Distribution channels are more than simple collections of firms tied together by various flows. They are complex behavioural systems in which people and companies interact to accomplish individual, company and channel goals. Different forms of channel system exist.
Some channel systems consist only of informal interactions among loosely organized firms, while others consist of formal interactions guided by strong organizational structures. Moreover, channel systems do not stand still - new types of intermediary surface and whole new channel systems evolve. Here we look at channel behaviour and at how members organize to do the work of the channel.
A distribution channel consists of firms that have banded together and are dependent on each other to achieve a eommon goal. For example, a Volvo dealer depends on the Swedish manufacturer, Volvo, to design cars that meet consumer needs. In turn, Volvo depends on the dealer to attract consumers, persuade them to buy Volvo cars, and service cars after the sale. The Volvo dealer also depends on the other dealers to provide good sales and service that will uphold the reputation of Volvo and its dealer body. In fact, the success of individual Volvo dealers depends on how well the entire Volvo distribution channel competes with the channels of other car manufacturers.
Each channel member plays a role in the channel and specializes in performing one or more functions. For example, Philips' role is to produce hi-fi equipment that consumers will like and to create demand through national and worldwide advertising. The role of the specialist shops, department stores and other independent outlets, that stock and sell Philips' products is to display these items in convenient locations, to answer buyers' questions, to close sales and to provide a good level of customer service. The channel will be most effective when each member is assigned the tasks it can do best.
Ideally, because the success of individual channel members depends on overall channel success, all channel firms should work together smoothly to secure healthy margins or profitable sales. They should understand and accept their roles, co-ordinate their goals and activities and co-operate to attain overall channel goals. By co-operating, they can more effectively sense, serve and satisfy the target market, thereby creating win-win situations which they can mutually benefit from.
Unfortunately, individual channel members rarely take such a broad view. They are usually more concerned with their own short-run goals and their channel conflict Disagreement among marketing channel members on goals and rales - who should dn what and far what rewards.
dealings with those firms closest to them in the channel. Co-Operating to achieve overall channel goals sometimes means compromising individual company goals. Although ehaunel members arc dependent on one another, they often act alone in their own short-term best interests. They often disagree on the roles that each should play - that is, on who should do what and for what rewards. Such disagreements over goals and roles generate channel conflict. Conflict can occur at two levels.
Horizontal conflict is conflict among firms at the same level of the channel. For instance, dealers may complain about other dealers in the town that steal sales from them by being too aggressive in their pricing and advertising, or by selling outside their assigned territories. Car dealers, consumer appliance outlets and/or industrial equipment dealers that do not have sole distribution rights for the manufacturer's brand often encounter such conflict.
Vertical conflict is even more common and refers to conflicts between different levels of the same channel. For example, in the pharmaceutical industry, concentration of the distribution systems in some countries results in enhanced negotiating power for channel intermediaries, particularly the big wholesalers. Drug companies have to work harder to manage their relationship with distributors and other vital channel partners and to minimize conflict (see Marketing Highlight 21.1).
Some conflict in the channel takes the form of healthy competition. It can also ensure that channel members do not become passive and it can trigger innovation. Thus, for the channel as a whole to perform well, each channel member's role must be specified and channel conflict must be managed. Co-operation, roie assignment and conflict management in the channel are attained through strong channel leadership. The channel will perform better if it includes a firm, agency or mechanism that has the power to assign roles and manage conflict. Let us take a look at how channel members organize to do the work of the channel.
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