Success Strategies in Channel Management Managing Conflict to Increase Channel Coordination

Success Strategies in Channel
Managing Conflict to Increase Channel
Managing Conflict to
Increase Channel
Forms of Channel
Assessing the Degree
and Nature of Channel
Measuring Conflict
Styles of Conflict
Repeated Compromise
When Conflict Is
When Is Conflict
Major Sources of
Conflict Resolution
Competing Goals
Differing Perceptions of
Third-Party Mechanisms
Building Relational
Fuelling Conflict
Clashes Over Domains
Multiple Channels
Information Exchange
Managing Conflict to Increase Channel
Channel conflict is a state of opposition, or discord, among the
organizations comprising a marketing channel.
Conflict is a normal state in a channel. Indeed, a certain amount
of conflict is even a desirable state: F
or purposes of maximizing performance, a channel can be too
How can managers direct conflict to create functional channel
Forms of Channel Conflict
•Stocking levels
•Direct vs. individual channels
•Regional vs. national distribution
•Large account coverage
•Split compensation
•Sales quotas
•Territories: geographic, value offer, or market
•Market life cycle channel transition
•New market development
•New value offer launches
•Channel tasks to be performed
•Technology required
•Channel border skirmishes
•The phantom channel/grey marketing
•Refusal to be locked into one supplier
•Overselling without regard to availability
•Bureaucratic vs. entrepreneurial philosophies
•Pricing issues
•Sizes of profit margins/compensation
•Competition over resources
•Assigned markets
The key factor is to manage
conflict, not permit it to rage out of
Assessing the Degree and Nature of Channel
The word conflict has negative
connotations: contention, disunity,
disharmony, argument, friction,
hostility, antagonism, struggle, battle
. . . the many synonyms are
emotionally laden. In individual
personal relationships, conflict is
almost invariably viewed as
something to avoid, a sign of trouble.
Channel conflict arises when the
behaviour of a channel member is in
opposition to its channel counterpart.
In contrast, competition is behaviour in
which a channel member is working for a
goal or object controlled by a third party
(such as customers, regulators, or
competitors). Competing parties struggle
against obstacles in their environment.
Conflicting parties struggle against each
Latent conflict is the norm in marketing
channels. Inevitably, the interests of
channel members collide as all parties
pursue their separate goals strive to retain
their autonomy, and compete for limited
Nature of Channel Conflict
In contrast, perceived conflict occurs
when a channel member senses that
some sort of opposition exists:
opposition of viewpoints, of
perceptions, of sentiments, of
interests, or of intentions. Perceived
conflict is cognitive, that is,
emotionless and mental. It is a
situation of contention.
Conflict is often considered as a
state: Conflict is also a process. It
consists of episodes or incidents.
How each episode is interpreted by
the parties depends on the history of
their relationship.
A positive history creates a positive
future: A new conflict incident will
be downplayed or charitably
If not managed, perceived conflict
can escalate quickly into manifest
Measuring Conflict
The following example is from an
assessment of how much conflict car
dealers experience in their
relationships with car producers.'
Step 1: Counting Up the Issues.
What are major issues of relevance to
two par-ties in their channel
relationship? It does not matter
whether the issues are in dispute at
the moment. What matters is that
they are major aspects of the channel
Step 2: Importance. For each issue,
ascertain how important this issue is to
the dealer. This could be done
judgmentally or by asking dealers
Step 3: Frequency of Disagreement. For
each issue, ascertain judgmentally or by
collecting data how often the two parties
disagree over this issue.
Step 4: Intensity of Dispute. For each
issue, ascertain judgmentally or by
collecting data how intensely the two
parties differ on the issue (how far apart
the two parties' positions are).
Measuring Conflict
There is no real argument over any
issue if:
The difference of opinion rarely
occurs (low frequency). The issue is
petty (low importance).
The two parties are not very far apart
on the issue (low intensity).
If any of these elements is low, the
issue is not a genuine source of
When a relationship is complex,
many issues arise. In general, the
more roles a channel member
assumes, the greater the scope for
disagreements, and therefore the
greater the potential for conflict.
The combatants themselves are
frequently unable to disentangle the
sources of their friction.. Inflamed
relationships lead people to double
count issues; to overlook issues on
which they do agree; and to
exaggerate the importance, intensity,
and frequency of their differences.
When Conflict Is Desirable
Conflict is usually thought to be
dysfunctional, to hurt a relationship's
coordination and performance.
Although this is generally true,
opposition actually makes a
relationship better on certain
occasions. This is functional (useful)
Their opposition leads them to:
1. Communicate more frequently and
2. Establish outlets for expressing
their grievances
3. Critically review their past actions
4. Devise and implement a more
equitable split of system resources
5. Develop a more balanced
distribution of power in their
6. Develop standardized ways to deal
with future conflict and keep it within
When Is Conflict Functional?
From the downstream channel member's viewpoint, functional conflict is a
natural outcome of close cooperation with a supplier. Working together to
coordinate tightly inevitably generates disputes in ample measure. But
when channel members are committed, these disputes serve to raise
performance in the short term and do not damage the level of trust in the
Cooperative relationships are inevitably noisy and contentious. The
resulting conflict should be tolerated, even welcomed as normal. This
functional conflict is even more likely if the downstream channel member
has considerable influence over the supplier.
Are Peaceful Channels Better Channels?
Much depends on the reason why
conflict is low. Often, when channel
members are not in opposition (low
conflict), their relation-ship is not one
of peace and harmony. It can be one
of indifference. The two parties then
do not bother to disagree about
anything. There is no issue between
them about which they have an
opinion, no issue that is important to
them or over which they care to
invest the effort to argue.
Conflict undermines channel
commitment by damaging the focal
party's trust in its counterpart. This
powerful effect occurs in two ways.
First, conflict directly and rapidly
hurts the focal party's confidence in
the counterpart's benevolence and
honesty. Second, conflict reduces
interpersonal satisfaction, which, in
turn, delivers another blow to trust.
Major Sources of Conflict in Marketing
Most conflict is rooted in differences in
(1) channel members' goals;
(2) their perceptions of reality; and
(3) what they consider to be their domains or areas where they
should operate with autonomy.
The most complex of these three sources of conflict is the last,
because domain conflict has many sub dimensions.
Competing Goals
Each channel member's set of goals
and objectives is very different from
those of other members.
Resellers carry a supplier's line in
order to maximize their own profits.
They can do so by several routes:
Agency theory underscores how
competing goals create conflict in
any principal – agent relationship,
regardless of the personalities and
players involved and regardless of the
history of their relationship.
Goal divergence, and subsequent
conflict, is extremely common.
(1) achieving higher gross margins
per unit (pay the supplier less while
charging the customer more),
(2) increasing unit sales, decreasing
(3) holding down expenses, and
(4) receiving higher allowances from
the producer.
Differing Perceptions of Reality
Differing perceptions of reality are
important sources of conflict, because
they indicate that there will be
differing bases of action in response
to the same situation.
As a general rule, channel members
are often confident that they know
"the facts of the situation." Yet, when
their perceptions are compared, they
are frequently so different that it is
difficult to believe they are members
of the same channel.
Perceptions differ markedly, even on such
basic topics as:
What the attributes of the value offer or
service are
What applications it serves and for which
What the competition is
Differing Perceptions of Reality
Seldom do channel members co-operate fully enough to
assemble the entire picture from their separate pieces.
The solution to this problem is twofold. One is
The other solution is for each organization to develop greater
sensitivity to the business culture of the other channel
Clashes Over Domains
Each channel member has its own
domains, or spheres of function.
Much conflict in channels occurs
when one channel member perceives
that the other is not taking proper
care of its responsibilities in its
appropriate domain. This can mean
doing the job wrong, not doing the
job at all, or trying to do the other
channel member's job!
Conflict is usually due to multiple
Intra-channel Competition
From the upstream viewpoint, the
problem of domain clash occurs
when a supplier sees its downstream
partners represent its competitors. Of
course, much of the time, they do so downstream partners frequently
position themselves as providers of
an assortment, and seek economies of
scale by pooling demand for a class
of value offers.
Multiple Channels
Suppliers like multiple channels because
they may increase market penetration and
raise entry barriers to potential
competitors. Many different channel
types afford the supplier a window on
many markets. In addition, many channel
types are bound to compete with each
other. Suppliers are prone to consider this
competition "healthy," and sometimes
they are right.
Of course, customers like multiple
channels when it means they can find a
channel that meets their service output
The danger of multiple channels is the
same as the danger of intensive
distribution: Downstream channel
members may lose motivation and can
withhold support (a passive response),
retaliate, or exit the supplier's channel
structure (active responses). This is
particularly the case when the customer
can free ride, gaining services from one
channel while placing its business with
another. The ironic result is that, by
adding channel types, the supplier may
come to reduce, rather than increase, the
breadth and vigour of its market
What Suppliers Can Do
An important issue is what responsibility
suppliers have to protect their multiple
channels from each other. Some
suppliers, of course, often feel no
regret, assume no responsibility, and
take no action.
Suppliers can offer more support,
more service, more value offer, and
even different value offer to different
channel types in order to help them
differentiate themselves
Suppliers can try to manage the problem
by devising different pricing schemes for
different channels, which is also legally
dubious. This creates an opportunity for
arbitrage. The next section on grey
markets shows how this can get out of
A variation on this theme is to offer
different brand names to different
Conflict over domains is one of the
most visible and least tractable forms
of opposition in marketing channels.
Fuelling Conflict
Conflict Creates More Conflict
Conflict creates more conflict. A major reason why it proliferates is that once a
relationship has experienced high levels of tension and frustration, the
players find it very difficult to set their acrimonious history aside and move
on. Each party questions whether the other is capable of becoming
committed to the relationship. Each discounts positive behaviours and
accentuates negative behaviours by the other side. The foundations of trust
are thoroughly eroded by high levels of conflict.
To threaten means to imply that
punishments, or negative sanctions,
will be applied if desired behaviour
or performance is not provided (i.e.,
if compliance is not forthcoming).
The evidence is powerful that a
strategy of repeated threats raises the
temperature of a relationship by
increasing conflict and by reducing
the channel member's satisfaction
with every aspect of the channel
Coercive power is a tool, like a hammer.
It can be put to positive purpose if used
As a general rule, both sides rely more
heavily on non-coercive strategies,
particularly when dealing with powerful
counterparts. Important relationships
encourage non-coercive influence
Does this mean that channel members
should never coerce each other? No the message is not that coercion should be
ruled out. On occasion, organizations do
need to raise the temperature of their
relationships to improve channel
Conflict Resolution Strategies
Institutionalized Mechanisms Designed to Contain Conflict Early
Information-Intensive Mechanisms
Many of these mechanisms are designed to head off conflict by creating a
way to share information. An information-intensive mechanism is risky and
expensive: Each side risks divulging sensitive information and must devote
resources to communication. Trust and cooperation are helpful conditions
because they keep conflict manageable.
Co-optation is a mechanism
designed to absorb new elements into
the leadership or policy-determining
structure of an organization as a
means of averting threats to its
stability or existence. Effective cooptation may bring about ready
accessibility among channel members
because it requires the establishment
of routine and reliable channels
through which information, aid, and
requests may be brought.
Co-optation thus permits the sharing
of responsibility so that a variety of
channel members may become
identified with and committed to the
programs developed for a particular
value offer or service. However, cooptation carries the risk of having
one's perspective or decision-making
process changed. It places an
"outsider" in a position to participate
in analyzing an existing situation, to
suggest alternatives, and to take part
in the deliberation of con-sequences.
Third-Party Mechanisms.
Co-optation brings together
representatives of channel members.
In contrast, mediation and
arbitration are ways to bring in third
parties that are uninvolved with the
channel. This mechanism prevents
conflict from arising or keeps
manifest conflict within bounds.
Mediation is the process whereby a
third party attempts to secure
settlement of a dispute by persuading
the parties either to continue their
negotiations or to consider procedural
or substantive recommendations that
the mediator may make.
Effective mediation succeeds in
clarifying facts and issues, in keeping
parties in con-tact with each other, in
exploring possible bases of
agreement, in encouraging parties to
agree to specific proposals, and in
supervising the implementation of
Building Relational Norms
There is an important class of factors that
serves to forestall or direct conflict
and that management cannot simply
decide to create. These are norms that
govern how channel members
manage their relationship. They grow
up over time as a relationship
functions. A channel's norms are its
expectations about behaviour,
expectations the channel's members
at least partially share. In channels
that are alliances, it is common to
observe norms such as:
Channel members expect each other to
adapt readily to changing circumstances,
with a minimum of obstruction and
Information Exchange
Channel members expect each other
to share any and all pertinent
information - no matter how sensitive
- freely, frequently, quickly, and
Channel members expect each other to
work for mutual benefit, not merely onesided benefit.
A channel with strong relational norms is
particularly effective at forestalling
conflict. It discourages the parties from
pursuing their own interests at the
expense of the channel. These norms also
encourage the players to refrain from
coercion and to make the effort work
through their differences, thus keeping
conflict in the functional zone.
Styles of Conflict Resolution
A relatively passive channel member
(perhaps one in a weak position or
represented by a poor negotiator) has
an avoidance style of dealing with
conflict. It attempts to pre-vent
conflict from occurring by . . . failing
to press for much of anything!
Typically, the avoider wants to save
time and head off unpleasantness.
Another style of dealing with conflict
is to be accommodating to the other
party, meaning to be more focused on
its goals than on one's own. Unlike
avoidance (a passive strategy), this is
more than just another way of
keeping the peace. Accommodation is
a proactive means of strengthening
the relationship by cultivating the
other channel member.
Styles of Conflict Resolution
A strategy of competition (or aggression)
involves playing a zero-sum game by
pursuing one's own goals while ignoring
the other party's goals. This approach
focuses on pushing one's own position
while conceding very little. Not
surprisingly, this style aggravates
conflict, fosters distrusts, and shortens the
time horizon of the channel member’s
vis-à-vis their relationship. Channel
members tend to limit their usage of the
aggressive style, especially in long-term
Repeated Compromise
A very different style is to
compromise repeatedly, pressing for
solutions that let each side achieve its
goals, but only to an intermediate
degree. This is a centrist approach
that gives something to everyone; the
compromise strategy seems to be fair.
It is used often to handle minor
conflicts, wherein it is easiest to get
both sides to concede, thereby
speeding the search for a resolution.
The collaboration style of handling conflict requires a high level of resources,
especially information, time, and energy.
The problem solver tries to get both sides to get all their concerns and issues
out in the open quickly, to work immediately through their differences, to
discuss issues directly, and to share problems with an eye toward working
them out.
Problem solving requires creativity in trying to devise a mutually beneficial
solution. It is an information-intensive strategy. In pursuing it, negotiators
are sure to reveal a good deal of sensitive information, which could then be
used against them.
Resolving Conflict and Achieving
Coordination via Incentives
What are the best arguments to use to
persuade the channel member?
Evidence indicates that economic
incentives work extremely well,
regardless of the personalities, the
players, and the history of their
Evidence shows that much of the
acrimony can be dissolved by
combining appealing economic
incentives to participate with a payfor-performance system, and
presenting the proposal through a
salesperson who has a good working
relationship with the retailer.