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Channel Implementation Process

After attaining a good channel design for the market, the channel
managers job is not over. He now has to implement the channel design.
The same involves 3 basic tasks :-

Identifying Power Sources
Identifying channel conflicts
Achieve Channel coordination
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Channel Implementation Process
After attaining a good channel design for the market, the channel
managers job is not over. He now has to implement the channel design.
Specific channel members are likely to specialise in particular flows &
activities.
If the channel members do not perform properly , the entire channel effort
suffers.
e.g a poor transportation system can ruin a most excellent channel design
also at times

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The nature of power
Power defined:
Power is the ability of one channel member ( A) to get another channel
member (B) do something, it otherwise would not have done. It is basically
the potential to influence!
For a channel manager to implement the optimal channel design, in the face
of interdependence of the channel partners , of whom not all incentivised
uniformly & not all cooperate to deliver their designated channel flows, the
channel manager needs to possess & use channel power.
A channel members power is its ability to control the decision variables in
the marketing strategy of another member in the given channel at a
different level of distribution
Difference b/w power & co operation
At times what looks like a manufacturers use of power over the distributor
could simply be an act of free will, or a response to the power of
environment or other players.
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Why marketing channels require power?
Interdependence in channel system does not mean, that what is good for
one is good for all
Each channel member is seeking its own profit
Maximising the systems profit is not the same as maximising each
members profit

All else constant, each member tries to avoid cost at its own level or push it
to the other channel member while garnering revenues.
Problem of double marginalisation- involves taking of two margins rather
than one in the channel. Solution can be vertical integration
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Identifying the power sources
The key to determining which channel member has the most power lies in
an understanding of the sources of power available to channel members.
E.g Dell selling HP printers
Five sources of power:-
a) Reward Power
b) Coercive Power
c) Expertise Power
d) Legitimate Power
e) Referent Power

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Reward Power
A reward is a benefit given in recompense to a channel member
for altering its behaviour.
Financial aspect of rewards.
Reward power is based on the belief held by B that A has the
ability to grant rewards to B.
The effective use of reward power restson As possession of
some resource that B values & believes it can obtain by
conforming to A s request
For e.g French chain of sporting goods Decathlon
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Coercive Power
Coercive Power stems from B s expectation of punishment by
A if B fails to conform to As influence attempt.
e.g. reduction in margins, withdrawl of rewards previously
granted, exclusive territory right, slowing down of shipments.
Its the reverse of reward power.
Channel members view this as an attack on themselves & their
businesses. Stems from great size & position in the industry.
When they perceive coercion, the react by considering the
counter attack
Coercion should be used when all other alternatives to evoke
change have proved unsuccessful
E.g Gallo Wine Company coercion on its distributors
Wal Mart announcement of its procurement policy led to
emergence of CASE

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Expert Power
Expert Power is based on the targets perception that the influencer has
special knowledge, useful expertise that the target does not possess.
The value of expertise comes out more prominently in one of the most
widespread channel form- franchise
The durability of expert power presents another problem in channel
management- what after the expertise gets transferred?
To retain expert power in the long run, a channel partner has 3 options:-
a) Dole out expertise in small portions
b) Invest in continuous learning, thereby it shall always possess some new &
important information to offer
c) Transmit only customised information i.e encourage transaction specific
expertise
e.g supermarkets, retailers & industrial distributors have an edge over suppliers
on consumer information;
eg ( General Foods now Kraft Foods)- massive study of mateials
handling,concept of DPP, retail space productivity,P& G s Efficient
Assortment Program

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Legitimate Power
To be legitimate is to be seen as right & proper, as being in accordance
with what is seen as normal or established standards.
The same stems from the target companys sense that it is in some way
obligated to comply with the requests of the influencer.
The decision maker feels constrained morally, socially or legally to go
along with the influencer
Legitimate power can come from two sources : from law- Legal legitimate
Power : from norms & values Traditional Legitimate power

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Legitimate Power contd.
Legal legitimate power is conferred by govts., coming from the nations
law of contracts& the laws of commerce. For e.g. In many countries patent
& trademark laws gives owners justification in supervising the distribution
of their products, franchise contract

Another major source of legitimate power comes from the contract channel
members write to each other.

In a traditional legitimate power which stems from norms, values &
beliefs, a firm may believe that a channel member deserves to be accorded
a certain deference perhaps because of its successful track record or
exemplary management.

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Referent Power

Referent Power exists when B views A as a standard of reference &
therefore wishes to identify publicly with A
A prominent reason for wishing to be publicly identified with the other is
prestige
Downstream channel members would like to carry high status brands to
benefit their own image
JC Penney almost begging Levi strauss to sell its jeans through them
Harley Davidson
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The Balance of Power

Channel outcome depends on the balance of power in a relationship

Net Dependence

Dependence is never entirely one way, it is mutual. Power is to be balanced
in a relationship. Net dependence should be assessed.
High mutual dependence gives rise to high mutual power. Each channel
member is able to create high levels of value addition.
The two sides can drive each other to craft & implement creative win win
solutions
It also encourages cooperation by blocking exploitation, no party is weak,
both are giants. The same leads to channel coordination

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Imbalanced Dependence
Exploitation inevitable?
Imbalanced dependence happens when one channel member A is much
more dependent than channel member B.
Typically a large producer or manufacturer dealing with relatively small
channel members at a wholesale or retail level has high reward or coercive
power. On the other hand, you also have retail giants like Wal-Mart, Toys
R Us who negotiate & exercise power on various suppliers.
The balance of power favours B & A is open to exploitation
The dependent party suffers in economic terms as well non economic
benefits.
e.g. Marks & Spencers ( Britains largets retailer) preferred suppliers

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Imbalanced Dependence : Countermeasures for
the weaker party
The weaker party can take 3 counter measures :
a) Developing alternatives to A
b) Organizing a coalition to attack A
c) Exiting the situation , removing itself from the danger by no
longer seeking the benefits which A provides

e.G the U S automobile dealers; once represented only one brand
of car but were eventually forced to diversify themselves
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Exercising Power: Influence Strategies
The more the parties have power, the more they tend to use it

Latent power is rapidly converted to exercised power
Converting the potential to influence into real changes in the behaviour
of the other party requires communication. The nature of that
communication affects channel relationships.

Most of the channel communications can be grouped into the following
six influence strategies :-
1) Promise strategy 4)Request strategy
2) Threat strategy 5)Information Exchange
strategy
3) Legalistic strategy 6)Recommendation strategy
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Influence strategies contd.
Influence strategies


1.Promise
2Threat
3.Legalistic
4.Request
5.Information Exchange
6.Recommendation
Power sources necessary
for this to work
Reward
Coercion
Legitimacy
Referent, reward, coercion
Expertise, reward
Expertise reward
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Consequence of each strategy/ implications
of the use of power ( General inferences)
Some forms of power must be exercised to influence channel member
behavior
The effectiveness of various power bases in influencing channel member
behaviour is most of the times situation- specific.
The use of power also affects the degree of co operation and conflict in the
channel & can affect the level of channel member satisfaction with the
channel relationship.
The first three styles (promise, threat, legalistic) often provoke a backlash
because they are perceived as heavy handed , high pressure techniques.
In the short term, high pressure techniques are effective, however they have
damaging long term effects on the counterparts trust & commitment.
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Contd.

A promise can be considered as a bribe, as insulting & unprofessional,
something of a forcing technique in the short term
In the long term, it has mixed effects. The counterpart usually delivers on
the promise & his & channel members financial indicators improve
The last three influence strategies (request, information exchange &
recommendation are more subtle more nuanced than the first three.
Channel counterparts welcome these efforts and do not take offence of the
usage
These three strategies increase all facets of counterparts satisfaction
economically & interpersonally.
Recommendation strategy although more overt because the desired
behaviour is stated, does not threaten the counterparts autonomy


Amity Business School Channel Conflict
Nature of channel conflict

Channel conflict is a state of opposition, or discord among the
organization comprising a marketing channel
The many connotations of conflict :- contention, disunity,
disharmony, argument, friction, hostility, antagonism, struggle,
battle
Interdependent parties at some level try to block each other

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Types of conflict


Horizontal channel conflict
Vertical channel conflict
Multichannel conflict
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Degree of Conflict
When conflict occurs at such a low level that channel members
do not fully sense it, the conflict is latent in nature.Latent
conflict is the norm in marketing channels.
When a channel member senses that some sort of opposition
exists, opposition of view points, of perceptions, of sentiments,
of interests or of intentions, the conflict is perceived
But when emotions enter, the channel experiences felt
conflict, or affective conflict. Here channel members
experience tension, anxiety, anger, frustration, hostility.
Differences get personalised, normal interactions start
sounding as disputes
If not managed, felt conflict can escalate quickly into manifest
conflict. This conflict is visible with blocking of each others
initiatives & withdrawal of support.



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Measuring conflict
For diagnosing the true level of conflict that an organization faces
in a channel relationship
Gather 4 kinds of information :-
Step 1 Counting up the issues
Step 2- Importance
Step 3- Frequency of disagreement
Step 4- Intensity of dispute
With this we arrive at the index of conflict :-
Conflict =
i=1
n
Importance * Frequency* Intensity
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Consequences of conflict
Generally considered dysfunctional,negative in terms of
consequences but at certain occasions conflict actually makes
the relationship better!
Functional (useful) conflict are positive in their outcome. A
chance to learn, innovate & grow

In a functional conflict , opposition leads to :-
More frequent & effective commsunication
Establishing outlets for expressing their grievances
Critically reviewing their past actions
Devise & split more equitable split of system resources
Develop more balanced distribution of power
Develop standardized ways too deal with future conflict

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When channel members are committed, these disputes raise
standards of performance in the short term encourages close co
operation

Are peaceful channels better?
At times what appears as peaceful & harmonious relationship
might be a relationship of indifference ! The two parties dont
disagree on anything & neglect becomes mutual. The
relationship then exists only on paper
Lack of conflict soon becomes lack of engagement that leads
to poor performance ,increasing activity levels can be a
solution.
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Sources of conflict

Most conflict is rooted in differences in :-
a) Channel members goals
b) Their perceptions of reality
c) Their domains areas
d) Role incongruities
e) Resource scarcities
f) Communication difficulties
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Competing Goals
Each channel members' set of goals & objectives is different
from those of other members.
Goal divergence & subsequent conflict is very common
Eg Resellers carry a suppliers line in order to maximise their
own profits by the following ways:-
a) Achieving higher gross margins per unit
b) Increasing unit sales & decreasing inventory
c) Holding down expenses &
d) Receiving higher allowances from the manager.

But even the manufacturer wants to make greater profits?
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Contd.
For this the manufacturer wishes to do exactly the reverse!
a) Accept lower margins ( pay suppliers more & charge
customer less
b) Hold more inventory ( avoid stockouts, maximise selection),
spend more to support the product line
c) Get by avoiding allowances

So both collide on all objectives except one raise unit sales!
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Inherent differences in the viewpoints of suppliers &
resellers
Manufacturer viewpoint Reseller viewpoint Expression of clash
Financial
goals
Maximise profit by Maximise profit by
Manufacturer: You dont put
enough effort behind my
brand. Your prices are too high

Higher prices to reseller
Higher own level margins
Higher sales by reseller
Higher reseller expenses
Higher reseller inventory
Lower allowances to r
Lower expenses
Faster inventory
turnover
Higher allowances
from
manufacturers




Reseller: You dont support
me enough. With your
wholesale prices , we cant
make money
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Contd.
Focus on Focus on
Desired
target
accounts
Multiple segments
Multiple markets
Many accounts
( volume plus share)
Segment corresponding
to resellers positioning.
Our markets only
Selected accounts those
that are profitable to serve)

Manufacturer:We
need more coverage&
more effort
Reseller.You dont
respect our marketing
strategy. We need to
make money too.
Desired
products &
account policy
Concentrate on
our product category
& our brand
Carry out full line

Achieve economies of
scope over product
Categories
Serve customers by
offering brand
Assortment
Do not carry inferior
Or slow moving items
Manufacturer: You carry too
may lines. Dont give us
enough attention, youre
disloyal
Reseller : Our customers
come first. We need to
satisfy them to benefit you.
Why dont you prune
your product line
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Differing Perceptions of Reality
Refers to the way an individual selects and interprets
environmental stimuli.One of the most common sources of
conflict
Different channel members respond differently to the same
situation
eg. perceptions may differ markedly on basic topics as:-
-What the attributes of the product or service are?
-What applications it serves& for which segments?
-What the competition is?
- Purpose of POP
Inaccurate expectations also lead to surprise , and frequently
opposition, when the parties fail to act as expected



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Contd.
One of the major reasons for such misperceptions is focus.
Inability & lack of willingness to assemble the entire picture
from separate pieces.
Only when they share information they uncover dramatic
differences in perception.
Lack of communication exacerbates conflict
Need to have frequent, timely & relevant communication to
align perceptions & expectations.
E.g a top manager at Toyota on regular visits to his dealers said I found
out that out of ten complaints from each dealer, you could attribute five
or six to simple misunderstandings, another two or three could be solved
on the spot and only one needed further work
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Clashes over domain
Each channel member has its own domains , or spheres of
function
Much conflict in channels occur when one member perceives
that the other is not taking proper care of its responsibilities in
its appropriate domain.
Who-should-do-what-and how-should it- be-done are typical
domain disputes.
Classic examples of the same are :-
- market research
- pre & post sales service & support
- inventory
- pricing decision
Eg J. E Ekornes, a Norwegian Home furniture manufacturer
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Role incongruities
Eg role of franchisor & franchisee in a franchise
Resource Scarcities
Eg retention for house accounts by manufacturer market territory
as a resource
Communication difficulties
Eg when channel partners come from different national business
cultures, have culturally divergent ideas about what is
appropriate behaviour.
Need to develop greater sensitivity to others business culture.


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Intra channel competition
One of the most serious sources of conflict occurs when
channel members compete potentially for the same business.
Here the upstream member sees its down stream member as a
competitor since resellers provide an assortment & pool
demand of a class of products & end up stocking suppliers
competition
The more acrimonious disputes occur when the upstream
channel member believes it has an understanding or agreement
to limit competition. E.g. A California medical supply firm
won almost $5mn in damages from a distributor over a breach
of contract for promoting competitors products.
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Contd.
From the downstream viewpoint , the domain clash occurs
when supplier sells through many of the firms direct
competitors in the market, e.g in intensive distribution.
Another source of domain conflict occurs when multiple types
of channels represent the suppliers product to the same
geographical market.
There are many labels for this :-
-Dual distribution
-Plural distribution. E.g G.E
-Hybrid distribution
( Multiple channel is not the same as intensive distribution)
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Multiple Channels
Earlier companies used to opt for one primary route & other
routes were downplayed, even disguised in order to avoid
channel conflict & avoid confusing customers.
Now with the explosion of multiple channels its become more
of a norm rather than exception.
The reasons for the same are :-
- Heightened competition
- Helps increase market penetration & raise entry barriers to
potential customers.
- Helps serve customers efficiently in case of fragmented
markets
The objective is to provide convenience to customers.
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Suppliers & customers can both find each other more easily.
Helps customers to pit one channel against other in search for
more services at low prices.
But it has some danger as well . Some of them are ;-
- Downstream channel member loses motivation, can withhold
support, retaliate or exit structure.
- Particularly the case when customers free ride.
The suppliers think that by offering multiple channels they can
serve multiple segments.
On paper, the same is always appealing, but the whole strategy
collapses if customers refuse to stick to their assigned
categories.

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Analyzing multiple channels
The basic question is , when should multiple channels be used &
how much without increasing conflict to ruinous levels?
Growing markets, which tends to offer opportunities to many
players
Markets in which customers perceive the product category as
differentiated
Markets in which buyers have a consistent purchase style that
involves one type of channel member
Markets that are not dominated by buying groups

Eg Coca Cola faced opposition in Japan from retailers on
installing vending machines


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What can manufacturers do ?
Multiple channels dont always compete.They can help each
other by building primary demand. E.g combination of a store
& direct marketing operation
Devising different pricing schemes for different channels
carefully as this at times becomes legally dubious, leads to an
opportunity of arbitrage. E.g. gray markets
Offer more products, more service, more support, even
different products to different channel types to help them
differentiate themselves. E.g Xerox
Offer different brand names to different channels.
Sell primary flagship product line from one channel &
remaining secondary or peripheral things through a captive
channel. Pioneer Electronics ( IT industry)
All parties should be made to realize that the environment has
changed & that market has split into different segments
demanding different level of service outputs
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Conflict Resolution Strategies
Channel partners can cope with the conflict through 2
approaches:-
- Try to keep conflict escalate to dysfunctional zone by
developing institutionalized mechanisms( arbitration boards,
norms of behavior etc)
- Use patterns of behaviour to resolve manifest conflict
( Share information freely, gain mutual access to customers,
assume joint responsibility for the total customer experience)
Institutionalized Mechanisms to contain conflict
early
-Here channel members devise policies to address conflict in its
early stages, even before it arises

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Contd.
- These policies become institutionalised.
- They serve many conflict management functions.
- The same includes mechanisms like joint memberships in
trade associations, distributor councils & exchange of
personnel programs.
- Some build in appeal to third parties such as referral boards of
arbitration & mediation
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Information intensive mechanisms
Communication is the glue that holds together a channel of distribution
Effective communication or information flow is necessary for an efficient
flow of products & services through the channel.
Here the emphasis is on sharing information.e.g Armstrong world
industries which uses expertise power to avoid conflict
Joint membership in trade associations. E.g the committee jointly founded
by the Grocery Manufacturers of America, GMA, & the Food Marketing
Institute that was responsible for developing the universal product code .
Some channels use exchange of persons as an institutional vehicle to avoid
conflict.e.g Walmart & P&G.
A variation of the same is co optation. The same is a mechanism designed
to absorb new elements into the leadership or policy determining structure
of an organisation
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Contd.
Co optation permits sharing of responsibility so that a variety
of channel members feel identified & committed to the
program developed for a particular service/product.
It places an outsider in a position to participate in analysing
an existing situation, to suggest alternatives & to take part in
the deliberation of consequences.
Third party mechanisms
Though co optation brings together representatives of channel
members, mediation & arbitration brings together third parties
which are uninvolved in the channel.
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Contd.
The same keeps mainfest conflict in bounds.
Mediation is the process where the third party attempts to
settle a dispute by persuading them to continue negotiations or
provide substantive recommendations
Gets a fresh view of the situation & is able to perceive
opportunities which insiders cannot.
Generally mediation & arbitration are supported by their own
institutional framework. E.g. (CEDR) Centre of Dispute
Resolution.
Helps channel members increase their communication with
each other regarding their goals.
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Contd.

An alternative to mediation is arbitration, wherein, a third
party actually makes the decision.
Arbitration can be compulsory or voluntarily
In compulsory arbitration process, the parties are required by
law to submit the dispute to the third party , whose decision is
final & binding.
In voluntary arbitration , the parties voluntarily submit their
dispute to the third party whose decision is final & binding.
E.g the American Arbitration association offers commercial
arbitration rules.
Institutionalising the practise of taking dispute to the third
party forestalls conflict

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Contd.
Building Relational Norms
Norms are another class of factors that serve to forestall
conflict.
They govern as how channel members mange their
relationships & grow over time as relationship functions.
A channels norms are its expectations about behaviour,
expectations that channel members at least partially share.
Some commonly observed norms are :-
Flexibility :expectation to adapt readily to the changed
environment , without obstructions
Information exchange:expectation to share any & all pertinent
information, no matter how sensitive the same is
Solidarity :expectation from each other to work for mutual
benefit.
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Styles of conflict resolution
High cooperativeness
Cooperativeness: Concern for the
other partys outcomes
Collaboration
or problem solving
Compromise

Low assertiveness
Avoidance
High Assertiveness
Competition
or Aggression
Assertiveness: Concern for
ones own outcomes

Accommodation
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Contd.
Assertiveness- strength of emphasis on achieving its own goals, such as building
store traffic, increasing uniqueness of its assortment, or increasing margins
Cooperativeness- concern for other partys goals, such as suppliers goals of
building volume, creating distinctive image, or taking share from competitor
Avoidance- it attempts to prevent conflict by circumventing discussion. Attempts
are to save time & unpleasntness. Neither side feels the commitment for the other.
Accomodation- more focussed on other channel members goals rather on ones
own. Its a proactive means of strengthening the relationship by cultivating the
other channel. Signals a genuine willing ness to cooperate, encourages
reciprocation.
Competition-involves playing a zero sum game by pursuing ones own goals while
ignoring the other partys goals. This style generates conflict, fosters distrust.
Compromise- repeatedly pressing for solutions that lets each side achieve its goals.
Gives something to everyone. Used to handle minor conflicts.
Collaboration or problem solving- Channel member wants to achieve its own
goals as well as counterparts . Win- win approach, helps build favourable self
image as well as favorable public representation. Its an information intensive
strategy. For this one needs to have high level of resources- especially of
information , time & energy. This approach is popular in franchising.