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