Managing Conflicts in Channel Management - Coursework Example

Introduction Companies all over the world are increasingly adopting new marketing strategies to cut costs and expand market share. One strategy toachieve this is to add new marketing channels such as direct sales, direct mail and retail sales to existing distribution channels. Companies, which use both direct and indirect marketing channels, have hybrid marketing channels. The trend towards hybrid marketing channels began in the 1990s and they are now being extensively used in industries like textiles, office supplies and metal fabricators, apart from computer-related industries (California State University, 2002). The insurance industry too has begun using hybrid marketing channels. Channel Objectives and Constraints The objectives of marketing channels can be understood better by analysing their four functions - facilitating the exchange process, alleviating discrepancies, standardizing transactions and providing customer service. A marketing channel's most important aim is to facilitate a smooth exchange process between a firm and an individual. As marketing is a process of exchange between a buyer and a seller, channel members are considered exchange facilitators. When a marketing channel fails to deliver goods that match customer expectations, discrepancies occur. These can be corrected through activities such as sorting, accumulating, allocating and assorting. Organizations produce a variety of products for several reasons. Some reasons are: To target a bigger market segment, and Because of increase in the utilization of resources. Distributors facilitate the task of sorting products so that their identification becomes easier and they can be delivered fast. Accumulating is the process of collecting the same product in large quantities. Distributors help both buyers and sellers protect themselves against price and supply fluctuations. Allocating is the process by which larger quantities of homogeneous products are broken down into smaller quantities. Manufacturers sell their products in bulk to wholesalers, who in turn, sell these in bulk to distributors. The distributors sell these products in smaller quantities to customers. Assorting is the process by which the customer's exact requirement is ascertained for a target group of customers. Distributors facilitate the marketers' task of assorting the products for different consumers according to their tastes and preferences. Another major objective of marketing channels is standardizing transactions. Let us consider the example of a milk delivery system here. In this case, the distribution is standardized throughout the marketing channel so that consumers do not need to negotiate with sellers on any aspect, whether prices, quantity, payment method or products location. Customer service includes installation, training and maintenance of the product and other forms of service required by customers. Distributors too offer these services. In a typical distribution system, there are two tiers between the manufacturer and the final consumer - the wholesale distributor and retailer. In a marketing channel, working with distributors and resellers creates more problems than it solves. This is because it is feared that intermediaries are interested in maximizing their profits and are not concerned about manufacturer's profits. To further this end, they prefer manufacturers with products and brands in high demand. Though this may be considered rational, it creates problems for manufacturers who are introducing new products in a new market. This forces the manufacturer to set-up a direct-distribution channel in international markets. Established companies, when entering international markets, choose emerging markets first. As they have limited exposure in these markets, they sell their products through local distributors who are independent in nature. Initially, though there can be a fast growth in sales, as the time passes, manufacturers start realizing and identifying problems with the distributors (Arnold, 2000). Some common complaints are as follows: Distributors have no clue how to increase sales Distributors don't invest in business growth Distributors are not ambition enough Normally, channels are developed according to own interests. However, it is important that they do not use certain exclusionary practices to stop competitors from using a particular channel. These practices such as dual distribution, exclusive dealing agreement, tying agreements, restricted sales territories and dealer's rights fall under legal scrutiny. Ideally, manufacturers like to own and control the businesses of suppliers and distributors. However, it is usually not possible due to time, money and other resource constraints. Therefore, firs striving for success in their business, establish a channel relationship. As in any other relationship, there is a potential for conflict in channel relationships too. A conflict between marketing channel members is a situation in which one member of the marketing channel perceives that another member is preventing or impeding it from achieving its marketing goals. Conflicts between different channel members occur because they have individual goals and objectives that are not compatible with other. Conflicts arise between the manufacturer and the intermediaries because the primary aim of the producer is cost reduction, while the aim of the channel members is to differentiate the products and serve as many customer segments as possible. The channel members are margin-focused in their approach. Manufacturers, on the other hand, would prefer mass production to reduce costs. However, this is incompatible with the needs of the channel members who look for constant improvements in products and their quality as well as customization of the products as they can differentiate these products and sell them to as many customer segments possible. The lack of clearly defined roles and responsibilities is another reason for channel conflicts. Clearly defined roles and responsibilities of the manufacturer and the distributors help them allocate their resources efficiently to achieve their goals. The absence of clearly defined roles and responsibilities, on the other hand, leads to ambiguity and confusion which, in turn, leads to increased costs owing to redundancy and inefficiency. Thus, the performance of the entire channel suffers. Channel conflicts may also arise because of both the manufacturer as well as the channel members fighting for the same market. Managing Channel Conflicts In today's globally competitive environment, it is no longer viable for manufacturers to use power to resolve and manage conflicts. There are several methods for solving and managing conflicts such as negotiation, problem-solving strategies, persuasive mechanisms, legalistic strategies, and climate management. Negotiation is the process of having discussions between two conflicting parties in order to resolve the causes of conflict. Effective negotiation skills improve one's own position and will become an effective tool for self defence. These include identifying the problem, determining the issues related to the cause of conflict, generating and evaluating possible solutions and evaluating the results after implementing these solutions. Conflicts in channel management arise because the interests of one member do not match with those of others. Normally, there are three major sources of problems. These include issues relating to the timelines of delivery, employee issues relating to failure to follow policies and procedures, or issues relating to communication. Likewise, the problem - solving strategies also vary. One problem solving strategy is logrolling. By definition, logrolling is the act of exchanging favours for mutual gain. Another strategy is the compromise strategy where a middle path is identified by the channel members as opposed to their initial positions. The final strategy is aggressive strategy where the problem is resolved using coercion, threat or punishment. Legalistic strategies involve following legal processes such as arbitration and settlements for resolving the conflicts that arise between channel members. Channel conflicts do not arise overnight. Therefore, channel members have to develop a long term perspective on how to manage the climate within the channels so that conflicts do not arise in the future. Bibliography 1. (ICMR), I. C. (2004). 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