Channel Management

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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French & Raven

Power of Motivation
Reward incentives for good performance Coercion threat of punishment for nonperformance 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
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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 effort

Conflict.
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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

GOAL

DOMAIN

PERCEPTION

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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

PERCEIVED

FELT

MANIFEST 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
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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Conflict Resolution Styles

Avoidance Aggression Accommodation Compromise Collaboration Least effort and results Maximum effort and Best results
Kenneth W Thomas
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Styles are a combination of 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.
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Aggression
Also known as a competitive or selfish style. It means being concerned about ones 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 winwin 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.

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