Channel Management Abs M&S

Amity Business School


MBA(M&S) Class of 2010, Semester IIChannel Management

Power, Conflicts and Control

Prof. P K Bansal


Multi-Channel Marketing System

Channel Options

Direct Marketing

Sales ForceIntermediaryMarketing Channel


Channel

Management

1

Use of

Power Bases

2

Resolving

Channel

Conflicts

3

Channel

Control

Amity Business School1 POWER BASES

Referent Power

Expert Power

Legitimate Power

Competition Power

Coercive Power


Referent Power• Driven from the position the company holds in

the industry.• It comes from instant recognition and respect

associated. (Nestle, Vijay Sahu)

Expert Power• Specialised knowledge on developing

business, available with a channel member, which adds constant value to the channel operation to perform well. (HUL)


Legitimate Power• Legal power to enforce agreement or contract

signed with the company as regards to distribution / sales / credit etc. (HUL, Brooke Bond) `

Support Power• Company can provide additional support to

channel partners to increase volumes viz. promotions, distribution costs and awards etc.

Competition Power• Ability to generate rivalry among channel

partners to compete in contests and targets etc.


Reward Power• Provide incentives to the channel partners to perform

additional tasks at specific points of time.• It is only for a specific duration and task.

Coercive Power• Power of a threat to the defaulting channel partner e.g.,

take away some support, discount, appoint more distributors or persuade to extend credit to important customers.

• Used by companies having established distributors with very high dependence on the principal to stay in business.


USE OF CHANNEL POWER• Power is part of any channel network as the ability to

influence the actions of other channel members.

• All players are dependent on each other.

• The extent of dependence of one on other decides appropriate power base.

• The influence is necessary to the overall batter performance of the system in delivering customer service objectives.


• Power is the instrument of influence to make the other member willing to act in situations they normally would not have acted in that manner.

• Exercising power is not exploitation or force or pressure, but value adding in context of channel management.

• Dependence of channel members on each other is based on the benefits they can drive.

• Channel members consider themselves important and powerful if the company is dependent on them but this perception of power has no value if company can find alternatives.


Dependence is determined by:

1. How important is the business of the principal to the channel member.

2. How good the channel member is as a channel partner.

3. How good the company products / New product launches are perceived.

4. Channel partner working in the best interest and working parameters of the principal.


DEPENDENCE CONTEXTS• Not only the Channel principal, but channel partner can also have

advantage over the principal / other members by having referent and expert power over his own customers which is equally valuable to the company. This power is called, Countervailing power.

• This dependence in channel relationships is very critical in reducing confrontation and improves co-operation for good performance of the channel.

• The interdependence can be deadening for the ancillaries solely dependent on the principals with the declining business.

• Distributors therefore shy away from being exclusive for any single company unless it is a company like HUL, P&G, Nestle, L&T or Maruti.


2CONFLICT

GOAL

Understanding

of objectives of

Channel members

is different

DOMAIN

Channel members

Understand

Responsibilities

differently

PERCEPTION

Understanding of

Market Place is

different. Actions

do not match


What is Channel Conflict?

• Channel conflict is a situation of discord or disagreement between channel members from the same marketing channel system.

• Conflict always has negative connotations and is driven more by feelings than fact.

• It is initially latent and does not effect the working of the channel members.

• It is not possible to detect till it reaches a level of disruption.


2

PERCEIVED

3

FELT

1

LATENT

4

MANIFEST

Conflict

Stages


Sources of Channel Conflict

• Unclear Role Definition.• Appointment of New Channel Partner.• Target Fixing Exercise• Extension of Credit• Multiple Distributors• Dealers/Distributors sell competing products.• Allocation of Resources by the parent company• Opposing Behaviour/ Direct Competition with

trade partners


Managing Conflict

• Understanding the nature of conflict and its impact.

• Tracing the source of the conflict.

• Understand the impact of the conflict.

• Strategy and Plan of action for resolution.


Conflict Resolution

• Joint membership of trade associations• Distributor councils/ unions used as a medium of

coercive power• Mediation through trade associations• Sharing of information between channel partners• Use of third party for mediation• Clear rules of conduct to help build relationship• Use of incentives and rewards based on

performance as part of conflict resolution


Styles of Conflict Resolution

Avoidance• Used by weak channel partners where

relationship is not of much importance. The problem is postponed only.

Aggression• Used by the dominant member using coercive

methods.


Accommodation• A situation of complete surrender. One party

helps other without being worried about its own goals. Situation can also lead to exploitation.

Compromise• Finding mid way solution. Can only work with

small and not so serious conflicts.

Collaboration• Win-Win situation. Information sharing approach.

Amity Business SchoolMinimising Channel Conflict

Value added by Channel

Significant Insignificant

Cooperate•Look for WIN-Win•Seek Compromise•Look to sell New Products through New Channels

Forward Integrate•Identify New Value Proposition•Act Fast / Independently•Fill Gaps in Channel Coverage

Channel Controls Customer

Market P

ow

er

Lead•Define appropriate approaches for the Channel•Make Initial Investment

Compete•Internet Link to Customers•Shift volume to new Channel by Promotion

Supplier Controls Customers


3

CHANNEL

CONTROL

PROTECTION

Interest of all

Channel Members

are protected

OBJECTIVES

Actions of all

are in line with

overall objectives

DELIVERY

Channel Flows

streamlined to

service end

customers


Maintaining Cordial Relationship• Cordial relationship require similar goals for channel

members regarding the various aspects of relationship to achieve effectiveness and efficiency in the process of delivering service of outputs required by end users.

• Convergence is essential in terms of individual goals of all the channel members with a collaborative process by:

1) Frequent and Effective Communication of Information.2) Proper Grievance handling system.3) Proper distribution of roles, resources and power.


Significance ofIndividual Goals

High Low

Integration byNegotiation

Compromiseby Sacrifice

Long Run Natu

re of

Relatio

nsh

ip

Forcing byDomination

Withdrawalby avoidance

Transactional

Channel Relationship Maintenance Strategies


References :

• Sales and Distribution Management; P K Agarwal & Manoj Kumar; Pragati Prakashan

• Sales and Distribution Management; Krishna K Havaldar & Vasant M Cavale; Tata McGraw-Hill Pub. Co. Ltd.