Channel Power

Channel Dependency
Channel
Management
Channel Conflict

Channel Conflict
Management
Channel Implementation Process
After attaining a good channel design for the market, the channel manager’s
job is not over. He now has to implement the channel design.
The same involves 3 basic tasks :-
Identifying Power Sources

Identifying channel conflicts

Achieve Channel coordination

 Power defined:
Power is the ability of one channel member
( A) to get another channel member (B) do
something, it otherwise would not have
done. It is basically the potential to
Channel influence!
power Difference between power & co operation
Power depends on the retail structure
Retailer
Distributor
Manufacturer
 Channel dependence is when one member needs the
other member more
New products
New retail outlet
Why New area

Distribution Interdependence is when both channel members

need each other equally
channels Interdependence in channel system does not mean,
that what is good for one is good for all
require Each channel member is seeking it’s own profit
power? Maximising the system’s profit is not the same as
maximising each member’s profit
All else constant, each member tries to avoid cost at its
own level or push it to the other channel member while
garnering revenues.
 The key to determining which channel
member has the most power lies in an
understanding of the sources of power
available to channel members. E.g Dell
selling HP printers
Identifying Five sources of power:-
the power a) Reward Power
sources b) Coercive Power
c) Expertise Power
d) Legitimate Power
e) Referent Power
 A reward is a benefit given in recompense to a
channel member for altering its behaviour.
Financial aspect of rewards.
Reward power is based on the belief held by
Reward B that A has the ability to grant rewards to
B.
Power The effective use of reward power rests on
A’s possession of some resource that B
values & believes it can obtain by
conforming to A’ s request
Example : Asian Paints
 Coercive Power stems from B’ s expectation
of punishment by A if B fails to conform to
A’s influence attempt.
• reduction in margins,
• withdrawal of rewards previously granted,

Coercive •
•
exclusive territory right,
slowing down of shipments.
Power It’s the reverse of reward power.
Channel members view this as an attack on
themselves & their businesses. Stems from
great size & position in the industry.
P & G, Unilever, Coca Cola
 • Expert Power is based on the target’s
perception that the influencer has special
knowledge, useful expertise that the target
does not possess.
• To retain expert power in the long run, a
channel partner has 3 options:
• Dole out expertise in small portions
Expert • Invest in continuous learning, thereby it shall
always possess some new & important
Power information to offer
• Transmit only customised information i.e
encourage transaction specific expertise
Eg Supermarkets, retailers & industrial
distributors have an edge over
distributors/suppliers on consumer
information;
Eg Maruti over Competent Motors
 • To be legitimate is to be seen as right &
proper, as being in accordance with what is
seen as normal or established standards.
• The same stems from the target company’s
sense that it is in some way obligated to
comply with the requests of the influencer.
• The decision maker feels constrained
Legitimate morally, socially or legally to go along with
the influencer
Power • Legal legitimate power is conferred by govts.,
coming from the nation’s law of contracts&
the laws of commerce. For e.g. In many
countries patent & trademark laws gives
owners justification in supervising the
distribution of their products, franchise
contract
 Case
• NIIT
• Responsible for Course
Development
• Marketing and Promotion
• Student Enrollment
• Faculty Training
• Assessment
• Franchisee
• Infrastructure
• Conduct of Classes
• License Fee

The first 25 years, we focused on IT

training and the next 25 years we will
focus on training using IT.
 • Referent Power exists when B views A as a
standard of reference & therefore wishes to
identify publicly with A
• A prominent reason for wishing to be
Referent publicly identified with the other is prestige
Power • Downstream channel members would like to
carry high status brands to benefit their own
image
JC Penney almost “begging” Levi strauss to
sell it’s jeans through them
Harley Davidson
The Balance of Power

Channel outcome depends on the balance of power in a relationship

Net Dependence

Dependence is never entirely one way, it is mutual. Power is to be balanced

in a relationship. Net dependence should be assessed.
High mutual dependence gives rise to high mutual power. Each channel
member is able to create high levels of value addition.
The two sides can drive each other to craft & implement creative win win
solutions
It also encourages cooperation by blocking exploitation, no party is weak,
both are giants. The same leads to channel coordination
Imbalanced Dependence
Exploitation inevitable?
Imbalanced dependence happens when one channel member A is much more
dependent than channel member B.
Typically a large producer or manufacturer dealing with relatively small
channel members at a wholesale or retail level has high reward or coercive
power. On the other hand, you also have retail giants like Wal-Mart, Toys
“R” Us who negotiate & exercise power on various suppliers.
The balance of power favours B & A is open to exploitation
The dependent party suffers in economic terms as well non economic
benefits.
e.g. Marks & Spencers ( Britain’s largets retailer) preferred suppliers
Imbalanced Dependence : Countermeasures for the weaker party

• The weaker party can take 3 counter measures :

a) Developing alternatives to A
b) Organizing a coalition to attack A
c) Exiting the situation , removing itself from the danger by no
longer seeking the benefits which A provides

e.G the U S automobile dealers; once represented only one brand

of car but were eventually forced to diversify themselves
 Exercising Power: Influence Strategies
“ The more the parties have power, the more they tend to use it”

 Latent power is rapidly converted to exercised power

 Converting the potential to influence into real changes in the behaviour
of the other party requires communication. The nature of that
communication affects channel relationships.
 Most of the channel communications can be grouped into the following
six influence strategies :-
1) Promise strategy 4)Request strategy
2) Threat strategy 5)Information Exchange strategy
3) Legalistic strategy 6)Recommendation strategy
Influence strategies contd.

Power sources
Influence strategies
1.Promise Reward
2Threat Coercion
3.Legalistic Legitimacy
4.Request Referent, reward, coercion
5.Information Exchange Expertise, reward
6.Recommendation Expertise reward
Consequence of each strategy/ implications of the use of power ( General inferences)

• Some forms of power must be exercised to influence channel member

behavior
• The effectiveness of various power bases in influencing channel member
behaviour is most of the times situation- specific.
• The use of power also affects the degree of co operation and conflict in the
channel & can affect the level of channel member satisfaction with the
channel relationship.
• The first three styles (promise, threat, legalistic) often provoke a backlash
because they are perceived as heavy handed , high pressure techniques.
• In the short term, high pressure techniques are effective, however they have
damaging long term effects on the counterpart’s trust & commitment.
 Contd.

• A promise can be considered as a bribe, as insulting & unprofessional,

something of a forcing technique in the short term
• In the long term, it has mixed effects. The counterpart usually delivers on the
promise & his & channel members financial indicators improve
• The last three influence strategies (request, information exchange &
recommendation are more subtle more nuanced than the first three.
• Channel counterparts welcome these efforts and do not take offence of the
usage
• These three strategies increase all facets of counterpart’s satisfaction
economically & interpersonally.
• Recommendation strategy although more overt because the desired
behaviour is stated, does not threaten the counterpart’s autonomy
 Nature of channel conflict

Channel conflict is a state of opposition, or

discord among the organization comprising
a marketing channel
Channel The many connotations of conflict :-
Conflict contention, disunity, disharmony, argument,
friction, hostility, antagonism, struggle,
battle…
Interdependent parties at some level try to
block each other
 • In channel distribution, conflict is not
negative, rather, some conflict actually
strengthen and improves a channel.
Channel • “Channel conflict arises when the behavior
of a channel member is in opposition, to its
Conflict channel counterpart. It is opponent centered
and direct, in which the goal or object
sought is controlled by the counterpart.”
Coughlan, Anderson, Stern, Adel, p. 238
 Latent conflict – norm in marketing
channels …conditions are right for
contention by the organization is
unaware of it (lacking perception).

Perceived conflict – cognitive,

emotionless and mental …channel
member senses some sort of conflict
Types of exists; “all in a days work”.

Conflict Felt conflict – affective conflict, when

emotions enter the equation.

Manifest conflict – visible, expressed

in behaviour. Usually seen as blocking
each other’s initiative or withdrawing
support.
Types of conflict

• Horizontal conflict
• Encroachment of Territory
• Undercutting (prices)

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Vertical Channel
Conflict
• Nonperformance of the distributor
• Lack of promotional support from the
company
• Reduction of margins, incentives
• Unnecessary aggression by the sales force
• Pressure to lift stock
• Conflict over damages, expiries and
returns
• Entertaining competitive brands
• Lack of information sharing
• Preference of one distributor over other
• Delay in deliveries

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 Multi-
channel
conflict

24
 • Earlier companies used to opt for one
primary route & other routes were
downplayed, even disguised in order to
avoid channel conflict & avoid confusing
customers.
• Now with the explosion of multiple channels
it’s become more of a norm rather than
exception.
Multiple
• The reasons for the same are :-
Channels - Heightened competition
- Helps increase market penetration & raise
entry barriers to potential customers.
- Helps serve customers efficiently in case of
fragmented markets
The objective is to provide convenience to
customers.
 The basic question is , when should multiple
channels be used & how much without
increasing conflict to ruinous levels?
• Growing markets, which tends to offer
opportunities to many players
• Markets in which customers perceive the
product category as differentiated
Analyzing • Markets in which buyers have a consistent
multiple purchase style that involves one type of
channel member
channels • Markets that are not dominated by buying
groups

Eg Coca Cola faced opposition in Japan from

retailers on installing vending machines
 Measuring conflict
For diagnosing the true level of conflict that an organization
faces in a channel relationship
Gather 4 kinds of information :-
Step 1 –Counting up the issues
Step 2- Importance
Step 3- Frequency of disagreement
Step 4- Intensity of dispute
With this one can calculate index of conflict :-
Conflict =n
Importance * Frequency* Intensity
i=1
Consequences of conflict

• Generally considered dysfunctional, negative in terms of

consequences but at certain occasions conflict actually makes the
relationship better!
• Functional (useful) conflict are positive in their outcome.

• In a functional conflict , opposition leads to :-

 More frequent & effective communication
 Establishing outlets for expressing their grievances
 Critically reviewing their past actions
 Devise & split more equitable split of system resources
 Develop more balanced distribution of power
Develop standardized ways too deal with future conflict
 Contd.

• When channel members are committed, these disputes raise

standards of performance in the short term encourages close co
operation

Are peaceful channels better?

• At times what appears as peaceful & harmonious relationship
might be a relationship of indifference ! The two parties don’t
disagree on anything & neglect becomes mutual. The
relationship then exists only on paper
• Lack of conflict soon becomes lack of engagement that leads to
poor performance ,increasing activity levels can be a solution.
Conflict
Resolution
Strategies
- Information sharing
- CPFR
- Cooperation
- Negotiation
- Accommodation
- Mediation
- Arbitration
 Styles of conflict resolution

High cooperativeness
Cooperativeness: Concern for the
Accommodation other party’s outcomes
Collaboration or problem solving
Compromise

Low assertiveness High Assertiveness

Avoidance Competition
or Aggression
Assertiveness: Concern for
one’s own outcomes
 Contd.
Building Relational Norms
• Norms are another class of factors that serve to forestall
conflict.
• They govern as how channel members mange their relationships
& grow over time as relationship functions.
• A channel’s norms are its expectations about behaviour,
expectations that channel members at least partially share.
• Some commonly observed norms are :-
Flexibility :expectation to adapt readily to the changed
environment , without obstructions
Information exchange:expectation to share any & all pertinent
information, no matter how sensitive the same is
Solidarity :expectation from each other to work for mutual
benefit.
 How to manage multiple channels
• Multiple channels don’t always compete.They can help each other
by building primary demand. E.g combination of a store & direct
marketing operation
• Devising different pricing schemes for different channels carefully
as this at times becomes legally dubious, leads to an opportunity of
arbitrage. E.g. gray markets
• Offer more products, more service, more support, even different
products to different channel types to help them differentiate
themselves. E.g Xerox
• Offer different brand names to different channels.
• Sell primary flagship product line from one channel & remaining
secondary or peripheral things through a captive channel. Pioneer
Electronics ( IT industry)
• All parties should be made to realize that the environment has
changed & that market has split into different segments demanding
different level of service outputs