Channel conflict


Marketer must understand the following to manage channel conflict:

1. The type.
2. Nature or the causes
3. Magnitude of the conflict.

A marketer must understand that the conflict cannot be totally eliminated it can only be minimized.

Type of Conflict In any channel arrangement: There can be three types of conflict, namely

1. Vertical level Conflict.
2. Horizontal level Conflict.
3. Multi channel level Conflict.

The Vertical Level Conflict is the conflict between the higher and lower level channels i.e. between the wholesaler and manufacturer. Another example of the vertical conflict is the non-cooperation and boycott of pharmaceutical companies by their wholesalers and chemists in 1989-1990.

Horizontal Level Conflict is the conflict between the same level of channel members i.e. between the same retailers on the issue of price and territory jumping.

Multi channel Level Conflict is when the middleman comes in conflict with the manufacturer using both direct and indirect means of distribution. For example the firm may have its own shop in the area, and in the same area it may be distributing the product through recognized middlemen. The former is direct distribution and the latter is indirect. The conflict occurs when the shop prices are lower than that of the middlemen or dealers. Likewise conflict occurs when an order has been obtained with the joint efforts of the company’s sales force and dealer.

Nature or Causes of Conflict

The Channel conflict occurs largely because of financial and non-financial reasons. These in turn may be traced to the following causes:

Goal Incompatibility

A major conflict between the manufacturers and wholesalers is the perceived goal incompatibility between them. The manufacturer perceives his goals to be market share and profit maximization in the long run, the wholesalers perceive their goals to be sales maximization and in turn profit maximization. The latter even prefer to work at higher margins and short term profitability. This makes the manufacturer accuse the wholesaler of being “fair weather partners� and the wholesaler accuses the manufacturer of squeezing his margins. This is typically what’s happening with all large manufacturers and their channel members today.

Role Ambiguity

Many a time conflict has occurred because of role ambiguity. This is a common cause of conflict in multi channel conflict. For example, the role of the manufacturer’s sales force and dealer in selling products to major accounts or institutional customer in the territory often is unclear in some of the companies. This often creates conflict in these companies relationship with the channel.

A well known automobile component manufacturer had such a conflict when one of its distributors started directly selling to the retailers through his mobile van bypassing large wholesalers in the territory. The wholesalers revolted and started pushing the competitors’ products. Lack of role clarity of any of the channel members can be source of potential conflict.

Differences in Perceptions of the Market

Different perceptions of the market and economy may create a conflict between the manufacturer and the middleman. A manufacturer may perceive a booming Indian Middle Class market and introduce new products and multiple brands. The manufacturer may even appoint wholesalers in distant areas. The existing dealers of this firm may not see the picture this way and may perceive appointment of multiple dealers and downsizing their (former dealers) territory as dilution of their control over the market.

Magnitude of the Conflict

This refers to the seriousness of the conflicts. Inter- dealer conflict in the territory over prices or territory jumping. But when the conflict assumes significant magnitude (this is often reflected by the impact conflict has on manufacturers sales and market share in the territory), the manufacturer must take the initiative to resolve it. It is the manufacturer, who is the leader of the channel. Moreover, a highly serious conflict will affect his market share in the territory.

Managing the Conflict

The manufacturer may take the following steps to minimize the conflict:

1. Communication is one of the effective ways to minimize the conflict between the manufacturers and the channel members. Like wise, the MD of Gajra Bevel Group makes the trips to various different market dealers to listen to their suggestions and plans. Such feedback action from dealers is also obtained by MD of Bajaj. Bajaj even informally send their in house news letters to all dealers. The news letter informs them of the happenings in the marketplace and the company’s perspective of the products and market.

2. Dealer Councils is another way of resolving conflict. Such councils can resolve issues in horizontal or vertical conflict. Such councils continue to play a role by providing a platform for dealers who jointly voice their grievances against the manufacturer. But, if the manufacturer can keep the councils focused on market leadership, maximization of returns on investment and is willing to accept constructive suggestion, dealer council can become an effective tool for intervening in the market place.

3. Super ordinate Goals Another way to resolve channel conflict is to evolve super ordinate goal of maximizing customer satisfaction. If the channel members can be motivated to perceive customer satisfaction as the ultimate goal of all members in the channel and this in turn leading to profit maximization of all concerned, then much of the conflict can be resolved. Super ordinate goals development is easier only when the threat from the other firms is high.

4. Arbitration and Mediation The conflict among channel members may be resolvable only through arbitration and mediation. Generally in the intra-middlemen conflict-horizontal or vertical (between wholesaler and retailers) – manufacturer may arbitrate or mediate. But, when it is between the manufacturer and dealers, arbitration or mediation may be done by independent individuals or institutions like court.