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Chapter 13, channel management. After studying this chapter you will be able: Understand how and why channel conflicts occur, look at ways of managing conflict, channel practices followed to resolve conflicts, principles of channel management, various parameters on channel policy, way in which services use marketing channels.
Chapter 13 Channel Management SDM Ch 13 Tata McGraw Hill Learning Objectives • Understand how and why channel conflicts occur • Look at ways of managing conflict • Channel practices followed to resolve conflicts • Principles of channel management • Various parameters on channel policy • Way in which services use marketing channels SDM Ch 13 Tata McGraw Hill Channel Management • Is in three broad phases: – Use of power bases – Identifying and resolving channel conflicts – Channel co-ordination Use of power… SDM Ch 13 Tata McGraw Hill Use of Power Bases • Channel system has a set of players: – Not equally motivated to implement the ideal channel design – Whose expectations from the system differ • Use of the power bases brings diverse channel partners in line for effective implementation – power bases are: reward, coercion, legitimate, expert and referent (French & Raven) – Two more power bases in the Indian context are support and competition SDM Ch 13 Tata McGraw Hill Use of Channel Power • Channel members are dependent on each other The power equations between them keep them working together • There are basically types of power bases – reward, coercion, expert, reference and legitimacy more can be considered as support and competition • Extent of dependence defines the power base which is appropriate SDM Ch 13 Tata McGraw Hill French & Raven “Power” of Motivation • Reward – incentives for good performance • Coercion – threat of punishment for nonperformance • Referent – benefit of sheer association with a strong company • Legitimate – arising out of a contract • Expert – specialized knowledge • Support – additional benefits for better performers only • Competition – created between channel partners Countervailing power…… SDM Ch 13 Tata McGraw Hill Countervailing Power Examples • 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 • Results from interdependence within the channel system – Company exerts power on the distributor to get its coverage and revenues – Distributor has enough influence on his customers and this is critical for the company also – Weaker partners get exploited – ancillary units SDM Ch 13 Tata McGraw Hill Coordination… Channel Co-ordination • Channel system is well co-ordinated if each member understands his role correctly and performs it to help the system achieve its customer service objectives • In a co-ordinated channel: – Interests of all channel members are protected – Actions of all are in line with overall objectives – Flows are streamlined to desired customer service objectives • Channel co-ordination is an on-going effort SDM Ch 13 Tata McGraw Hill Conflict… Channel Conflicts • 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: – Goal conflict – understanding of objectives by various channel members is different – Domain conflict – understand responsibilities and authority differently – Perception conflict – reading of the market place is different and proposed actions vary SDM Ch 13 Tata McGraw Hill Channel Conflict CONFLICT GOAL SDM Ch 13 DOMAIN Tata McGraw Hill PERCEPTION 10 Reasons for Channel Conflict • Future expectations not likely to materialize • Decision domain disagreements – who has to decide on what (key account pricing) • Channel members not agree on objectives • Misunderstanding or mis-interpretation of routine business communication Resolving… SDM Ch 13 Tata McGraw Hill 17 Resolving Conflicts A Stage Process Understanding nature and intensity Tracing the source of the conflict Understand the impact of the conflict Strategy and plan of action for resolution SDM Ch 13 Tata McGraw Hill 18 Conflict Resolution Styles Avoidance Styles are a combination of assertiveness and co-operation. Aggression Accommodation Compromise Collaboration Least effort and results SDM Ch 13 Maximum effort and Best results Tata McGraw Hill 19 Kenneth W Thomas Avoidance • 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 SDM Ch 13 Tata McGraw Hill 20 Aggression • Also known as a competitive or selfish style • 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 SDM Ch 13 Tata McGraw Hill 21 Accommodation • 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 SDM Ch 13 Tata McGraw Hill 22 Compromise • 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 SDM Ch 13 Tata McGraw Hill 23 Collaboration • Also known as a problem solving approach • Tries to maximize the benefit to both parties while solving the dispute • Most ideal style of conflict resolution – a winwin approach • Requires a lot of time and effort to succeed • Sensitive information may have to be shared SDM Ch 13 Tata McGraw Hill 24 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 could be as seen in the next slide: SDM Ch 13 Tata McGraw Hill 25 Channel Policies • • • • • Markets to be covered Customer coverage Pricing Product portfolio to be handled Selection, termination of channel members • Ownership of the channel SDM Ch 13 Tata McGraw Hill 26 The Services Sector • Twice the size of the manufacturing sector • Services offered are to be in line with customer demand • Services have to be presented in an appealing manner to sustain customers • Needs specialized channels which understand the characteristics of service delivery SDM Ch 13 Tata McGraw Hill 27 Characteristics of Services • They are intangible – can only be felt No visual features like size, style • They are inseparable from their service providers – a 3P cannot deliver • They cannot be standardized – custom made and delivered • Customers are involved to a great degree – define the services • They are perishable – cannot be stored for delivery later Salvage value of an unsold service is zero SDM Ch 13 Tata McGraw Hill 28 Channels Used • Shorter channels than for products • Some channels used are: – Direct from service provider to user – Agents or brokers to bring buyer and seller together – Franchisees or contractors – Electronic channels • High degree of customization is provided SDM Ch 13 Tata McGraw Hill 29 Key Learnings • Channel management is done by: use of power bases, identifying and resolving channel conflicts and co-ordination • Channel conflicts could occur due to: goal conflicts, domain conflicts and perception conflicts • Channel conflicts pass thru’ the stages of latent, perceived, felt and manifest • Conflicts are avoided with the use of power bases of rewards, coercion, expertise, legitimacy and reference • There are styles of conflict resolution: avoidance, aggression, accommodation, compromise and collaboration SDM Ch 13 Tata McGraw Hill 30 Key Learnings • Channel conflicts are resolved by joint membership of associations, exchanging personnel or arbitration • Channel management involves the four steps of planning, organisation structure, control of the channels and measuring performance for continuous improvement • Services are distinguished by characteristics of being intangible, inseparable from service providers, cannot be standardised, customers are involved in service delivery and are perishable Distribution channels should take these into account SDM Ch 13 Tata McGraw Hill 31 ... a combination of assertiveness and co-operation. Aggression Accommodation Compromise Collaboration Least effort and results SDM Ch 13 Maximum effort and Best results Tata McGraw Hill 19 Kenneth W Thomas... (key account pricing) • Channel members not agree on objectives • Misunderstanding or mis-interpretation of routine business communication Resolving… SDM Ch 13 Tata McGraw Hill 17 Resolving Conflicts... Channel Co-ordination • Channel system is well co-ordinated if each member understands his role correctly and performs it to help the system achieve its customer service objectives • In a co-ordinated