Channel Conflict Channel conflict at any stage of the distribution network is detrimental to the performance of the channel members.

Hence it requires immediate attention from the company. Generally, conflicts arise when there are differences between the objectives of the channel and the company. Some of the important reasons for the conflicts could be: 1. The retailers may demand extra margins with the changing demand scenario in the market. This may not be acceptable to the company. 2. On the other hand, conflicts could arise between the wholesaler and retailers on issues of credit. Extending the credit period would seriously hamper the Return on Investment (ROI) of the wholesalers. 3. Delivery schedules could also be a reason for conflicts in the channel. A wholesaler would like the company to supply as frequently as possible so that his inventory-carrying costs come down. 4. Another area of conflict could be due to the direct supply of products by the company to the customers. This will result in conflict with the retailers as the company will be able to supply at a lower price to the customers. FORMS OF CHANNEL CONFLICT Multi-channel conflict: When two or more channels compete against each other to sell to the same market. Competition in such a case is not healthy and leads to the decline of both competitors.

Horizontal channel conflict: When two or more partners of the same channel compete against each other. This competition among the channel partners results in dilute the brand image of the product. INDICATORS OF CHANNEL CONFLICT Channel conflict is indicated by certain parameters, which are both external and internal Internal indicators: Low channel productivity Deterioration of channel relationships Poor customer relationships External indicators: Low on customer satisfaction Reduction in support of product line De-emphasis on brand Competition for sale in the same geographical area

A survey was conducted in two sales organizations (names withheld) to find out how affected the performance of the company.

PAINT COMPANY An excellent distribution network forms one of the critical success factors in the paint industry. The company has four manufacturing facilities and more than 2,800 Stock Keeping Units. These are supported by six regional distribution centers, which cater to 55 depots. Each centre has a branch manager and several salespersons who cater to more than 14,500 distributors, wholesalers & retailers and customers in the more than 3,500 big and small cities all over the country. The company follows a Multi-Plant Distribution System (MPDS) which means - __ the depots are serviced by all the four plants depending on the availability of the product at the plant warehouse. Possible areas of channel conflict are as follows: Multi-point contact with institutional buyers (company sales representatives and retailers) . Direct contact of wholesalers as well as retailers with the final consumer. Direct contact of wholesaler as well as retailer with the company depot. Research Findings 1. The depots directly serve both the retailers as well as the wholesalers: This led to differential pricing by the wholesalers and retailers. Both the wholesalers and the retailers served the consumers. Since the wholesalers enjoyed the benefit of bulk discounts, they were able to offer lower prices to their consumers. This led to unrest among the smaller retailers as they lost their customers to the bigger wholesalers. 2. The sales force directly contacted the institutional buyers: Although the salespeople of the company directly met the institutional buyers, it did not lead to a loss of revenue to the dealers located in the region. The paints company had taken due care that no supply to consumers (despite the quantity of the order) was made directly from their branches or depots. All the deliveries were routed through dealers located in the region. The sequence of targeting of architects and large institutional buyers was done. Thus, by maintaining a single sale point to the consumer the company avoided conflict. 3. Direct contact of the retailer and wholesaler with the company depot. Salespersons of the company cater to both the retailers and the wholesalers. But the company maintains the same dealer price list for both of them. This minimizes the difference in prices for the retailers and the wholesalers. However, some benefit is given in the form of bulk discounts to the wholesalers that they can pass on to smaller retailers. This sometimes causes conflict between the retailers and wholesalers and the wholesalers go for undercutting, thus creating conflict. Sales rep identifies new buildings and housing business complexes coming up in his territory. He then provides a list of dealers in the region and passes on the deal to the dealers

1. There was a policy of differential margins as far as retailers were concerned. The bigger supermarkets were demanding greater margins due to their higher bargaining power. In fact, for toothbrushes, as high as 38 per cent margins were provided. This caused unrest among local kirana shops. 2. In addition, the large supermarkets were demanding a higher credit period to the tune of 15 days. So, this will affect the ROI of the distributors severely.

3. Large supermarkets were also demanding more frequent supplies from the wholesalers. For example, supermarkets such as Food world required daily supplies from the company. This increased the expenses for the wholesaler thereby affecting their ROI. So, wholesalers are demanding greater discounts from the company. 4. Another problem that the wholesalers were facing was regarding the amount of stock to be maintained. The policy of the company was that the wholesalers had to stock 15 days of inventory. Even in case of slow-moving products, a large amount of stock was dumped with the wholesalers. So, a large amount of money was tied up in inventory with the wholesalers. This also contributed to the unrest among the wholesalers. Control measures Quality of assistance provided to channel members Coercive measures Control measures: The survey results indicate that the level of control employed by the company is directly related to the level of conflict evoked with the dealer and is negatively related to the level of satisfaction of the dealer. Quality of assistance: The results show no correlation between level of satisfaction and the assistance provided by the manufacturer. This is probably because companies do not provide any training or help to expand the business of the channel. Coercive measures: The results clearly show that the dealers do not expect the company rely on coercive measures. The satisfaction level of the dealers is low as the company resort to various coercive measures to influence the dealers. the level of influence employed by the manufacturer is inversely related to the level of satisfaction obtained by the dealer; the level of assistance provided to the dealer does not playa major role in deciding the level of satisfaction obtained by the dealer; the use of coercive measures by manufacturers reduces dealer satisfaction; the quality of services offered has no relation with the manufacturer-dealer conflict and the higher the dealer's perception of the level of conflict with the manufacturer, the more dissatisfied is the dealer likely to be with his relationship with the manufacturer. The study also found that the dealers wanted to continue working with the companies even though they were are not very satisfied with the companies and conflict existed. This is probably because the companies enjoy excellent brand equity in the market. However, considering the long-term perspective, the companies need to understand the conflict and mitigate it so that the dealers continue to work for them even when there is a dip in the brand equity. Suggestions Step 1: Identify Areas of Channel Conflict Are the channels really attempting to serve the same end users? Do channels mistakenly believe they are competing when in fact they are benefiting from each other's actions? Is the deteriorating profitability of a channel member genuinely the result of encroachment by another channel member? Will a channel's decline necessarily harm a manufacturer's profits? Step 2: Use Decision-making Framework Answering the above four questions would help identify the severity of a channel conflict. Once the manufacturer determines that a channel conflict is likely and is potentially dangerous to the business,

the company needs to identify what needs to be done. The channel conflict decision matrix can then be used to determine the type of action to be taken. Alternatively, the Accenture framework for managing channel conflict based on the market power and channel value-added could be used Channel value is a measure of how much worth the channel adds to the customer. For the retailer, the brand name is most important as the company enjoys high brand equity. Its three brands dominate the upper end garments segment. Competitors' brands also enjoy high brand equity. A distributor identifies retailers based on the customer density and presence of company owned showrooms, thus minimizing the potential for any destructive conflict. Retailers on the whole are small retailers with low bargaining power and hence the chances of destructive conflict are minimal. Horizontal Conflict There is a possibility of channel conflict because potentially Multi-Brand Outlets (MBOs), exclusive showrooms and company showrooms are serving the same set of customers. This is further accentuated by the fact that : the same merchandise is available in all the stores and there is no exclusivity of territory granted to the retailers. Vertical/Conflict The Internet as a selling medium competes with all the above selling points for sales. The company goes for direct selling by passing all the channels for serving its own stores. A survey was conducted to see if the retailers perceived any conflict. There are no indications that retailers are engaging in border wars or engaging in conflict with each other. There are no promotional campaigns by the retailers that indicate that they want to take away sales from another retailer in the same area. The retailers do not perceive any direct threat from other retailers. From the survey, it was found that customers wanted high quality combined with good price. For the customer, he/she does not switch shops because of differential pricing, and so on. It can be concluded that there was no external evidence to support the presence of channel conflict in the present context of the company. ------------------------------------------------------------------------------------------------------