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Chapter 13
Channel Management
SDM- Ch 13
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Learning Objectives
Understand how and why channel conflicts occur
Look at ways of managing conflict
Channel practices followed to resolve conflicts
Principles of channel management
Various parameters on channel policy
Way in which services use marketing channels
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Channel Management
Is in three broad phases:
Use of power bases
Identifying and resolving channel conflicts
Channel co-ordination
Use of power….
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Use of Power Bases
Channel system has a set of players:
Not equally motivated to implement the ideal channel design
Whose expectations from the system differ
Use of the 5 power bases brings diverse channel partners in line for effective implementation
5 power bases are: reward, coercion, legitimate, expert and referent (French & Raven)
Two more power bases in the Indian context are support and competition
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Use of Channel Power
Channel members are dependent on each other. The power equations between them keep them working together.
There are basically 5 types of power bases – reward, coercion, expert, reference and legitimacy. 2 more can be considered as support and competition.
Extent of dependence defines the power base which is appropriate.
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“Power” of Motivation
French & Raven
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
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
Examples
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Co-ordination…

8. 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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12. 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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16. 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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17. 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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18. 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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19. Conflict Resolution Styles
Avoidance
Styles are a combination
of assertiveness and
co-operation.
Aggression
Accommodation
Compromise
Collaboration
Least effort and
results
Maximum effort and
Best results
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Avoidance
Used by weak channel members.
Problem is postponed or discussion avoided.
Relationships are not of much importance.
As there is no serious effort on getting anything done, conflict is avoided.
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Aggression
Also known as a competitive or selfish style.
It means being concerned about one’s own goals without any thought for the others.
The dominating channel partner (may be the principal) dictates terms to the others. Long term could be detrimental to the system.
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Accommodation
A situation of complete surrender.
One party helps the other achieve its goals without being worried about its own goals.
Emphasis is on full co-operation and flexibility in approach. May generate matching feelings in the receiver.
If not handled properly, can result in exploitation
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Compromise
Obviously both sides have to give up something to meet mid way.
Can only work with small and not so serious conflicts.
Used often in the earlier two stages.
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Collaboration
Also known as a problem solving approach
Tries to maximize the benefit to both parties while solving the dispute.
Most ideal style of conflict resolution – a win-win approach
Requires a lot of time and effort to succeed.
Sensitive information may have to be shared
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Channel Policies
Defines how the channel is required to operate.
Normally framed by the channel principal to guide the operations of the channel system
If not framed properly could prove the starting point of channel conflicts.
Some subjects of channel policies could be as seen in the next slide:
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Channel Policies
Markets to be covered
Customer coverage
Pricing
Product portfolio to be handled
Selection, termination of channel members
Ownership of the channel
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The Services Sector
Twice the size of the manufacturing sector
Services offered are to be in line with customer demand
Services have to be presented in an appealing manner to sustain customers.
Needs specialized channels which understand the characteristics of service delivery
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28. 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.
SDM- Ch 13
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