You are on page 1of 33

Marketing channels

Rosenbloom

Chapter 4
WHAT IS CHANNEL CONFLICT?

Channel conflict is any difference of opinion or disagreement between


channel members.
TYPES OF CONFLICT

Vertical Horizontal

M M

D D D

R
R R
CAUSES OF CONFLICT

Goal incompatibility
Resource scarcity
Role Incongruence
Decision Domain Disagreement
Perceptual Difference
Communication Difficulties
GOAL INCOMPATIBILITY

A Partner
Takes action to improve profitability

Negative Impact

Another partner
Goals

-Higher ROI
-Higher sales
-Higher margins
-Reduced inventory

Cause conflict
MARGIN CONFLICT

Chain
HUL Margin Supermarkets

GST has been introduced- prices have dropped

Supermarkets – ‘Price has reduced & so our absolute margin has


reduced- protect absolute margin else we will drop your brands from
our stores.’

HUL- Price reduction has reduced our revenue & therefore how do
you expect us to give more.’
MARGIN VS ABSOLUTE MARGIN

MRP = Rs 10 + 18% tax


Margin = 14%
Absolute margin = Rs 1.4

MRP= Rs 9 + 28% tax


Margin = 14%
Absolute margin = Rs 1.2

1.4/9 = 16%
MARGIN POLICY

Absolute margin not protected


But some increase in margin given
RESOURCE SCARCITY

Multiple Channels
Common market
Or Insufficient
customers for all
Multiple Channel
partners

Cause conflict
MULTIPLE CHANNELS

SAMSUNG
Smart-phones

Online retailers Offline shops

Common models

Consumers

Offline retailers jointly protest that online channel is


cannibalizing/reducing their sales. If nothing is done we will give less
attention to Samsung brands (‘bait & switch’ tactics).
CHANNEL SEPARATION POLICY

Online retailers Offline shops

Exclusive online models Exclusive offline models

Consumers
MULTIPLE CHANNEL PARTNERS

Raymond increases number of franchisees in every area

Franchisees
Spread out in different areas

Pune

Franchisees jointly protest- you are ‘over-dealering the market-


insufficient business for all -our sales will reduce.’

Franchisor- population growing & so we need more franchisees


GEOGRAPHICAL PROTECTION POLICY

‘Keep them far away from one another’ strategy

High Street Exclusive area of 3 kms


New Malls 1 only
ROLE INCONGRUITY

Franchisor Franchisee

Role Role
(Design operating system) (Operate as per operating system)

Support

Role Performance of one partner not as per expectation of the


other partner cause conflicts
INADEQUATE ROLE PERFORMANCE

Aptech Brand building role


Franchisor

Media

Aptech
Franchisees

Consumers

Franchisees complain- Inadequate advertising reducing our sales


Franchisor-Media budget inadequate due to rising media costs
CONTRACT POLICY

Franchisor requests for advertising contribution


Franchisees agree
Contract amended
DECISION DOMAIN DISAGREEMENT

Franchisor Franchisee

Decision making areas Decision making areas

Interference in decision making area


Or
Differing viewpoints in joint decision making areas

Causes conflict
Franchisor Stocking quantity Franchisee

Eg-Ready- made
Garment
manufacturer

Franchise- I will not stock ‘slow moving’ products – they will not sell
in my market

Franchisor-You have agreed in contract to stock ‘full line’

Franchisee- Quantity is not specified in contract


INVENTORY PROTECTION POLICY

Buy back contracts


We will buy back non moving stock if it does not sell in 60 days

Q- Can you give another example where ‘returns’ are allowed?


PERCEPTUAL DIFFERENCE

Environment
Manufactures &
Channel partners -Demand
-Competition

Same facts- interpreted differently cause conflicts


MULTIPLE CHANNELS

Coke- Supermarkets-Japan
Japan
Add

Vending machines

Coke-We want to reach new customers by adding a vending machine


channel @ locations where time starved customers are present.

Supermarkets-This will reduce our sales

Coke- Vending machines will be put only@ airports/railway stations


where customers do not have time to go to shops-your shops were
never there so your sales will be unaffected.
CONFLICT RESOLUTION METHODS

Margin policy
Channel separation
Protective policies
Contract policy
Communication solution
CHANNEL POWER

Channel Power is the capacity of a channel member to influence the


behavior of another channel member so that they take actions that
otherwise they would not have taken.

Power factors- Understand power


Power sources-Using power
Power equations-Analyze power
POWER FACTORS

Who is more powerful in the channel?


Manufacturer or channel partner

Depends on
Partner Factors
HUL vs Kirana stores

More Powerful- Why?

-Relative Size
-Product line
(High demand brands if available in shop increase retailer footfall/sale
& if unavailable reduce footfall /sale)
WAL-MART vs UNILEVER

More powerful –Why?

-Relative Size
-Market access
(Wal-Mart can make product available in 5000 shops to 150 million
regular customers)
MODEL 1
POWER FACTORS

Market
access
Product

Supplier Channel
partner

Size
Size
AVAILABLE POWER SOURCES
WHAT ARE THEY USED FOR?

Manage channel

In

Franchisor- franchisee networks


Manufacturer- distributor networks
KINGFISHER DISTRIBUTRSHIPS

The beer company uses a number of power sources in its dealings


with distributors.

The company is well known & prestigious which gives company


referent power & this makes large distributors want to associate with
it & makes job of selecting talent easy for company.

Legitimate power comes from contracts which are used to control


distribution behavior by specifying performance standards such as
infrastructure to be created -inventory to be maintained – coverage
ratio required.

Distributors perform to high standards as they want to remain with


company. The company has reward power (capacity to reward) &
makes distributorships very profitable due to strong brand coupled
with decent margins & large & exclusive territories.

The company had shown itself to be willing to use coercive power


(capacity to punish). Although many distributors have represented
the company for many years the company has a track record of
terminating non performing distributors and replacing them with
other competent ones.
MODEL 2
POWER SOURCES

Referent power Prestigious name

Legitimate power Contracts

Reward power Profitable product line

-Margin
-Large & exclusive territories
-Advertising support
-etc

Coercive power Power to terminate

Expert power Knowledge power


HOW POWER IS USED TO MANAGE CHANNELS?

Referent power

Attract talent

Legitimate power

Controls distribution behavior

Reward power Coercive power

Keeps performers in channel Eliminate non performers


from channel
POWER EQUATION

Who is more powerful HUL or Future group?

Power equation analysis


If they stop dealing with one another-
Who will lose the most?
MODEL 3
COUNTERVAILING POWER

Alternative
channels to market

HUL Future group

Alternate product
lines

HUL – Sells 70% through ‘traditional retail’ & 10% through Future
group & 20% through other chains- sales will fall a little

Future group- Brands equivalent to HUL not available from any


other source – therefore footfall/sales likely to fall substantially