be classified in several ways:

(i) Type of goods being sold (e.g. clothes, grocery, furniture)

(ii) Type of service (e.g. self-service, counter-service)

(iii) Size (e.g. corner shop- superstore)

(iv) Location (e.g. rural, city-centre, out-of-town)

(v) Brand (e.g. nationwide retail brands-local one-shop name)

b. Wholesalers:
Wholesalers stock a range of products from several producers. They
purchase goods in large volume and perform function of storage and bulk
breaking. They may have stock of more than one company. Wholesalers
usually specialized in particular products.

c. Distributors and Dealers:

Distributors or dealers have a similar role to wholesalers that of taking
products from producers and selling them on. However, they often sell onto
the end customer rather than a retailer. Distributors maintain inventory
according to demand in market. And provide ware housing facilities. They
also usually have a much narrower product range. Distributors and dealers
are often involved in providing after-sales service.

d. Franchises:
It is common in delivery of services companies deals with, fast food chain,
beauty clinics health service provider and financial service providers operate
their business by the help of franchises. Franchises are independent
businesses that operate a branded product (usually a service) in exchange
for a license fee and a share of sales.

e. Agents:
Agents sell the products and services of producers in return for a commission
(a percentage of the sales revenues) it is common in insurance sector and
sales purchase of real estate and industrial goods.

Functions of a Distribution Channel:

The main function of a distribution channel is to provide a link between
production and consumption. The first and foremost role of a marketing
channel is to fill the gaps between the production and consumption process.
These gaps are time gaps, space gaps, quantity gaps and variety gaps. Time
gaps arise because there is a considerable time difference between the
production and consumption of goods.

Space gaps occur when production takes place at one or a relatively small
number of locations. Since the place of production need not be close to the
final consumers, it results in space gaps. Quantity gaps occur because
manufacturers produce products in much larger quantities than the individual
customer would purchase. Intermediaries perform the task of bulk breaking.
Large quantities are divided into smaller quantities in order to match the
needs of individual customers. Lastly, variety gaps occur because consumers
desire a greater variety of products than a manufacturer can produce.

Marketing channels as intermediaries reduce the amount of time and

expenditure of the manufacturer by reducing the number of contact points
between the point of production and the point of consumption.

Organizations that form any particular distribution channel perform

many key functions:
i. Ownership:
The flow of ownership or transfer of the title of the goods takes place on
physical receipt of the goods from one channel member to another. The flow
of title normally takes place in the same direction as that of the physical flow
of goods.

ii. Information Flow:

The flow of information from the channel to the customers is essential in
order to create awareness among them about the availability of the products.
The flow of information can help in obtaining customer orders, producer
promotions, and so on. The information may also flow in the form of customer
complaints from the customers to the producers.
iii. Promotion:
They also help in promoting the products through efficient product displays
and other techniques like discounts, promotional schemes and so on.

iv. Contact:
It is difficult for a firm to contact with customer scattered in a wide
geographical area. It is the task of middle men to locate the prospects and to
flow information about company and products.

v. Matching:
A company gets information about expectation and desire related to a
product through its channel members because they make direct interaction
with customers and has knowledge about local business culture. It is helpful
in matching their products and services as per the customer expectations.

vi. Negotiation:
Negotiation is the process of reaching an agreement on the price and other
conditions (such as financing, features, and so on) for facilitating easier
transfer of ownership and possession of goods.

vii. Physical Distribution:

The primary task of marketing channels is to move the goods from the
producer to the end user. The flow of goods physically from the producer to
the final consumer takes place with the help of intermediaries, like
transporters. The possession of goods thus gets transferred from the
producers to the final customers.

viii. Financial Flow:

The financial flow involves the payment process wherein the customers pay
for the goods or services they have received from the channel members.
Financial flow is usually in the opposite direction of the ownership and
physical flow of goods. The payment process may involve financial
institutions like banks, and the mode of payment may be either cash or credit.

ix. Risk Flow:

Risks may flow from one channel member to another in the form of product
perishability, fluctuating demand patterns, price fluctuations, risks generated
by faulty products, and so on.

Types of Distribution Channels:

Each layer of marketing intermediaries that-performs some work in bringing
the product to its final buyer is a “channel level”. The function of an
intermediary is to move a product or service closer to the final consumer and
this is described as a channel level. The length of a channel represents the
number of intermediary levels that exist between the producer and the final
user.
 Some examples of channel levels for consumer marketing channels:
Channel 1:
It is called a direct-marketing channel, since it has no intermediary levels. In
this case the manufacturer sells directly to customers. An example of a direct
marketing channel would be a factory outlet store. A zero level channel
represents a manufacturer directly selling his products to the final consumer.
Many holiday companies also market direct to consumers, by passing a
traditional retail intermediary – the travel agent.

Direct marketing is possible by direct interaction with customers. Most of

industrial goods are sold by this method. It is also known as direct selling.
Eureka Forbes Ltd. which markets vacuum cleaners and water purifying
equipment sell its products by this method.

Channel 2:
It contains one intermediary. In consumer markets, this is typically a retailer.
In this method, retailers directly took order from manufactures. A one-level
channel represents a single intermediary, such as a retailer buying goods
directly from the producer and selling them to the final consumer. Automobile
dealers are examples of a one-level marketing channel. These dealers
purchase the product from the manufacturer or producer and sell it directly to
the end customer.

Channel 3:
It contains two intermediary levels – a wholesaler and a retailer. A wholesaler
typically buys and stores large quantities of several producers’ goods and
then breaks into the bulk deliveries to supply retailers with smaller quantities.
Fast moving consumer goods (FMCGs) are usually sold by this channel. For
example, companies like HUL, LG, Wipro, etc. This arrangement tends to
work best where the retail channel is fragmented, i.e., not dominated by a
small number of large, powerful retailers who have an incentive to cut out the
wholesaler.

An organization may use multiple channels like DELL computers are sold by
directly through internet or on line service and also by distributors.
Organizations should determine the number of intermediaries they need at
each channel level. Depending on the number of intermediaries required at
each level, the three major choices of distribution available to producers are-
intensive distribution, exclusive distribution and selective distribution.

Intensity of Distribution:
The determination of number of middlemen to be employed or the intensity of
distribution is an important problem after the choice of the channels of
distribution.
In this respect, a manufacturer may use any of the three alternatives,
namely:
(i) Intensive distribution;
(ii) Selective distribution; and
(iii) Exclusive distribution.
(i) Intensive Distribution:
A manufacturer following the policy of intensive distribution tries to get maximum
exposure for his product by having it sold in every outlet where final customers
might possibly look for it. The policy of intensive selling is ordinarily adopted for
the marketing of convenience goods such as tooth paste, soap, cosmetics and
food products.
In other words, the products that the ultimate consumers wish to purchase at the
most convenient location are distributed by intensive selling. In the field of
industrial products, intensive distribution is generally limited to spare parts and
other items of supply like small tools and lubricants. Intensive distribution is more
successful if it is associated with large scale advertising by the manufacturer.
(ii) Selective Distribution:
Selective distribution may be carried on both at the wholesale and retail levels. A
manufacturer following selective distribution policy will choose only a few
middlemen to handle his products. He will select only such middlemen who are
likely to sell his products in large quantities. This policy can be more successfully
adopted in case of speciality goods and accessories, for which most customers
have a brand preference.
Selective selling increases the prestige of the product of the producer. It lowers
the distribution cost and reduces credit risks. The manufacturer can achieve a
good deal of control over the distribution of his products. He may require the
dealers to display his products more prominently and to promote them
aggressively than if the distribution were intensive.
(iii) Exclusive Distribution:
Exclusive distribution refers to an agreement between the manufacturer and a
middleman under which the manufacturer grants exclusive right to sell his
product in the territory specified in the agreement to the particular middleman.
The middleman acting as the exclusive dealer or agent does not handle the
competitive goods.
Exclusive distribution policy leads to a restriction on the number of middlemen to
a greater degree used in case of marketing of products which are speciality
products, require installation or considerable investment in stocks and/or show
rooms. For instance, automobile manufacturers appoint area-wise distributors to
promote their sale and to keep the channel under control.
From the above, it can be concluded that intensive distribution is most suitable
for maximum product exposure. If the manufacturer wants to deal with a limited
number of middlemen in a given geographic region, he will opt for selective
distribution. Exclusive distribution leads to a further restriction on the number of
middlemen. There is only one dealer in a particular geographic region.
Selection of Middlemen or Intermediaries:
After having decided the number of middlemen or dealers to be appointed, a
marketer has to select particular middlemen through whom he will distribute his
products.
While selecting a particular wholesaler or retailer, the following factors
should be taken into consideration:
(a) Location of the middleman’s premises;
(b) Financial position of the middlemen;
(c) Knowledge and experience of the middleman;
(d) Capacity of the middleman to promote sale;
(e) Ability of the middleman to render after-sale service;
(f) Willingness of the middleman to deal in the products of the manufacturer.
4. Strategic Relationship and Partnership:
The conventional marketing channel comprises independent producers,
wholesalers and retailers. Each member of the channel has a separate identity
and seeks to maximise its own profits. No channel member has complete or
substantial control over the other members. When the effort of one channel
member to maximize profits comes at the expense of other members, conflicts
can arise leading to reduction in profits for the entire channel.
With the changing dynamics of the market, the pattern of distribution channel has
undergone some important changes. All the channel members affect each other.
Manufacturers don’t rein the marketing regime anymore.
Retailers have emerged as very strong players and are in a position to exert
significant pressure on the manufacturers.
So there has been a shift toward more unified and integrated systems
including “Vertical marketing system” and “Horizontal marketing system”
which are discussed below:
(1) Vertical Marketing System (VMS):
A vertical marketing system is the result of failure of traditional marketing
channels where each of the manufacturer, wholesaler, retailer is independent
with separate identity seeking to achieve its own objectives – producer (maximize
market share), wholesaler (to maximize sale), and retailer (to maximize profits
with customer satisfaction).
Thus, conventional marketing system is a highly fragmented network of business
persons who are loosely connected with each other. For example, retailer might
wish to retain every substitute available on his shelf so that customer does not
turn away out of his store. This might limit the shelf space available for a
particular manufacturer whose purpose is to maximize market share of his
product.
A vertical marketing system is a kind of integrated distribution system in which
producer, wholesaler(s) and retailer(s) act as a unified system. They all
cooperate with each other. The channel can be dominated by any of the three
members of the system.
This system came into effect after the strong channel members’ attempt to
control channel behaviour and eliminate the conflicts that result when
independent channel members pursue their own objectives. It has become the
dominant mode of distribution in the consumer marketplace in the USA.
There are three types of vertical marketing systems, namely:
(i) Corporate VMS;
(ii) Administered VMS; and
(iii) Contractual VMS.
These are discussed below:
(i) Corporate VMS:
This integrated system calls for combining the successive stages of production
and distribution under single ownership. Although they are owned jointly, each
member company in the chain continues to perform separate functions, i.e.,
production, wholesaling and retailing.
On the basis of the direction in which integration takes place, a VMS can be of
forward integration type or backward integration type. Forward integration takes
place when a producer or manufacturer takes the control of a wholesaler or a
wholesaler takes the control of a retailer. Backward integration is a situation in
which a wholesaler acquires the producer or a retailer acquires a wholesaler.
For example, an auto parts manufacturer might practice forward integration by
purchasing a retail outlet to sell his products. Similarly, the auto parts supplier
might practice backward integration by purchasing a steel plant to have control
over the raw materials needed to manufacture its products. Bata and Woodland
own their retail stores all over the country, Raymond owns both textile producing
plans and the retail outlets. Other examples include Sears, Banana Republic.
The Gap, etc.
(ii) Administered VMS:
In an administered VMS, one member of the channel is large and powerful
enough to coordinate the activities of the other members without an ownership
stake. For example, the producers of many leading brands are able to secure
strong trade cooperation from the other channel partners (or members) in terms
of shelf space, display and other support activities.
Under this system, various channel members cooperate through the size and
power of one of the members. For instance, Amul, Parle, Dabur, P&G, Hindustan
Unilever, etc. command highest cooperation from distributors and retailers
regarding shelf space, displays, promotion, etc. Similarly, large retailers like Big
Bazar and Wal-Mart can exert strong influence on the producers that supply them
the products they sell.
(iii) Contractual VMS:
Under this system, one channel member enters into contract with other channel
members that ensures the smooth running and coordinated distribution system.
In this system, one can find wholesaler-sponsored voluntary chains, retailer
cooperatives, and franchise organisations.
Wholesaler-Sponsored Voluntary Chain:
Wholesaler sponsored voluntary chain is a group of retailers organised by the
wholesaler. The wholesaler enters into a formal agreement with the retailers to
use a common name and standardized facilities and to sell the wholesaler’s
products. The wholesaler may even develop a line of private brands to be
stocked by the retailers.
Single advertisement promotes all the retailers who will save on the
advertisement costs. Independent Grocer Alliance (IGA) food store is a good
example of wholesaler sponsored voluntary chain. True Value hardware stores
also represent this type of arrangement. It has around 300 members across
Canada.
Independent Grocers Alliance:
The Independent Grocers Alliance (IGA) was founded in 1926 when a group of
100 independent retailers in Poughkeepsie, New York, and Sharon, Connecticut,
organized themselves into a single marketing system. This group quickly
expanded and by the end of the year there were more than 150 IGA retailers.
The IGA operates as a franchise through stores that are owned separately from
the title brand. The company uses the “Hometown Proud Supermarket” slogan.
Today, many IGA grocery stores are located in smaller cities and towns
throughout the United States.
IGA has expanding across the globe. Its Hometown Proud stores can be found
all around the world. It has expanded into the world’s largest voluntary
supermarket chain with more than 5,000 member stores.
Retailer Cooperative:
The members of the retailer cooperative are member-owned businesses. In this
type of contract, a group of retailers establishes a shared wholesaling
cooperative organisation to help them compete with other retail chains. Retailers
purchase ownership stake in the wholesaling entity and agree to buy a minimum
percentage of their inventory from this entity.
The members typically adopt a common store name and develop common
private brands. They share purchases, storage, shopping facilities, advertising
planning and other functions. The individual retailers retain their independence,
but agree on broad common policies.
Amul – The Unusual Saga of Retail Cooperative Movement:
The seeds of this unusual saga were sown about 65 years ago in Anand, a small
town in the state of Gujrat in western India. The exploitative trade practices
followed by the local trade lobby sparked off the cooperative movement. Angered
farmers decided to get rid of middlemen and form their own co-operative, which
would have procurement, processing and marketing under their control.
They formed their own cooperative in 1946. This co-operative, the Kaira District
Cooperative Milk Producers Union Ltd. began with just two village dairy co-
operative societies and 247 litre of milk and is today better known as Amul Dairy.
The success of Amul could be attributed to four important factors.
The farmers owned the dairy, their elected representatives managed the village
societies and the district union, they employed professionals to operate the dairy
and manage its business. Most importantly, the co-operatives were sensitive to
the needs of the farmers.
The then Prime Minister of India, Lai Bahadur Shastri decided that the same
approach should become the basis of the National Dairy Development policy and
in 1965 the National Dairy Development Board was set up with the basic
objective of replicating the Amul model.
The Amul Model:
The Amul Model of dairy development is a three tiered structure with the dairy
cooperative societies at the village level federated under a milk union at the
district level and a federation of member unions at the state level. The Amul
model has helped India to emerge as the largest milk producer in the world.
More than 13 million milk producers pour their milk in 1,28,799 dairy cooperative
societies across the country. The milk is processed in 176 District Co-operative
Unions and marketed by 22 State Marketing Federations, ensuring a better life
for millions.
Franchising:
This is a type of contractual VMS in which a producer known as franchiser gives
license to a wholesaler or retailer to distribute its products. The common
contractual forms are manufacturer sponsored retailer franchise system (e.g.,
Ford) and manufacturer sponsored wholesaler franchise system (e.g., Coca
Cola). The emerging form now a days is service firm sponsored retailer franchise
system (e.g., McDonalds, Pizza Hut and Nirulas, Holiday Inn).
(2) Horizontal Marketing System (HMS):
Joining of two or more corporations normally dealing in unrelated or non-
competing products on the same level for the purposes of pursuing a new
marketing opportunity is known as horizontal marketing system.
Products from each member can be marketed and/or distributed together
allowing the two companies to combine their marketing resources and
accomplish much more than either one might accomplish alone. Corporations in
a horizontal marketing system also have the option of combining their capital and
production capabilities. Horizontal marketing system is also known as symbiotic
marketing system.
Under Horizontal Marketing System, two or more businesses, which are
otherwise unrelated, put together their efforts to exploit an emerging marketing
opportunity. Thus, a customer can buy Wagon R from a Maruti Suzuki dealer and
get it financed by HDFC Bank. The important point to be noted is that Maruti
Suzuki manufactures cars. Car financing is not their business. But, Maruti Suzuki
has joined hands with a financial institution which gives loans to the buyers.
Apple’s Tie Up With Starbucks:
Apple’s tie up with Starbucks can be cited as an example of HMS. Apple and
Starbucks announced music partnership in 2007. The purpose of this partnership
was to allow Starbucks customers to wirelessly browse, search for, preview, buy,
and download music from iTunes Music Store onto their i-Pod touch, i-Phone, or
PC or Mac running iTunes. Apple’s leadership in digital music together with the
unique Starbucks experience synergized a partnership to offer customers a world
class digital music experience.
Apple benefits from this partnership with higher iTunes sales because Starbucks
has a lot of loyal customers who have time to visit, relax and enjoy the unique
Starbucks experience. When Apple first introduced its iTunes Music Store, it
hoped to sell one million songs in six months, but to the surprise of everyone,
Apple sold one million songs within six days of the launch of iTunes Music Store.
With such loyal online music customers, Starbucks benefits from increase in
market share and stronger customer loyalty. This example demonstrates how two
unrelated companies can join forces to exploit a new market opportunity.
A vertical marketing system, by contrast, comprises the producer, wholesaler and
retailer acting as a unified system. One channel member owns the others or
franchises them (for example, Coca-Cola company gives licenses and controls
the operations through supply of ready-made formula mixes), or has so much
power that they all cooperate (For example, Bata, Liberty, BPL Gallery, Onida
Arcade, Philips dealers).
Third Party “Delivery”:
In this case, the producer outsources the delivery of goods to a company which
specialises in the delivery of goods. Thus, the manufacturer does away with
investment in logistics and concentrates on the other functions. For example,
Godrej locks manufactured in Vikhroli (Mumbai) are delivered through ACE, the
door-to-door cargo division of the courier company, Airfreight Ltd.
Multi-Channel Marketing System (MMS):
The origin of MMS can be traced to the need of the manufacturer to satisfy
customers and earn profits. This can be achieved directly (by direct selling) or
indirectly (through channel members). Thus, Raymond sells its products at its
chain stores as well as its factory premises. But, Philips does not sell directly to
the customers. Even if a customer goes to the company, it redirects the customer
to purchase its products from the authorised dealers.
The MMS has several advantages:
(i) Increased Market Coverage:
The products can reach a place where channels don’t exist. For example, Bata
may not be able to open its showrooms in rural areas because of cost
consideration. If its shoes are available even there, then customer has the choice
to buy Bata. Thus, not only through showrooms or authorised dealers, the
product can be made available through retailers who keep various brands.
(ii) Lowest channel cost is involved in distribution.
(iii) More customised selling because the company directly deals with the
customer and therefore product can be made available as per customer-specific
requirements. At the same time, the manufacturer sells through different
authorised dealers, showrooms/wholesalers the standardised products which
need no specific modification.

5. Distribution Channel Conflict:

Every organization wants to control the distribution channels for the successful
delivery of products. However, the control over the distribution channel is not
possible due to limited resources, such as human resource and capital available
with each channel member.

Distribution channel conflicts are of three types – vertical, horizontal and

multichannel.

These conflicts are discussed in the following points:

i. Vertical Channel Conflicts –Arises when two or more channel members
compete for the same market share and operate at different levels of distribution.

ii. Horizontal Channel Conflict- Arises between the channel members at the same
level of distribution channel. They compete in the same market.

iii. Multichannel Conflict – Exists when a manufacturer takes the help of two or
more channels to reach the customers. For example, a manufacturer sets up a
showroom as well as factory outlets.

There are various causes of distribution channel conflicts, which are as

follows:
a. Arises due to the incompatibility of objectives and goals of different channels

b. Arises due to ambiguity in the roles and responsibilities of different members of

the channel

c. Arises when the market is same for the manufacturer and channel members.

Conflicts are not always harmful for the distribution channel members. They can
be managed at a moderate level by taking corrective measures.

Following are the ways to manage distribution channel conflicts:

i. Negotiation – Refers to a discussion between the conflicting parties on issues
related to the distribution of products.

ii. Persuasive Mechanism – Refers to taking advice from the third party to resolve
conflict. The third party can be an individual or an organization.
iii. Legalistic Strategy – Refers to the legal actions that can be taken to resolve
the conflict.

iv. Cooperation and Coordination – Refer to assistance and support among the
distribution channel members to achieve the goals of distribution channels.

6. Distribution – Channel Strategy:

The following are the factors that influence the choice of distribution
channel by a business:
1. Market Factors – Nature and Extent of Market:
Selection of distribution channels depends of various market variables like
number of customers, volume of goods purchased by customer, size of market
and income level of customers. When demand is in bulk, customer directly
purchases it from manufacture. Intermediaries are often best placed to provide
servicing rather than the original producer like in industries companies’ supplies
their products directly. Another important factor is intermediary cost.
Intermediaries typically charge a commission for participating in the channel.

2. Producer Factors:
Channel selection also depends on objectives of producers if they want better
control over market they should go for direct distribution, for market expansion
objective they would require extensive distribution. Producers may also feel that
they do not possess the customer-based skills to distribute their products. Many
channel intermediaries focus heavily on the customer interface as a way of
creating competitive advantage.

Another factor is the extent to which producers want to maintain control over
how, to whom and at what price a product is sold. If a manufacturer sells via a
retailer, they effectively lose control over the final consumer price, since the
retailer sets the price and any relevant discounts or promotional offers.

3. Product Factors:
Nature of product also determines the selection of channel. FMCG require
extensive flow whereas luxury car require exclusive distribution channel
selective. Most of heavy machinery and industrial product are directly supplied by
producers. Whereas perishable products like milk, bread, vegetables require
relatively short distribution channels.

4. Cost of Distribution:
It is an important consideration, the longer the channel of distribution greater is its
cost, to have own sales force is more economical and involve less financial
commitment when prospect customers are less. A manufacturer has to provide a
margin to distributor which will either reduce profit of producer or increase the
cost to the buyer.
8. Significance of Channel Decisions:
The choice of channels, through which the product will be distributed, is an
important area of decision-making in marketing management. Channel decisions
refer to the managerial decision on the selection of the very suitable channel for
distribution of goods from the producers to the users.
The important reasons which place channel decisions in the area of policy
decisions area are as follows:
(i) Influence as Other Marketing-Mix Variables:
The channels selected for the firm’s product affect every other marketing decision
like pricing, promotion, physical distribution, etc.
(ii) Part of Price:
The cost involved in the use of trade channels enters the price of the product that
the ultimate consumer has to pay. If the costs of trade channels are very high,
the firm may draw public criticism.
(iii) Long-Term Implications:
The channels chosen involve the firm in long-term commitments to other firms or
middlemen. The relations between the manufacturer and the middlemen depend
mainly on the choice of appropriate channels of distribution. Therefore, it is
necessary that channel decisions are taken with great care.
(iv) Degree of Channel Control:
If the choice of channels is proper, fluctuations in production may be reduced.
The manufacturer can obtain data regarding sales and stock of the middlemen
and exercise control wherever he feels necessary. The stability of production will
help to ensure steady employment and proper budgetary control.

Channels Conflicts and Management:

There may be conflicts among channel members and organization due to various
reasons like sales targets, commissions, replacements, interruption of supply,
payments etc. control on business may be one factor, these conflicts must of solved
out to achieve the marketing goals and objectives.

Main types of conflicts are:

1. Vertical Channel Conflicts:
This type of channel conflict arises when channel members operating at different
levels compete for the same market share. They may compete in the same market.
For example, if a company is selling products directly and through distributors in the
same market, extra offerings by company can create conflict.

2. Horizontal Channel Conflicts:

This type of conflict arises between channel members operating at the same level
and also within the same market.

Multi-Channel Conflict:
Multi-channel conflicts arise when a manufacturer sets up two or more channels that
serve and compete for the same market segments. For example, the conflict
between retailers and factory outlets of a manufacturing company.
Reasons of Channel Conflicts:
(i) Goal incompatibility between manufacturer and wholesalers.

(ii) Ambiguity and confusion related to roles and responsibilities of manufactories and
distributors.

(iii) Appointment of multiple dealers in same territory.

(iv) Lack of communication.

(v) Competition between manufacturer and channel members in the same market.

(vi) The channel members are margin-focused in their approach, where as

producers, would prefer mass production and sales to reduce costs.

Managing Channel Conflicts:

To minimize the conflict, the manufacturer may take the following steps:
1. Effective Business Communication:
A regular communication between manufacturer and channel members is helpful to
understand reasons of conflict, the meeting between top marketing executives and
intermediaries can resolve the channel related problems.

2. Dealer Councils:
Dealer councils can resolve conflicts. Manufactures plays an effective role in these
councils. It provides a platform for dealers to jointly resolve any dispute related to
channel conflict.

3. Legalistic Strategies:
Legalistic strategies involve following legal processes such as arbitration and
settlements for resolving the conflicts that arise between channel members.

4. Cooperation and Coordination:

It is the best method of conflict resolution, regular meeting between dealers and
marketing mangers helps in understanding a problem in its initial stage. Cooperation
and coordination of the channel to achieve profits and to increased market share.
Cooperation is the process in which a channel member is motivated to work jointly
with other channel members and follow its policies, procedures and strategies.