Meaning of Channel Conflict
Channel conflict refers to the dispute, discord and difference among channel partners where one prevents other from attaining their objectives. It is simply a situation in which partners of channel compete against each other or with internal sales department of vendor. Channel conflict results in huge losses for partners as it disturbs their business cycle. These conflicts arise when producer disintermediate the channel partners like distributors, wholesalers, retailers, sales personnel’s etc. by selling its products directly to client. The manufacturers sell their products over the internet or using various general market method without involving any intermediaries.
Every manufacturing business in order to ensure proper market supply and customer satisfaction must decides its distribution and marketing channel in a right manner. There are number of channel partners and intermediaries which are involved in supply chain of any business. Any type of disturbance or clash among these trading partners will adversely influence the market captivity of business thereby bringing down its overall profitability and growth.
Types of Channel Conflict
There are basically four major classification of channel conflict based on the flow type and parties involved in it: –
- Vertical level conflict: Vertical level conflict is a conflict among the channel partners at different level within the same channel. The member of channel at a higher level enters into dispute with the member at lower level or vice versa. It involves conflict among wholesalers and retailers or retailers and dealers.
- Horizontal level conflict: Horizontal level conflict is simply a dispute in-between channel partners of same level within the same channel. It can be among two or more retailers belonging to distinct region or Stockists on grounds of manufacturer’s biases, pricing, promotional schemes, area coverage and target of sales.
- Multi-channel level conflict: This type of conflict arises whenever a manufacturer uses distinct channel for selling off its products. Multi-channel level conflict is a conflict of channel partner belonging to particular channel with the partner of some other channel. It is a dispute among partners of different channels that are participating in common sale for same brand. Example: Suppose if a manufacturer is using 2 channels for selling its products like online channel using website and other one a traditional channel comprising of wholesalers, distributors and retailers. Now, if the product is available at a cheap price on its website as compared to retailer then it will result in multi-channel conflict.
- Inter-type channel conflict: Inter-type channel conflict arises in case of scrambled merchandising. When large retailers challenge the small retailers by entering into a product line which is distinct from their normal product range then it results in conflicts among channel partners.
Causes of Channel Conflict
Various causes for the occurrence of channel conflict can be well-understood from points given below: –
- Goal incompatibility: Incompatibility of goals among different channel partners leads to conflict among them. When these partners such as manufacturer and dealer do not have a same set of objectives then then would work in distinct direction thereby resulting in clash. For example, a manufacturer aims at grabbing large market share via offering their products at low prices and generating higher profits in long run. On other hand, the dealer is willing to sell products at higher price for making profits in short run then it will create differences between the two.
- Ambiguous roles: The uncertain acts of channel partners when they do not have a clear picture of their role may cause conflict among the intermediaries. When partners are unaware regarding what they are supposed to do, which pricing policy should be adopted or which market should they cater to then all this uncertainty may disturb the whole distribution channel.
- Different market perceptions: Variations in perception of channel partners related to market conditions may create differences among the intermediaries thereby hampering the whole business. Perception of manufacturer regarding a potential market and penetration into a particular region may vary from intermediary’s perception for same. This will create dispute among them and reduce the interest of intermediaries in capturing that specific market area.
- Manufacturer dominance over intermediaries: All intermediaries like wholesalers, dealers and retailers are hugely dependent upon the manufacturer for carrying out their activities. Whenever manufacturer makes any change in product, its price or marketing activity then it need to implemented by all the intermediaries in the distribution channel. Any change which is unfavorable for the channel partners may results in differences among them.
- Change resistant: Many times, the channel partners within the distribution channel may restrain from adopting the changes. Whenever the channel leader decides to bring any change in distribution channel then the intermediaries may not support it leading to the condition of discord.
- Lack of communication: Lack of efficient communication is one of the major reason responsible for dispute among the channel partners. In case if any of the partner of distribution channel is not informed of changes on right time, it will disturb the process of distribution and leads to disparity. For example, if a retailer needs a stock of products immediately and wholesaler did not communicate him about the availability of time, then it may cause dispute among them.
- Marketing mis-alignment: The mis-alignment of marketing strategies among the channel partners may bring differences between them. When a manufacturer’s product is promoted by two-channel partners in a different manner then it may create a varying image of same product in mindsets of consumer.
Consequences of Channel Conflict
The presence of channel conflict may prove quite dangerous for an organization. Some of these outcomes are as discussed below: –
- Price war: There is price war among the intermediaries due to the presence of channel conflict among them. They compete with one another in terms of prices and as result of this customer in search of best deal may defer his/her purchase decision.
- Sales deterioration: Channel conflicts may deteriorate the sales volume of business organizations. These conflicts reduce the interest of distributor in covering large areas for product distribution. It eventually leads to increase in number of customers shifting to products of other competitors in market.
- Customer dissatisfaction: Whenever there is a channel conflict, the retailers and distributors may not pay proper attention towards company’s product and also not assist customers in making their purchase decision. This will result in customer’s resentment towards the brand.
- Poor public relations: The brand and its products may be negatively publicized by unsatisfied distributors which will have adverse effect on its sale volume. All this is an outcome of unhealthy public relation of manufacturer with its distributors.
- Distributors exit: It is must for a manufacturer to retain its partners and distributors for enhancing his overall sales. The chances of distributors leaving a channel increases whenever there is a conflict in distribution channel.
Management of Channel Conflict
The channel conflict can be managed in following ways: –
- Common goal: Every channel partner working within the distribution channel must decide a common goal in terms of survival, profit maximization, increased market share, quality level, customer satisfaction etc. Deciding of a single and common goal by all channel partner enables in avoiding any conflicts among them.
- Exchanges of employees: This is one of the best ways of avoiding the channel conflicts within the distribution channel. When employees are swap between different levels of channel then they easily understand the role of each other thereby developing better understanding among them. For example, when two or more persons from a manufacturer level are shifted to a dealer level and from wholesale level to retailer level for a temporary period of time, they easily get to know about the responsibilities of distinct level thereby reducing the role ambiguities.
- Trade association: Establishment of dealer council or trade association is another effective way of overcoming the channel conflicts. The dealer can unanimously put their grievances in front of leader which avoids any dispute. In addition to this, by adding channel partners or intermediaries as a member of trade association working for protecting their interest may bring unity and harmony among them.
- Regular communication: Proper communication network enables channel leader in taking feedback from channel partners on a regular basis. Various formal as well as informal meetings take place that enables in knowing the trends and dynamics of market. Also, the issues and conflicts of channel partners can be easily resolved through frequent interactions.
- Fair pricing: Implementation of fair price policy by business avoids channel conflicts as most of these take place as a result of price war. It must be ensured that products are priced equally in all regions including a fair margin for channel partners associated with trading of those products.
- Legal procedure: The channel partner may utilize legal resources for resolving their conflicts in case it cannot be handled by their channel leader. The aggrieved party in case of critical and uncontrollable conflicts can take a legal action against the accused party by filling a law suit.
- Co-optation: A expert possessing well-hand experience of handling conflicts should be hired by manufacturer as a member of board of directors or grievance redressal committee. It will serve as a useful way of addressing the conflicts within the distribution channel.
- Diplomacy, Mediation and Arbitration: For resolving the critical conflicts, the channel partners may resort to any one of following methods. In mediation method, a third person intervenes for resolving the conflict using his/her skills of conciliation. Arbitration is a method in which an arbitrator listens to both party’s argument involved in a conflict and declares a decision for resolving the matter. And diplomacy is one in which representative from both the sides meet for a conversation and find a solution thereby overcoming the dispute.
Example of Channel Conflict
In year 2014, a well-established and renowned South Korean company “Samsung electronics” faced a multi-channel level conflict in Indian market. The multiple channels were used by company for selling its mobile viz: online mode and offline mode.
E-retailers were selling mobile phones at huge discount in order to attract more and more customers which ultimately have adverse effects on the offline sales of product. This issue was raised by offline channel partners of Samsung brand.
As a result of this, many distributors and retailers started distancing themselves from the brand and its products.
Samsung for the purpose of overcoming this issue and retaining its offline channel partners (distributors and retailers) implemented a policy under which right to sell 48 models of its brands were reserved to be exclusively sold by the distribution channel in offline mode. This step re-energizes all partners involved in offline distribution channel.