Managing channel conflict

Channel conflict arises when one channel member perceives another to be impeding the achievement of its goals. The frustration arises from a restriction of role performance. For example, large retailers, especially large supermarkets, frequently have objectives which are incompatible with those of small manufacturers.

Domain conflict may also exist when manufacturers compete with some of their own wholesalers. Price competition for an identical product sold through different channels may give rise to this form of channel conflict. An example would be an article of clothing sold through a department store, sold in a traditional drapery store in the suburbs, or sold in a boutique. Such price competition can be damaging to any carefully cultivated image the manufacturer may have created.

Frequently an adversarial relationship develops between the organization and its distributors. Instead of viewing the distribution task as a necessary element in delivering value to customers, suppliers and distributors - a partnership in the marketing system - they both see the opportunity of taking a larger share in the overall marketing system margin. These divergent interests may be summarized as shown in Table 13.1.

There is, therefore, often considerable friction in the distribution channel, much of which occurs because intermediaries, for whatever reason:

■ are exclusively tied to competitors

■ do not wish to expand their range of products

■ do not accept the terms of sale they are offered

■ are not suitable but there is no alternative available

■ have large turnover and hence exert power regarding price and discounts

■ wish to promote their own brands and not those of the manufacturer.

Sometimes power can be used to manage conflict and turn it to good effect; low levels of conflict are associated with high performance in the

Figure [13.5] Use of power to manage channel conflict

channel. In such circumstances the successful exchange of assets in a marketing channel requires the specification of a role relationship for each channel member. The ensuing interdependency gives rise to conflict and the subsequent use of power to resolve the conflict. In such circumstances it is necessary to recognize that there is an interrelation among the specification of roles for channel members, conflict in the channel, the use of power to specify these roles and ensure conformity which thereby resolves conflict.

Role prescriptions are determined by the norms channel members set for each other or are dictated by the channel leader. Role consensus enables channel members to anticipate the behaviour of others and to operate collectively in a unified manner.

Using channel power to manage conflict

A constructive use of power can also ensure that conflict is a positive force in the distribution channel. Power is the ability of one channel member to get another to do what the latter would not otherwise have done. There are five sources of power in the channel (Figure 13.5). Rewards are beliefs by one organization that a second organization has the ability to mediate rewards for it, e.g. provide wider margins, promotional allowances. Coercion refers to the belief that some form of sanction will ensue if the firm fails to conform, e.g. margin reduction, slowing down of shipments, reduced territory rights and other such restrictions. Expertise refers to the organization's perception that another possesses special knowledge, e.g. manufacturers providing managerial training for marketing intermediaries. Referent power refers to the identification of one organization with another and reflects the attraction of being associated with the other. The power arising from legitimacy stems from values internalized by one organization giving it the feeling that the other has a right to exert influence and that the first has an obligation to accept it.

The ability of one organization to exert power indicates that a dependent relationship exists in the channel. Other organizations in some way depend on the more powerful company. Dependence of buyers on sellers and the power of the former over the latter may be viewed from the perspective of the buyer and seller. From the buyer's perspective dependence represents the seller's ability to contribute needed resources to the success of the buyer's operations, e.g. merchandising equipment and training programmes, and is the basis of the seller's power. From the seller's perspective the basis for buyer dependence represents the seller's ability to create distinct buyer advantages unattainable from alternative suppliers.

Block exemption allows the car industry to restrict distribution of its products whereby dealers are tied to manufacturers who operate closed sales and repair networks. This anti-competitive practice has been allowed by the EU on the basis that the car is a dangerous product that needs to be controlled. Under new rules introduced in September 2002 dealers are allowed to sell cars anywhere within the EU and manufacturers can no longer prevent authorized mechanics who meet the company's criteria from offering aftersales services. Dealers and repair companies have greater freedom to set their own prices.

Under the new rules car manufacturers must choose whether they want a selective or exclusive dealer network. Under a selective network, car manufacturers set up a fixed number limit on the dealers in a particular area, generally accepted to be the national boundaries. The exclusive option limits dealers to one car brand (marque). Such dealers may sell to resellers. To date virtually all car manufacturers have chosen the selective option in order to prevent the large supermarkets and hyperstores from entering the market.

Furthermore, under the selective option a car manufacturer can decide how many dealers it will have in Holland, for instance, and until 2005 they can indicate the locations for those dealers, keeping them spread across the country and not all located in Amsterdam or Rotterdam, for example. After 2005 dealers will be able to open further dealerships anywhere else in the EU provided they can meet certain standards. The block exemption has merely been adjusted as car manufacturers can still choose their dealers under the selective option. This is the EU Commission's second attempt to control the dealership position but due to loopholes it has failed again.

In markets for industrial products the supplier of an original brand may increase the distributor's switching costs by calling directly on user-customers to encourage their shifting to another distributor as a source of supply (Corey etal. 1989, p. 143). Seller activities contributing to buyer efficiency also help to motivate buyers to remain loyal and committed to the relationship. The reverse may also be true; that the seller depends on the buyer for an outlet for the product and an efficient way of reaching the final user. In some situations dependence is mutual. In retail food markets, manufacturers are very dependent on a handful of large buyers in any national country market.

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