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What is Channel Conflict?

A channel conflict may be defined as “A situation in which one channel member perceives another channel member(s) to be engaged in behavior that prevents it from achieving its goals”. Conflict is opposition, disagreement, or discord among the organizations.

Conflict is an inherent behavioral dimension in all social systems including the marketing channel. In any social system, when a component perceives the behavior of the other component to be impending the attainment of its goal or the effective performance of its instrumental behavior pattern, an atmosphere of frustration prevails.

When this frustration is not resolved by the other component, a stage of conflict may exist. More if the other component also perceives it as a blockage in its attainment of the goal then both components become objects of each other frustration and conflict arises. In the distribution channel, the same is also applicable.

Here the conflict may be salesman versus distributor, distributor versus wholesaler, wholesaler versus retailer, and so on. Sometimes in bigger organizations, conflict may arise between the product company versus the supply company and the sales department versus the production department.

This type of channel conflict is more common in organizations where every department is an independent cost center or profit center and its effectiveness is monitored separately.

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Causes of Channel Conflict in Marketing

Various channel analysts have advanced a number of causes of conflicts. Robert Little points to such causes as misunderstood communication, divergent functional specialization and goals of the channel member, and failure in the joint decision-making process.

Some other experts suggest different economic objectives and ideological differences among channel members as causes of conflict. The most comprehensive list of causes of channel conflict in marketing channels is:

1. Role Incongruities
2. Resource Scarcities
3. Perceptual Difference
4. Expectational Difference
5. Decision Domain Disagreement
6. Goal Incompatibilities
7. Communication Difficulties

Role Incongruities

A role is a set of perceptions defining what the behavior of a position member should be. When applied to the marketing channel, any given member of the channel has a series of roles that he is expected to fulfill.

For example, a franchiser is expected to provide extensive management assistance and promotional support for his franchises. In return, the franchisees are expected to operate in strict accordance with the franchiser standards operating procedure. If either the franchisee or franchiser deviates from his role, a conflict situation may result.

Resource Scarcities

This refers to conflict stemming between channel members over the allocation of some valuable resources needed to achieve their respective goals. A common example of this is the allocation of resources between the wholesaler and the salesman.

In this case both the wholesaler and salesman a valuable resources necessary to achieve their target view of the retailer. Frequently the wholesale distributor decides to keep some of the high-volume retailers for himself as his accounts. This leads to objections by salespersons over what they consider to be an unfavorable allocation of resources. This kind of dispute is often one of the conflicts.

Perceptual Difference

Perceptions refer to the way an individual selects and interprets environmental stimuli. The way stimuli are perceived however is often quite different from objective reality. In a marketing channel context, the various channel members may perceive the same stimuli but attach different interpretations to them.

A common example of this is the case of sale material provided by manufacturing companies for their retailer to put on at their retail counters. From the company’s point of view, these sale materials are valuable promotional tools needed to move their products off the retailer shelves. Whereas the retailer often perceives the material as useless junk which serves only to take up its valuable space.

Expectational Difference

Various channel members have expectations about the behavior of the other channel members. In practice, these expectations are predictions or forecasts concerning the future behavior of the other channel members.

Sometimes this forecast turns out to be inaccurate but the channel members who make the forecast will take action based on the predictive outcome. By doing so, he can elicit a response behavior from another channel member which might now have occurred in the absence of the original action.

Decision Domain Disagreement

Each channel member explicitly or implicitly carves out for himself an area of decision-making that he feels is exclusively his own. In a contractual channel system such as a franchise, the decision domain is quite explicit and usually spelled out clearly in a franchise contract.

But in more traditional loosely aligned channels made up of independent firms, the decision domains are sometimes up for grabs. Hence conflicts can arise over which member has the right to move to make the decision.

Goal Incompatibilities

Each member of the marketing channel has his own set of goals and objectives that are very often incompatible with those of other channel members. When the goals of two or more members are incompatible, conflicts may result and incompatible goals often arise between channel members for example the most common conflict issues, arise between the manufacturer and industrial distributor.

1. How to handle large accounts
2. The required inventory stocking levels
3. The quality of distributors’ management
4. Size of distributor’s margin

Clearly underlining many of these issues, is the difference in goals, aims and values among channel members involves. Furthermore, in the consumer goods market, there are literally items of thousands of small retailers served by large manufacturers. Large manufacturers tend to be growth-oriented whereas small retailers are more interested in the status quo.

Communication Difficulties

Communication is the vehicle for all interactions among these channel members. Whether such interactions are cooperative or conflictive. A foul-up or breakdown in the process of communication can turn quickly a cooperative relationship into a conflicting one.

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Types of Channel Conflicts

Each channel member views the conflict, the relationship, and the tensions differently. Following are the types of channel conflicts:

1. Latent Conflict
2. Perceived Conflict
3. Felt Conflicts
4. Manifest Conflict
5. Functional Conflict

Latent Conflict

The channel members may be unaware of the opposition. They do not fully sense the conflict. This is due to the separate or un-conflicting goals.

Perceived Conflict

The channel members sense that some sort of opposition of perceptions, interests, or of intentions exists. It is more psychological, i.e. two organizations can perceive that they are in disagreement but their individual members do not consider it as a very serious issue.

Felt Conflicts

When channel members not only perceive the opposition or disagreement but also feel it actually they are felt or affective conflicts. This needs to be sorted out at an early stage to avoid further consequences.

Manifest Conflict

If felt conflicts are not managed in time and properly, they can become manifest or overt conflicts and these conflicts stop the cooperation and understanding between two organizations and block the other from achieving its goals.

Functional Conflict

When channel members accept that there is opposition and disagreement but actually, this opposition will improve their relationship, it becomes a functional conflict. It is common, obvious, and sometimes desirable too due to the interdependence of channel members on each other.

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Classification of Channel Conflicts

These are the four classifications of channel conflicts:

1. Vertical Conflicts
2. Horizontal Conflicts
3. Inter Type Conflict
4. Multi-Channel Conflict

Vertical Conflicts

Vertical conflicts occur due to differences in goals and objectives, misunderstandings, and mainly due to poor communication Lack of role clarity, and over-dependence on the manufacturers.

For e.g. today large retailers dominate the market and dictate the terms. Hence there are often conflicts between these giant retailers and the manufacturers.

Horizontal Conflicts

Horizontal conflicts are the conflicts between the channel members at the same level, i.e. two or more retailers, two or more franchisees, etc. These conflicts can offer some positive benefits to consumers. Competition or a price war between two dealers or retailers can be in favor of the consumers. The reasons behind horizontal conflicts are:

• Extra service offered by one dealer/retailer can attract customers from others.
  
• Crossing the assigned territory and selling in other dealers/retailers/franchise areas.
  
• Unethical practices or malpractices of one dealer or retailer can affect others and spoil the brand image.

Inter Type Conflict

Intertype conflict occurs when the Intermediaries dealing in a particular product start trading outside their normal product range.

For example, now the supermarkets such as Food World also sell vegetables and fruits and thus compete with small retailers selling these products. Large retailers often offer a large variety and thus they compete with small but specialized retailers. This concept is called “Scrambled Merchandising” where the retailers keep the merchandise lines that are outside their normal product range.

Multi-Channel Conflict

Multi-channel conflict occurs when the manufacturer uses a dual distribution strategy, i.e. the manufacturer uses two or more channel arrangements to reach the same market. Manufacturers can sell directly through their exclusive showrooms or outlets.

This act can affect the business of other channels selling manufacturer’s brands Manufacturers can bypass the wholesalers and sell directly to large retailers. Conflict becomes more intense in this case as the large retailers can enjoy more customers and so the profit due to offering more variety and still economical prices, which is possible due to a volume purchase.

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Resolving Channel Conflict

Conflict is a natural phenomenon, which cannot be eliminated. In channel management, it is inevitable as many individuals, and institutions are involved and they are interdependent. Certain conflicts are constructive too. The conflicts can be reduced and managed better to reduce the friction in channel management.

Various techniques can be used to resolve the conflicts. It is important to find out the root cause behind the conflict so that appropriate techniques can be used to resolve the conflicts and lasting effect is possible. Some techniques are as follows:

1. Channel Leadership
2. Adoption of Superordinate Goals
3. Exchange of Persons
4. Co-Opt
5. Joint Membership
6. Diplomacy
7. Third-Party Mechanisms
8. Arbitration
9. Mediation

Channel Leadership

Many channel conflicts can be resolved through effective channel leadership. Channel leader is able to reduce conflicts because he possesses channel power. Channel power is the ability of one channel member to influence another member’s marketing decisions and goal achievement.

It enables the leader to influence overall channel performance. The channel leader controls resources on which other members depend.

Channel power can increase conflict and reduce cooperation if one channel member uses coercion to influence others. Manufacturers, wholesalers, or even retailers can become the channel leaders. For example, producers like IBM, Ford can act as channel leaders because of their economic power.

Adoption of Superordinate Goals

The channel members come to an agreement on the fundamental goal they are jointly seeking, whether it is survival, market share, high quality, or customer satisfaction.

Exchange of Persons

Exchange of Persons Between Two or More Channel Levels: This helps in better understanding. It can reduce the misunderstanding and conflicts can be reduced substantially through this communication. Each will grow to appreciate the other’s point of view and carry more understanding when returning to their position.

Co-Opt

It is an effort by one organization to win the support of the leaders of another organization by including them in advisory councils, boards of directors so that they feel that their opinions are being heard. Cooperation can reduce conflict provided both parties compromise on some or the other issues in order to win the support of the other side.

Joint Membership

Joint Membership in and Between Trade Associations: Such associations bring all participants under one roof for more exposure to the public and to improve relations with each other by understanding their problems.

Diplomacy

Diplomacy takes place when each side sends a person or a group to meet with their counterpart from the other side to resolve the conflict. It makes sense to assign diplomats to work more or less continuously with each other to avoid conflicts.

Third-Party Mechanisms

When conflict is chronic, and the above-mentioned techniques are ineffective, both parties may have to resort to third parties, which are not involved or not part of the existing channel.

Arbitration

In this method, the two parties agree to present their arguments to a third party and accept arbitration decisions.

Mediation

Mediation implies resorting to a neutral third party who brings skills in conciliating the interests of the two parties. Mediation is the process whereby a third party attempts to secure the settlement of a dispute by persuading the parties either to continue their negotiations or to consider procedural recommendations that the mediator may make.

The mediator has a fresh view of the situation and may perceive opportunities that insiders cannot. Effective mediation succeeds in clarifying facts and issues. Mediators help the parties to set up their own decisions whereas in arbitration it can be compulsory.

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FAQs About the Channel Conflict