Amity Business School

Amity Business School

MBA(M&S) Class of 2010, Semester II Channel Management Power, Conflicts and Control Prof. P K Bansal

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Multi-Channel Marketing System

Channel Options
Direct Marketing Sales Force Intermediary Marketing Channel

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Channel Management

1 Use of Power Bases

2 Resolving Channel Conflicts

3 Channel Control

1 POWER BASES

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Referent Power

Expert Power
Legitimate Power

Competition Power Coercive Power

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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)

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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.

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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.

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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.

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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.

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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.

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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.

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2
CONFLICT

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

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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.

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1 LATENT

2 PERCEIVED

Conflict

Stages
4 MANIFEST
3 FELT

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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

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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.

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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

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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.

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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.

Minimising Channel Conflict

Value added by Channel
Significant
Cooperate Look for WIN-Win Seek Compromise Look to sell New Products through New Channels Lead Define appropriate approaches for the Channel Make Initial Investment

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

Channel Controls Customer

Market Power

Compete Internet Link to Supplier Customers Controls Shift volume to new Customers Channel by Promotion

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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

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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.

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Channel Relationship Maintenance Strategies

Significance of Individual Goals
High Low Integration by Compromise Long Run Negotiation by Sacrifice Forcing by Domination Withdrawal Transactional by avoidance

Nature of Relationship

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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.