Conflict Cooperation and Competition

No matter how well channels are designed and managed, there will be some conflict, if for no other reason than the interests of independent business entities do not always coincide. Here we examine three questions: What types of conflict arise in channels? What causes channel conflict? What can be done to resolve conflict situations?

Types of Conflict and Competition

Vertical channel conflict means conflict between different levels within the same channel. As one example, General Motors has come into conflict with its dealers in trying to enforce policies on service, pricing, and advertising. As another example, CocaCola came into conflict with its bottlers who agreed also to bottle Dr. Pepper.

Vertical channel conflict is currently raging in consumer packaged goods, where power has shifted from producers to retailers. Even as manufacturers continue to pump out thousands of new products, retailers seeking maximum productivity from their limited shelf space are able to collect slotting fees from manufacturers for stocking new products, display fees to cover space costs, fines for late deliveries and incomplete orders, and exit fees to cover the cost of returning goods to producers. Trying to regain power from retailers, manufacturers are expanding into alternative channels, putting more emphasis on market-leading brands, and developing stronger links with important retailers through value-added distribution systems and programs that benefit all members of the channel.

Horizontal channel conflict involves conflict between members at the same level within the channel. Horizontal channel conflict erupted, for instance, when some Pizza Inn franchisees complained about other Pizza Inn franchisees cheating on ingredients, maintaining poor service, and hurting the overall Pizza Inn image.

Multichannel conflict exists when the manufacturer has established two or more channels that sell to the same market. For instance, when Goodyear began selling its tires through Sears, Wal-Mart, and Discount Tire, the move angered its independent dealers. Goodyear eventually placated them by offering exclusive tire models that would not be sold in other retail outlets.

Causes of Channel Conflict

Why does channel conflict erupt? One major cause is goal incompatibility. For example, the manufacturer may want to achieve rapid market penetration through a low-price policy. The dealers, in contrast, may prefer to work with high margins for short-run profitability. Sometimes conflict arises from unclear roles and rights. This is what happened when IBM started selling PCs to large accounts through its own sales force while its licensed dealers were also trying to sell to large accounts. Territory boundaries and credit for sales often produce conflict in such situations.

By adding new channels, a company faces the possibility of channel conflict, as the earlier insurance example indicated. Conflict can also stem from differences in perception, as when the producer is optimistic about the short-term economic outlook and wants dealers to carry more inventory, while its dealers are more pessimistic about future prospects.

At times, conflict can arise because of the intermediaries' great dependence on the manufacturer. The fortunes of exclusive dealers, such as auto dealers, are intimately affected by the manufacturer's product and pricing decisions. This creates a high potential for conflict.

Managing Channel Conflict

Some channel conflict can be constructive and can lead to more dynamic adaptation in a changing environment. Too much conflict can be dysfunctional, however, so the challenge is not to eliminate conflict but to manage it better. There are several mechanisms for effective conflict management:19

^ Adoption of superordinate goals. 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. They usually do this when the channel faces an outside threat, such as a more efficient competing channel, an adverse piece of legislation, or a shift in consumer desires.

^ Exchange persons between channel levels. General Motors executives might work for a short time in some dealerships, and some dealers might work in GM's dealer policy department, as a way of helping participants appreciate each other's viewpoint.

^ Cooptation. Cooptation 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, trade associations, and the like. As long as the initiating organization treats the leaders seriously and listens to their opinions, cooptation can reduce conflict.

^ Diplomacy, mediation, arbitration for chronic or acute conflict. Diplomacy takes place when each side sends a person or group to meet with its counterpart to resolve the conflict. Mediation means having a skilled, neutral third party reconcile the two parties' interests. Arbitration occurs when the two parties agree to present their arguments to an arbitrator and accept the arbitration decision.

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Responses

  • Torsten Pfeifer
    What is channel power, cooperation n competition?
    2 years ago

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