DISTRIBUTION

MANAGEMENT
PART 6
Prof. Anupama Shah
October 2020
Channel Design and management
Learning Objectives
◦ Channel design factors, components, issues, steps and process
◦ Understanding customer needs to define channel objectives
◦ Method of evaluating various channel alternatives
◦ How channel partners are: selected, trained and kept motivated
◦ Principles of vertical integration and electronic channels
Britannia Distribution Channel Case
Study
https://www.youtube.com/watch?v=agx2PU-7CJk

P&G Distribution Management

https://www.youtube.com/watch?v=_-1mZNMLDuw
Channel Design Factors
◦ Product mix and nature of the product
◦ Width and depth of market / outlet coverage planned
◦ Long term commitments to channel partners
◦ Level of customer service planned
◦ Cost affordable on the channel system
◦ Channel control requirements of the company
Channel Design Steps
◦ Define customer needs
◦ Clarify channel objectives
◦ Look at alternative systems which can meet these objectives
◦ Estimate cost of operating the channel system
◦ Evaluate available alternatives
◦ Finalize the ‘ideal’ system – cost effective
Customer Needs
◦ Lot size – most convenient pack size which the consumer can
buy at a time
◦ Waiting time – time elapsed between the desire to buy the
product and the time when he can actually buy it – should be
almost zero
◦ Variety – choice of products, brands, packs
◦ Place utility – choice of buying where he wants. For a
consumer product it has to be at a location closest to his
residence – door delivery, credit etc. would be added benefits
Channel Design Components
◦ Revenue generation or the commercial part
◦ Physical delivery of the goods or services – the logistics part
◦ The ‘service’ part to take care of after-sales support
◦ Each part of the system is likely to be handled by a different entity.
Channel Design Issues
◦ Activities required and who will perform
◦ Activities relationship to service levels
◦ Number of channel members required and the relationship between
categories
◦ Roles, responsibilities, remuneration and appraisal of performance
of channel members
Channel Design Process
Similar to any other marketing task

Segmentation

Positioning

Focus

Development
Segmentation
◦ Putting customers in similar clusters based on their needs
◦ Doctors who prescribe medicines
◦ Chemists who dispense medicines
◦ Hospitals and nursing homes who use them
◦ Each segment has a different need to be serviced by the channel
◦ Gives an idea to the sales manager as to the kind of channel
members he should be planning for.
Positioning
◦ Defines the channel element required to service each of the
segments
◦ The sales manager decides the channel partner who is ‘ideal’ to meet the
expectations of the segments.
◦ The number of each category of intermediary is also decided based on the
number of customers to be serviced in each segment.
◦ The service objectives and flows for each channel partner are also frozen
STP in use
Focus
◦ It may not be possible to meet the needs of all segments – cost and
practicality considerations (the managerial talent available for
instance)
◦ The sales manager has to firmly decide which of the segments he
will service
◦ The competitive scenario also helps in this decision
Development
◦ At this stage the channel system is being put in place to achieve the
objectives
◦ Select the best of the alternatives
◦ Comparison with the most successful competitor could be a good benchmark
◦ Channel partners of competitors may be willing to share best
practices of their principals
◦ For modifying an existing channel, the gap between the ideal and
the existing is to be identified for remedial action.
Channel Structure Factors
Company related –
size, nature of
Market related – Product related –
products, financial
reflected in customer physical
strength and
service expectations characteristics
management
capability

Environment related
Intermediary related – – factors beyond the
availability and cost direct control of the
company
Channel Objectives
Defines what the channel system is supposed to do to support customer
service.

Customer needs could include:

• Lot size convenience
• Minimum waiting time
• Variety and assortment
• Place utility
The product characteristics and the market profile also impact the
objectives.

Competition could also affect the objectives

Hybrid channels
◦ Companies which use multiple channels are considered to have
hybrid channels
◦ Partly managed by the company and partly outsourced
◦ Example – selling directly on the internet and also through channel partners
◦ The objective is to manage different kinds of customers in a manner
most appropriate to them.
Hybrid Channels - Advantages
◦ Increase reach through own efforts and local strengths and
relationship of channel partners
◦ Company can negotiate better directly with key accounts
◦ Healthy competition between company direct sales and
intermediaries
◦ Limit the dependence on channel partners
◦ Company also has access to correct market feedback
Channel Alternatives
◦ Are planned after deciding the customer segments to be serviced
and the levels of service
◦ Business intermediaries currently available like C&FAs, distributors,
dealers, agents wholesalers and retailers.
◦ The number and type of intermediaries required
◦ Developing new channel types
◦ Roles of each channel member
Evaluation of Major
Alternatives
Cost of operations

Ability to manage
and control

Adaptability

Range and volume

to be handled

Criteria for evaluation

Evaluation Criteria
◦ Cost:
◦ If existing sales force can be expanded cost effectively, this is the best alternative
◦ Cost of alternatives at different volumes can only be estimated for comparison
◦ System with the lowest cost is preferred
◦ Adaptability – the channel should be flexible to handle different types of
markets and changes in the market conditions. Eg., addition/deletion of
products, new territory coverage, price increases, etc.
◦ Volume and range to be handled – Capable even when business grows or
expands
Evaluation Criteria
◦ Ability to manage and control:
◦ Distribution network being an extended arm of the company, the channel partners have
some obligations
◦ Operating guidelines specify these rules
◦ The channel system should help the company enforce these rules fairly to all channel
partners
◦ Company trains channel personnel and provides proper product
literature
Ideal channel structure
A CFA/wholesaler is the ideal channel choice for bulk breaking,
whereas if intensive distribution is desired, on looks at large
number of retailers

For industrial and engineering goods, the company may look at

its own technically qualified sales people to support dealers
whose primary function would be to finance inventory and
credit
 Selecting Channel Partners
Getting good channel partners is a difficult part of
doing business

Some of the methods employed to select channel

partners are:
• Sales people identify prospects and talk to them
• Press advertising (industrial goods)
• Existing channel partners can give good references
• Competitors’ channel members for reference, not poaching
 Selection Criteria
Qualitative: Quantitative:
• Willingness • Financial status
• Confidence in company • Infrastructure
products • Location
• Willingness to abide by • Present businesses
company rules • Customer relationships
• Building company • Market standing,
image • Etc.
• Innovativeness etc.
Channel Selection Factors
Product and market
Company
related – nature of the
characteristics and
product and desired
objective of ‘reach’
customer service

Channel
Environmental factors
considerations of
– competition, socio-
availability and ability
cultural and
to deliver desired
economic.
customer service
 Obligations of channel partners
Development
Market Development Holding
of new key
coverage of new markets inventory
accounts

Extending Proper Technical

Key account
credit to the implementation advice and
management
market of promotions support

Market
Complaint
Service support feedback and
handling
reporting
Training Channel Members
Starts from the time of recruitment

Channel member owner and his staff

Market views channel member as part of the company – he has to

behave in a like manner – hence training assumes significance

Training could be on the job field training or classroom training or

both

Training is an ongoing process.

Subjects for Training
Field training on how the markets are to be worked to achieve sales, collect payments and ensure
the right kind of merchandising

Class room training on company products, competition and how to tackle it to gain market shares

Special meetings for new product launches

Submitting reports and maintaining records

Statutory compliance

https://www.youtube.com/watch?v=pikcDCqELQk
(Asian Paints)
Subjects for Training
Care of company products

Technical specifications and answering FAQs of

customers

For technical and industrial products – recognition

of specs, installation procedure, repair and
maintenance and effective demonstrations

Servicing of automobiles and other engineering

products

https://www.youtube.com/watch?v=Bp4KvDRzL0o
JCB
Motivating Channel Members
Ambitious volume and growth targets – continuous
motivation required to achieve

Motivating efforts include:

• Capacity building programs
• Training
• Promotions support
• Marketing research support
• Working with company personnel
• Incentives
 French & Raven

“Power” of Motivation
Reward – • positive support (reward for achieving placement of new product in
100% outlets)

Coercion- • threat of punitive action (used only in exceptional cases)

Referent • positive effects of association; favorable rub-off of company image on

channel members

Legitimate – • enforcing a contract

Expert – • support of special knowledge

Support – • additional benefits for performers (bearing distribution cost, additional

promos, ‘spot cash’ etc.)

Competition – • pitting against peers

 Role of ROI…..

Channel Members Evaluation

Effectiveness of the distribution channel determines
the success of the company

Company would like its channel partners to perform

at the highest standards possible

Need to constantly evaluate performance on sales

targets, coverage, productivity, inventory holdings,
attending to servicing requests etc.
 ROI as a Measure
Leading FMCG companies feel that an ROI of 30%
for a distributor is healthy and is a fair indication that
he is performing well.
• Calculated as net margin as a percentage of the investment in the
business
• If the ROI is more, additional tasks are given
• If the ROI is less, the company may provide additional support
Post evaluation tasks include counseling, retraining
and motivating. In extreme cases it may result in
termination.
Performance Evaluation
On pre-agreed tasks only. No surprises.

Specific targets on periodical basis are set.

• Targets on volume and outlet productivity could be for a week
or a month
• Targets relating to increasing market shares or total outlet
coverage could be for 6 months
• Different weightages could be given for each of the parameters
for evaluation
The performance appraisal is open and transparent
Evaluation of Effectiveness
Volume and profit generated by each channel partner

Exclusivity and aggressiveness of the channel

Support to promotional and advertising efforts

Placing adequate orders for all SKUs promptly

Doing business ethically

Extent of customer relationships being built

Steps for Modifying a Channel Network
◦ Service level desired and willing to deliver
◦ Activities required to deliver service level, who will do it and at what
cost
◦ Derive ideal channel structure and compare with existing to know
gaps by evaluating based on standard parameters relating to
effectiveness and efficiency
◦ Action to bridge the gaps and put modified channel system into place
◦ Define key performance indicators
Steps to modify an existing channel system
Listing of desired service
Level of service output planned
Activities required to deliver the objectives
Assign activities to channel partners
Derive cost of performing activities
Derive channel total structure
Compare ideal channel structure with existing
Identify gaps to be covered
Take action to bridge the gaps
Modified channel system in place
Channel Comparison Factors
Efficiency – input vs output
Effectiveness – how well objectives are met
Scalability – volume of business handling
Flexibility – handle changing demand patterns
Consistency – deliver at same level day after day
Reliability – measure of commitment
Integrity – fair, regular
Click icon to add picture

Vertical
integration
– owning
the channel
 Vertical Integration
◦ This means owning the channel. The company does the work of production, branding and
distribution.
◦ Downstream integration means the producer of the goods also does the distribution – Eureka
Forbes, Bata
Vertical Integration
Upstream integration If the organization does
means the seller also the work of production,
produces the goods – branding and
private labels of distribution, it is said to
modern retailers. be vertically integrated.

Vertical Integration
provides better control
over the distribution
function
Outsourcing Distribution
Is the most prevalent situation as:
• The ‘reach’ is better
• The cost may be lower
• The company can exploit the ‘core competence’ of its channel partners, which is
distribution
Vertical integration is a choice which will become long term and
cannot be easily changed once the resources have been
committed.
However, direct distribution (owning the channel) is still the best
solution for ‘intensive’ distribution.
Key questions to ask in VI

How much
Why VI?
of VI?
Non-store Retailing

Selling door-to-door – milk,

Vending machines Tele-shopping networks
newspaper, repair services, etc.

Other forms of direct selling –

Amway, Tupperware,
Selling through catalogs Electronic channels - eComm
Herbalife, Modicare, Avon,
Mary Kay
Retailing on the Internet
Unlimited Items may not be No product touch
assortment on hold or feel

More information
Consumer has to
makes the Comparison
plan purchases
customer a better shopping possible
ahead
shopper

No need to
handle cash – Shopping is
payment can be 24X7
on-line
 Case: Modern Motors Limited
Modern Motors makes electrical goods. It is a leader in electrical motors. MML has an established distributor network in two States. It sells through
electrical goods wholesalers in two more States. Current distributors: 3 in State 1 and 2 in State 2. Other distributors were regular businessmen.
MML is now in the process of streamlining their distribution efforts in the remaining two States. They have had a ‘mixed’ experience with two
kinds of distributors (those who were ex-employees and those who were businessmen)
Ex-employee distributors
- They are charged up, eager, growing
- Understand products, customers, markets and competition very well – react fast
- Do not listen to advice. Have a ‘know-all’ attitude
Businessmen distributors
- They are less professional – not pro-active to develop new business
- Primary motive is profitability
Both the types of distributors resist changes to operating requirements. MML competition follows similar patterns while recruiting distributors.
MML wants to formally enter the markets of the two additional States. They plan to have a regular distribution network by appointing distributors.
MML wants to decide on the following:
- Should they continue with wholesalers only in these two States?
- Should they start selecting and appointing distributors?
- Should the distributors be selected from ex-employees or from market businessmen (some of whom may be current wholesalers)?
Can we help them decide?
Key Learnings
◦ The nature of distribution channels required in different situations is
based on a number of factors
◦ Channel design takes into account all the service deliverables
required by customers
◦ Intensity of distribution determines the number of intermediaries
required
◦ Distribution can be in-house (vertical integration) or out-sourced
◦ Channel design alternatives are assessed primarily on effectiveness
and efficiency
Key Learnings
◦ Channel structure is influenced by the company, its markets, its
products, the kind of intermediaries available and the environment
◦ These factors are relevant in selection of channels also
◦ Companies prefer to use multiple channels to reach different sets of
customers – hybrid channels.
◦ Some of the parameters for evaluation of channels are: volume and
profits generated, extent of exclusivity, aggressiveness, support for
promotional activities, integrity and ability to build relationships.
Key Learnings
◦ Channel alternatives are evaluated on cost, ability to control,
adaptability and capability to handle range and volume.
◦ Training of channel partners can be in the class room or on the job
and is a continuous process
◦ Motivating channel partners can be done using different ‘power’
equations
◦ There are different formats of non-store retailing like catalogues,
internet etc
◦ Electronic channels are used to sell products to consumers directly
Key terms
◦ Agility – ability of the channel to handle changing demand patterns without additional effort or cost
◦ Assortment – various product alternatives made available by the channel to the customer to choose from
◦ Capacity – continued successful performance even at higher volumes of business
◦ Catalogue marketing – a company uses printed catalogues giving details of the product to sell directly to its customers
◦ Channel system – the bridge between the manufacturer and the ultimate customer of the products or services offered by the
company
◦ Coercive power – create a healthy competition among channel members so that they try and out-perform each other
◦ Consistency – channel network delivers the same targeted level of service always without fail
◦ Continuous replenishment program (CRP) – use of electronic scanners on retail shelves to inform the suppliers about the
movement of their products off the shelves, so that they can replenish the stocks on the shelves
◦ Direct selling - the company sells directly to its customers without the aid of any intermediaries
◦ Effectiveness – analysis of how well the channel system meets its objectives
Key terms
◦ Efficiency – effort required to achieve a desired service output level
◦ Electronic channels – the use of internet to sell products or services to consumers
◦ Expert power – company has a specialised knowledge which adds value to the channel partner and makes his task either
◦ Hybrid channels – use of multiple channels to reach different customer segments
◦ Integrity – channel does business in a fair and honest manner
◦ Intermediary – all entities operating in the channel system
◦ Legitimate power – this is enforcing any task expected of the intermediary as per the agreement or contract signed with
the company
◦ Lot size – most convenient size of the product which the customer can buy at a time
◦ Referent power – emanates out of the eminent position that the company holds in the industry
◦ Reliability – company can make promises on delivery to customers knowing that the promise will be definitely met by the
channel system
Key terms
◦ Reward power – companies provide incentives to the channel partners to perform additional tasks at
specific points of time
◦ Spatial convenience – facilitating the customer to buy his desired product from an outlet of his choice
◦ Support power – provide financial or other support to the better performers to induce the others to do
better
◦ Vendor managed inventory (VMI) – the suppliers undertake the task of keeping inventory on behalf of
the firms and supply as per an agreed schedule
◦ Vertical integration – one organisation does all the work relating to production of goods, marketing
and distribution
◦ Waiting time- time elapsed between the desire in the customer to buy the product and the time when
he can actually buy it
 SDM- Ch 12

QUESTIONS
CHANNEL MANAGEMENT
Learning Objectives
◦ Understand the use of power bases
◦ 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
◦ Some unique distribution examples
https://www.youtube.com/watch?v=l3AH1jcB8_I
Channel Management
◦ Is in three broad phases:
◦ Use of power bases
◦ Identifying and resolving channel conflicts
◦ Channel co-ordination
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
 French & Raven

“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
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.
 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
Examples

◦ Distributor has enough influence on his customers and this is

critical for the company also
◦ Weaker partners do get exploited – ancillary units
 Channel Co-ordination
◦ Channel system is well coordinated if each member
understands his role correctly and performs it to help the
system achieve its customer service objectives.
◦ In a coordinated 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
CONFLICTS
Channel Conflicts
◦ Conflict is generated when actions of any channel member come in
the way of the system achieving its objectives

https://www.youtube.com/watch?v=44r6Ua4ygh0
Channel Conflict
CONFLICT

GOAL DOMAIN PERCEPTION

Understanding of Understand Reading of the

objectives by responsibilities and market place is
various channel authority differently different and
members is different proposed actions
vary
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
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 utilize 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
LATENT – some discord but does not affect working

PERCEIVED – noticeable discord; attitudinal and structural

FELT – trying to outsmart each other; channel gets affected

MANIFEST – open agnostic behavior; open confrontation

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
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 behavior of channel partners. Confrontation results.
◦ 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

Differences in perception on the business environment

Channel members have certain expectations from each other for the future also. If these do not seem to be
materializing, conflicts occur

Decision domain disagreements – confusion on who takes decisions

Goal incompatibility – channel partners do not agree on objectives

Communication difficulties – misunderstanding/mis-interpretation

 Reasons for conflicts continued..
New channel partner

Target fixing exercise

Extension of credit

Multiple distributors

Difference in perception

Loss of opportunity

Clash of interest
Channel Conflict Types A

Type of conflict Briefly explained

Hybrid Producers and channel partners selling to the same
customers
Horizontal Between channel partners at the same level.
Distributors straying into each other’s territory.
Vertical Between channel partners at two different levels. A
C&FA despatches goods not ordered by the
distributor in order to make up a truck load.
Channel Conflicts – Hybrid
◦ Higher credit period for key accounts than company permitted to
distributors
◦ More favorable delivery terms to key accounts affecting
distribution costs of channel partner
◦ Direct sales prices lower than for the rest of the customers
◦ Company sales people complete sales – distributor used only for
delivery

Samsung case
SAMSUNG CHANNEL
CONFLICT CASE
In mid-2014, Samsung Electronics, one of the leading mobile phone companies in India, said it would take only the
offline retail route to sell some of its mobile phone models in India.

Samsung’s announcement came in response to the threat from its dealers to boycott the sale of Samsung mobiles unless
the company took action to stop the predatory pricing of its products on online sites.

While its rivals like China-based Xiaomi and Motorola were busy selling millions of handsets online, the South Korean
giant gave in to mounting pressure from brick-and-mortar retailers over predatory online pricing and decided to extend
exclusivity on selling rights of 48 models, including its much-awaited Galaxy Alpha and Note 4, to offline retailers..

India had a multi-layered distribution system which added to the costs of mobile phone companies. By 2014, there were
more than 400,000 retail outlets for mobile handsets and around 25% of these outlets sold smartphones. Samsung
understood quite early that if it wanted to compete with companies like Nokia in India, it had to have a strong
distribution strategy. In 2008, it strengthened its position in the Indian market by appointing regional distributors. As a
result, its sales doubled and it was able to corner 8% of the market share. The following year, the company revamped its
sales and distribution structure in India again. As part of the restructuring, 17 sales offices were set up in smaller
markets. The operations were decentralized till the branch level and efforts were made to rope in more distributors. ..
RISE OF E-COMMERCE IN INDIA
There were 173 million mobile internet users in India as of December 2014 and the total number of mobile internet users in the country was expected to
reach 213 million by June 2015, according to Internet & Mobile Association of India (IAMAI) and market research firm IMRB International...

ONLINE-OFFLINE RETAIL CONFLICT

Online shopping had given rise to a concept called ‘showrooming’ in which the people physically checked the product’s features in the showroom but
finally bought it online at a discounted price. Gagandeep Singh, owner of Lakshmi Electronics, a large-sized retail store in Delhi, said, “People won’t buy
anything at all now, unless it’s on discount...

TURBULENT TIMES FOR SAMSUNG

Although Samsung was the largest handset vendor in India in 2013, it almost lost its position to Micromax in 2014. A combination of lackluster device
launches combined with high pricing had led to a shift in the fortunes of the South Korean vendor...

SAMSUNG CHANGES CHANNEL STRATEGY

Responding to the threat, Samsung decided to stop selling 48 phone models online to focus on offline retail in September 2014. Looking at the growing
complaints, Samsung was reported to have set up a ‘brand store’ on the websites of its e-retailers including Amazon, Snapdeal, and Flipkart, where only
sellers authorized by the vendor could offer its products at prices mandated by the company, preventing predatory discounting...

THE REACTIONS
Samsung’s decision received mixed reactions from analysts. Experts also believed the move was risky. “It is indeed a very risky decision, especially
because online shoppers tend to be composed of early adopters...

THE ROAD AHEAD

Analysts opined that the move did not mean that Samsung would cease to sell all products online, as it had stated that it would look to offer exclusive deals
to e-commerce stores in selling select devices...
APPLE OPENING OWN STORES LEADS
TO CONFLICT WITH APPLE RESELLERS
MACadam Computer, Inc. (MACadam), located in San Francisco, was a long time authorized Apple reseller. Tom
Santos, (Santos) president of MACadam, complained that ever since Apple had started its own stores, it had become
difficult for him to procure iBooks with CD-rewritable/DVD combination drives from the company.
"It's adversarial," said George Blakely, owner and manager of MacHeads, a Lancaster, Pa.-based solution provider and
Apple channel partner. "Apple would like to sell everything themselves. They keep opening more and more retail
locations. They want to drive business to their own stores. They offer deals there that they don't extend to (the
channel.” “Every time they open another store, they are potentially putting a solution provider out of business,"
Blakely said.

Apple Revises the Terms and Conditions

By the end of March 2003, Apple had opened more than fifty stores all over the US, even as the total number of
resellers who filed lawsuits against Apple went up. Apple signed yearly contracts with its resellers, making it
mandatory for them to renew the contracts every year. During March 2003, as the old contract expired, Apple issued
new contracts to its resellers. The due date for signing the contracts was fixed as March 25, 2003. Thinksecret.com
obtained a copy of the contract and published some of the important sections of the new contract on its website...

The Conflict Gathers Momentum

On March 31, 2004, Apple resellers started a website (www.TellOnApple.org) which contained articles regarding their
conflict with Apple that had been published in various magazines and newspapers. The site was also intended to
collect and share any information pertaining to Apple's unethical practices even from customers and employees...
Consumers and Dealers File a Class Action Lawsuit
For the fiscal year that ended in September 2004, Apple retail stores recorded sales
worth US$1.185 billion (Refer to Exhibit VI) with a profit of US$39 million. On
February 17, 2005, three days after Armes filed his third amended complaint, a
five-member group of consumers and dealers filed a class-action lawsuit. The 26-
page lawsuit accused Apple of selling used products after refurbishing them. The
plaintiffs claimed that they had evidence to prove that Apple was guilty of selling
used products...

Conclusion
As a part of its overall growth strategy, Apple continued to open more retail stores.
By the end of April 2005, Apple had about 103 retail stores including three stores
outside the US - in London, Tokyo, and Osaka...
DELL
AGJ Systems, a managed service provider in Gulfport, MS, had a long-time relationship with Dell.
A former employee got a job working for the city and when he wanted to place a big hardware
order, he contacted his former employer. Using Dell’s web site, the quote was $250,000, which
would’ve garnered a nice commission for AGJ. Ryan Giles, CFO at AGJ, called his Dell rep, who
said he had to register the deal online even though they were on a state list of approved vendors.
They lost the deal because someone at Dell Direct was working on the same deal, even though the
former AGJ employee said he didn’t contact Dell. Circumventing the partners allows Dell to offer
a cheaper price to the customer.

Joshua Lieberman, president of Net Sciences, an IT service provider in Albuquerque, N.M. has
also experienced difficulties with Dell. There have been occasions where his staff has provided a
number of quotes based on a needs analysis, only to have Dell quote different prices that had no
basis in need.

The result is ACJ, Net Sciences and companies with similar experiences no longer push Dell, and a
new verb has been created: Getting Dell’d.
https://searchitchannel.techtarget.com/feature/Getting-Delld-Partners-open-up-about-channel-conflict
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

Conflict Resolution Styles
Avoidance Styles are a combination
of assertiveness and
Aggression co-operation.

Accommodation

Compromise

Collaboration

Least effort and Maximum effort and

results Best results

Kenneth W Thomas
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
Types of Distribution Policies
◦ Direct policy: You sell your products directly to the customer and by means of a simple strategy, as a
single sales channel (that is, your own physical or online store).
◦ Indirect policy: You distribute your products through several intermediaries and channels.
◦ Intensive policy: This is the most wide-ranging strategy, as it includes a larger number of intermediaries
and channels. Its degree of complexity depends on how ambitious you are: do you want to sell
internationally, for which you will need diverse distributors? Will you be betting on an all-channel strategy
that integrates physical and digital channels, in which case you’ll need to direct more effort towards your
warehouses and contacting a large number of sellers?
◦ Selective policy: You only distribute your products through a limited number of channels (such as, only
physical stores or only online marketplaces), or in a small geographical network (a country or a city).
◦ Exclusive policy: This involves you granting the distribution rights of your products exclusively to one
channel or outlet. It can be your branded online store or a retailer with whom you reach an agreement. This
type of distribution is common in brands with a very specific target or selling luxury products, in order to
feed their image of prestige; for example, certain Bulgari jewelry that can only be found at Harrods in
London.
Factors to consider
◦ What kind of product it is, because if it’s made of perishable material
you’ll need faster distribution to avoid accumulating expired stock. If the
product is delicate or hazardous, you’ll need special insurance and
transport for it.
◦ Where your end customers buy, whether through physical or digital
channels, or both.
◦ Whether your product needs demonstrations and tutorials in person,
by sales reps.
◦ Whether your product supports customization, and how you can best
offer this (yourself or through another participant)
Distribution Management in 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 – 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.
Channels Used
◦ Shorter channels than for products (doctors, dentists, lawyers,
accountants)
◦ Some channels used are:
◦ Direct from service provider to user
◦ Agents or brokers who primarily bring buyer and seller together
◦ Franchisees or contractors
◦ Electronic channels
◦ High degree of customization is provided
CASE: Medicare Pharma
◦ Medicare Pharmaceuticals is facing a revolt from six of its Mumbai distributors.
Medicare is relatively new on the pharma front and is just ten years old but has well
established products regularly prescribed by majority of the doctors and hospitals.
When Medicare started operations in Mumbai, they had difficulty getting good
distributors and hence offered 8 percent margin to the distributors. The company
supported the products and the distributors quite a lot to reach the present
comfortable stage. The distributors also stood by it. Now, the company wants to cut
down the margin to the distributors to 6 percent as their sales volumes are quite high.
The distributors do not agree. They know that Medicare cannot get distributors like
them.
◦ Question: What do you think Medicare should do to sustain their business?
Case: Mercury Electronics
◦ Mercury is the sole distributor for one of the biggest international electronic brands in the Middle East. Mercury’s
business was in consumer durables, electronic products like music players, play stations, video players/recorders,
camcorders etc. The customer segments for Mercury were the various corporates, hotels, restaurants, resorts and
all electronic and consumer durable dealers.
◦ Mercury used a variety of channel partners to reach the different customer segments – retailers, dealers, mass
merchandisers, wholesalers and direct to corporate customers. At the year end review of results, Joseph, the GM
of Mercury, was analysing some of the operational issues which had affected Mercury from achieving better
results. These issues seemed to be common among the different channels used. Joseph was keen that some of
these issues should get resolved in order to achieve better performance in the next year and for the future. The
issues were:
◦ Major month end sales skew – 30 to 35% sales happened in the last week of the month
◦ Sales in the first week of the month was almost nil
◦ There was no identifiable consistent daily average sales
◦ Sales seemed to be heavily dependent on a few major customers
◦ Collecting Accounts Receivables was becoming more difficult
Joseph informally checked up with other prominent white goods distributors and he found a similar pattern of sales.
Should Joseph just ignore the issues as just a market phenomenon or should he take any action to correct this? What do you think?
 SDM- Ch 13

UNIQUE
DISTRIBUTION
EXAMPLES
ITC e-Choupal A

◦ Uses the power of the internet to ‘work’ with farmers

◦ Links directly with farmers to facilitate procurement of agricultural
produce – wheat, soyabeans and coffee
◦ Helps farmers with latest and accurate information about climate,
rainfall and market prices of agri-produce.
E-Choupal Working A

◦ Kiosks set up in villages with computers and internet connectivity

(phone-lines or VSAT)
◦ Kiosk run by a trained farmer known as a ‘sanchalak’
◦ Kiosk serves about 600 farmers from 10 villages within a radius of
5 kms.
◦ Collection of agri-produce by ITC in warehouse hub
◦ Presently covers 6500 kiosks in 40,000 villages of 10 states
servicing 4 million farmers
HUL Project Shakti A

◦ Meant for empowering rural women

◦ Creates income generating capabilities in under-privileged rural women
◦ Provides a small scale enterprise opportunity
◦ Members of women self-help groups (SHGs) become Shakti
entrepreneurs
◦ Direct to home distributors of HUL products
◦ Offers high returns and low risks
◦ Supports popular rural brands of the company
Shakti Working… A

◦ Woman entrepreneur buys goods from the company

◦ Covers households in nearby villages and canvasses sales of the
company products and their benefits to rural women consumers
◦ Typical distributor sells about Rs 10K to Rs 15K per month and
earns about Rs 1000
◦ Presently covers 80,000 villages through 26,000 distributors
Vending Machines A

◦ A cash or card operated retailing format that dispenses products or

services
◦ Used normally for low value and frequently purchased items
◦ Eliminates use of sales people, provides 24X7 service and placed in
consumer preferred high traffic locations
◦ Evolved to accept bills (notes) and coins on a global basis
 Direct Selling – Eureka Forbes
https://www.youtube.com/watch?v=AaY0WzQ66wI A

◦ First company to directly sell domestic water purifiers and

vacuum cleaners in India
◦ Selling new concepts – company decided to use the direct selling
route
◦ Presently works with over 5000 salesmen touching about 1.3 million
homes directly and converting about 1500 new customers every day
◦ The dynamic and highly motivated sales people are called as
‘Eurochamps’
◦ EF has since started using ‘dealers’ for servicing industrial
customers
Amway – Multi-level Marketing
https://www.youtube.com/watch?v=gABzOGHwTx8

◦ Founding principles based on freedom, family, hope and reward.

450 products and 6000 employees world-wide.
◦ Manufactures and sells world-class consumer products
◦ All products covered by a 100% money back guarantee
◦ In India, sources products locally and helps set up manufacturing facilities

https://www.youtube.com/watch?v=x0FrI07pwR0
Amway Features A

◦ Four product categories – Personal care, Home care, Nutrition and

wellness and Cosmetics
◦ Distribution and selling network – independent sales consultants who
recruit similar sales people. Each salesperson earns income on his own
sales and on the sales made by salespeople ‘recruited’ by him.
◦ Presently in India, has provided business opportunities to 450,000 active and
independent business owners.
◦ Company reaches 3000 locations through a host of logistics service providers
Mumbai Dabbawalas (MD)
https://www.youtube.com/watch?v=N25inoCea24

◦ Every day in Mumbai, 5000 dabbawalas deliver 200,000 meal

boxes to customers without any mix-up
◦ Collects the food box from the house of the customer
◦ Deliver the food box at the workplace of the customer
◦ Returns the empty food box back to the customer house
◦ Use simple, alpha-numeric codes for identity of boxes
◦ All this is done using bicycles and public transport
MD Core Values
◦ No hierarchy in the organization
◦ All members are shareholders of the organization
◦ The only source of income for the members – deliver service with
utmost commitment
◦ Expect quick customer response to maintain delivery record
◦ Simple processes, employees capable of multi-tasking
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
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.
Key Learnings
◦ Some unique distribution examples include:
◦ ITC e-Choupal
◦ HUL Project Shakti – empowering rural women
◦ Vending machines
◦ Eureka Forbes – direct selling
◦ Amway – multi-level marketing
◦ Mumbai Dabbawalas
Key terms
◦ Accommodation – Style of conflict resolution indicating abject surrender by one party to the dispute
◦ Aggression – Style of conflict resolution where one channel member is concerned with his own goals without any concern for the
goals of other channel partners – a selfish approach
◦ Arbitration – Using a third party to resolve the conflict between the two channel partners
◦ Attitudinal conflict – Disagreement on role, expectations or perceptions
◦ Avoidance – Style of conflict resolution where both parties ignore or postpone decisions on the problem
◦ Channel Conflict – Channel conflict is generated when actions of any channel member come in the way of the entire channel
achieving its objective
◦ Channel control – measurement of progress towards achieving the channel system objectives
◦ Channel coordination – channel members work together to advance the goals of the channel rather than own and independent goals
◦ Channel dependence – it is a mix of the benefits derived by the channel members (utility) against the background of absence of
alternatives (indispensability)
◦ Channel position – this is the reputation a manufacturer acquires among the channel members
◦ Coercion power – hint of punishment for the channel member who does not fall in line with the requirements of the system
Key terms
◦ Collaboration – style of conflict resolution where both parties jointly work to resolve the conflict to a win-win
situation
◦ Compromise – style of conflict resolution where both parties to the dispute forego some points to arrive at an
amicable solution
◦ Countervailing power – channel members are dependent on each other. For every power which one channel member
uses on another, there could be a power which the target also can use
◦ Customer service goals – the service levels which a company may specify for key customers in particular
◦ Domain conflict – channel members understand responsibilities and authorities differently
◦ Expert power – special knowledge possessed by one channel member, which can be beneficial to the others in the
channel system
◦ Felt conflict – also called as affective conflict as the discord starts hurting the channel system results
◦ Goal conflict – objectives of channel members differ
◦ Horizontal conflict – arises between channels at the same level as in between distributors
Key terms
◦ Hybrid channel conflict – two different channels working with the same set of customers can get into this
◦ Latent conflict – some amount of discord exists but does not affect working relationships or results
◦ Legalistic power – power or influence derived from contracts or written agreements
◦ Manifest conflict – the conflict has escalated to a stage of open confrontation or blocking each other’s efforts
◦ Market domain conflict – doubts on which channel member is to cover which markets
◦ Mediation – use of parties friendly to both channel members in a dispute to help resolve the problem
◦ Perceived conflict – channel members become aware of the opposition but go about their tasks in a business like manner
◦ Perception conflict – channel members’ understanding of the environment and actions are different
◦ Power – the ability of one channel member to influence another
◦ Reference power – power derived from association with a highly reputed channel partner
◦ Reward power – benefit derived by a channel member conforming to behaviour in line with the channel system
◦ Source of conflict – the reason or situation that generates the conflict
◦ Structural conflict – discord between channel members based on tangible and well articulated causes
◦ Vertical conflict – channels at two different levels get into this kind of conflict
◦ Zone of indifference – channel members accept orders from other channel members without becoming conscious of the authority
 SDM- Ch 13

QUESTIONS