CHAPTER 13: CHANNEL MANAGEMENT

Is in three broad phases:

1. Use of power bases 

2. Identifying and resolving channel conflicts 
3. Channel co-ordination

I. USE OF POWER BASES

Power is a part of any channel network. All networks consist of number of players who are
dependent on each other and it is the power equations between them that keep them working
together to achieve the channel objectives.

 Power – is the ability to influence the actions of channel members. 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

1. Reward is a benefit given to channel member for him to conform his behavior in line
with the system. Reward could be financial or otherwise (recognition for
example).Incentives for good performance
2. Coercion –is the hint of punishment for the channel member if he does not fall in line
with the requirements of the channel principal. Threat of punishment for non-
performance
3. Expertise – based on the special knowledge that the channel principal may have which it
of particular benefit to the channel partners. Specializedknowledge
4. Legitimate – the power that emanates from contracts or agreements usually in writing.
These contracts clearly define the parameters of behavior and action expected form
each of the signatories to the contract and give rights for them to enforce the behavior
in action in case of default. Arising out of  a contract.
5. Reference – this power stems from sheer association. A principal may be considered as
the industry gold standard and the channel partners associated with this principal feel
proud to be part of his distribution organization and may exhibit behavior and actions
which in normal course cannot be expected of them.

Competition and Support power are equally relevant in the management of a channel system.
In reality, the powers do not operate in isolation but in combinations to get more impact for the
influencer.

The power bases are also classified as coercive (coercive and reward) and non-coercive
(legitimate, reference and expert).

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 If any channel member or principal able to provide all the five bases to its channel partners, it is
the ideal channel.

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.Company exerts power on the distributor to
get its coverage and revenues 

o Distributor has enough influence on his customers and this is critical for the company
also 
o Weaker partners do get exploited -ancillary units

II. CHANNEL CONFLICTS

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 facts.

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:

1.  Goal conflict –understandingof objectives by various channel members is different. 
2. Domain conflict –understandresponsibilities and authority differently 
3. Perception conflict–readingof the market place is different and proposed actions vary.

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

Conflicts result from:

a) Each channel member wanting to pursue his own goals
b) Each wants to retain his independence
c) There are limited resources which all of them want to utilize in achieving their goals

Features of conflicts:

a) Initially latent and does not affect the working. 

b) Is not normally possible to detect till it becomes disruptive.

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 Four Stages of Conflict

1. 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.

2. 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

3. 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.

4. Manifest Conflict:
◦ Reflects open antagonistic behavior of channel partners. Confrontation results. 
◦ Initiatives taken are openly opposed affecting the performance of the channel
system. 
◦ May require outside intervention to resolve

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
◦ 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 misinterpretation of routine business communication

RESOLVING CONFLICTS
Four stages for conflict resolution
1. Understanding the nature and impact of conflict
This step starts with identifying that a conflict exists and then understanding
how serious the conflict is. There could be several steps in this process:

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 a) List down all major issues which arisen between the parties concerned
for the last 3 to 6 months and could be a source for concern.
b) Rank the issue in terms of their importance to the relationship and the
achievement of the joint goals.
c) Check how frequently these issues surface have in the review period
and what are the views of both parties on the issues.
d) Assess the perception of each party on the issue and how strongly each
feels about what it being expected from them about the issue.
e) Inventory of all the issue ranked in importance,. Frequency of
occurrence and the view of the parties concerned on what really seems
to be the problem.

2. Tracing the source of conflict

Some of the causes of conflict could be broadly identified as:
◦ The objective set by the channel members for themselves may not match the
overall requirement of the channel system- clash of goals
◦ Channel members understanding of their domain areas where they feel they
have the independence of operation.
◦ Channel members may “read” the business/market situation differently.

Some of the methods used to find out it conflict exist include:

◦ Checking with channel members at regular intervals about what they think of
each other’s performance.
◦ What in their opinion are some of the irritant of the system? How successfully
have these been tackled in the past?
◦ Salespeople continuously assess the performance of the channel members and
can sense latent conflicts. They also keep making efforts to resolve these clearly.

3. How conflict escalate

4. Strategy and plan an action for resolution

Conflict Resolution Styles

Styles of Conflict Resolution

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 1. Avoidance– both parties ignore or postpone decision on the problem.
◦ 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.
2. Aggression (competitive or selfish style) –one channel member is concerned with his own
goals without any concern for the goals of other channel partners.
◦ 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.
3. Accommodation–indicating abject surrender by one party to the dispute.
◦ 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.
4. Compromise – both parties to the dispute forego some points to arrive at an amicable
solution.
◦ 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.
5. Collaboration (problem solving approach) – both parties jointly work to resolve the
conflict to win-win situation.
◦ 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

If the conflict does not get resolve easily, the company will then have to resort to:
1. Diplomacy or relationship
2. Mediation –use of parties friendly to both channel members in a dispute to help resolve
the problem.
3. Arbitration –using a third party to resolve the conflict between two channel partners.
4. The last resort to resolve a dispute is a legal recourse.

III. CHANNEL CO-ORDINATION

Channel system is well coordinated if each member understands his role correctly and performs
it to help the system achieves its customer service objectives.

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  In a coordinated channel:
◦  Interests of all channel members are protected 
◦ Actions of all are in line with overall objectives  
◦ Flows are stream lined to desired customer service objectives
 Channel co-ordination is a non-going effort

IV. PRICIPLES OF CHANNEL MANAGEMENT

Channel management is in four steps:
1. The planning effort – setting the objectives
2. The organization structure to deliver the customer service objective –the people and the
channel members and a clear definition of responsibilities.
3. Ability to control the channel –measuring progress toward the objectives and making
course corrections.
4. Measuring performance for constant improvements.

V. 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:

◦ Markets to be covered
◦ Customer coverage
◦ Pricing
◦ Product portfolio to be handled
◦ Selection, termination of channel members
◦ Ownership of the channel

VI. DISTRIBUTION MANAGEMENT FOR SERVICE

An organization or individual offering a service will be more successful, if the service offered are
exactly in line with the customer demand and are presented in an appealing manner.

5 Characteristics of Services

1. They are intangible -can only be felt. They cannot be easily distinguished by factors like visible
features, style or performance characteristics.
2. They are inseparable from their service providers–it is not possible to delegate the delivery to a
third party. The service is tied to the provider of the service. 
3. They cannot be standardized -custom made and delivered. Services are people intensive and
can vary with the people providing them. They can also vary with the same person over time.

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 4. Customers are involved to a great degree–they are required to define the extent of the services
provided to them.
5. They are perishable -cannot be stored for delivery at a future date. Services cannot be produced
and stores in anticipation of customer needs.

Services require the input (involvement) of the customers to perform better. The provider has to
facilitate customer involvement. The channel should be designed to maximize the sale of service
during the limited exposure to the target market. The provider has to quickly connect the service
provider will all prospects.

o Shorter channels than for products

o Some channels used are:
◦ Direct from service provider to user  
◦ Agents or brokers to bring buyer and seller together  
◦ Franchisees or contractors 
◦ Electronic channels
o High degree of customization is provided

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