What is Channel Conflict?
Channel conflict is a situation where one member of the channel perceives that the other channel member behaving in a way that prevents the first member from achieving his distribution objectives. It is a condition of odds between the different members of the channel.
In simple words, remember channel conflict means the conflict of different distribution channels or marketing channels. One simple example is when a producer directly sells his products to the final consumers though he has recruited middlemen, in case, middlemen get angry with the producer since they have an expectation of earning some commission, and such a situation leads to channel conflict.
A channel is a system of people and organizations that participate in the activity of moving products or services from the producer to customers. A channel member may be the producer itself, wholesalers, distributors, retailers, agents, customers, etc. For the smooth distribution of products, significant cooperation between these channel members is required.
However, the members of the distribution channel lack a system orientation which leads to conflict. Normal conflict is acceptable, but if the conflict is excessive, it will cause harm to channel members and even lead to an unexpected loss for every channel member.
Some channel conflicts, however, keep the participants on their toes. If managed correctly, they may lead to an improved managed system. However, for the prosperity of all producers, middlemen, and customers the conflict should not arise as far as possible.
Types of Channel Conflict
In practice, there are three types of channel conflicts, namely horizontal, vertical, and multichannel conflicts. The conflicts are shortly described below,
Horizontal is always about the same level. The horizontal channel conflict is the conflict that occurs between the members on the same level of distribution. For example, the conflict between two or more retailers, two or more producers, two or more wholesalers, and two or more agents, who handle the same type of products.
Vertical means between the different levels. The vertical channel conflict is the conflict that occurs among different levels of distribution channel members. For example, the conflict between producers and retailers, between retailers and wholesalers, between producers and wholesalers, etc. It is the most severe type of channel conflict.
The conflict between producer and wholesaler may arise when the producer sells directly to the ultimate customers or retailers. And, the conflict between producer and retailer may arise when the producer refuses to sell to those retailers who lack promotional ability.
Multi-Channel or Intertype Channel Conflict
Multi-channel conflict may occur among the channel members of different distribution channels. When a producer uses two or more distribution channels to sell the same product, multi-channel conflict arise, because the channel members of different distribution channel may adopt different marketing strategies and offer different prices for the same products.
For example, a producer may offer a substantial discount for the retailers who purchase in big lots, while those retailers who purchase in small quantities may receive a small discount from the producer or the wholesaler. In this particular situation, conflict may arise between the producer and the wholesaler, and the retailers (receiving small discounts).
Causes of Channel Conflicts
There are lots of reasons for happening channel conflicts. The conflicts may be due to the differences in the goal of channel members, the difference in pricing strategies, unclear communication, lack of cooperation, unclear roles of channel members, unclear power of channel members, the difference in purchase terms and conditions, lack of knowledge regarding the level of channel control.
However, these plus all the possible key causes of channel conflict can be listed as follows, the main reason is the unmatching goal of producer and channel members. The factors, producer’s goal, and channel members’ goals are,
i. Price – The producer wants to establish a final price consistent with the product image whereas channel members want to establish a final price consistent with the channel member’s image.
ii. Purchase Terms – The producer’s goal is to ensure prompt, accurate payments, and minimize discounts whereas the channel member’s goal is to defer payments as long as possible and secure discounts.
iii. Shelf Space – The producer’s goal is to obtain plentiful shelf space with proper visibility to maximize brand sales whereas, the channel members’ goal is to allocate shelf space among many brands in order to maximize total product sales.
iv. Exclusivity – The producer’s goal is to hold down the number of competing brands a channel member stocks while selling through many channel members, on the contrary, the channel member’s goal is to hold down the number of competing brands carrying the same brands while selling different brands itself.
v. Delivery – The producer’s goal is to receive adequate notice before deliveries are required, on the contrary, the channel members’ goal is to obtain quick service.
vi. Advertising Support – The producer’s goal is to secure advertising support from channel members whereas, the channel member’s goal is to secure advertising support from producers.
vii. Profitability – The producer’s goal is to maintain adequate profit margins whereas, the channel member’s goal is also to maintain the same.
viii. Continuity – The producer’s goal is to receive orders on a regular basis and the channel members’ goal is to receive shipments on a regular basis.
ix. Order Size – The producer’s goal is to maximize order size whereas, the channel member’s goal is to have order size conform with consumers’ demand to minimize inventory investment.
x. Assortment – The producer’s goal is to standardize production and channel members is to secure a full variety.
xi. Risk – The producer’s goal is to have channel members assume risks, on the contrary, the channel member’s goal is to have the producer assume risks.
xii. Branding – The producer’s goal is to sell products under the producer’s label whereas, the channel member’s goal is to sell the products under the dealer’s labels as well as the producer’s labels.
xiii. Channel Process – The producer’s goal is to be able to distribute items whenever desirable by the producer whereas the channel member’s goal is to carry only those items desired by channel members.
xiv. Importance of Account – The producer’s goal is to not allow any single channel member to dominate whereas, the channel member’s goal is to not allow any single producer to dominate.
xv. Consumer Loyalty – The producer’s goal is to have consumers loyal to the producer whereas the channel member’s goal is the have consumer loyalty to the channel member.
xvi. Channel Control – The producer’s goal is to make key channel decisions and the channel member’s also want to make key channel decisions.
Channel Conflict Resolution Methods
Channel members usually focus and specialize in particular marketing functions. For example, producers focus on production and national promotion, wholesalers perform macro distribution tasks while retailers specialize in distribution and promotion at the consumer level.
Such specialization creates a necessary interdependence among the channel members. As a result, conflict resolution among channel members becomes essential because failure to settle such conflict results in failure for all.
Popularly, there are four methods of settling channel conflicts:
Resolution through Mitigation
Mitigation is a method of resolving disputes through mutual understanding between the parties without using any mediator. It is possible only when both the parties honestly realize that the good faith between them must be restored to their long-term relationship.
In this case, both the parties actively and mutually take action to restore their relationship without asking for the help of any third party. This method of resolving disputes is regarded as the best method.
Resolution through Conciliation
Conciliation is a non-binding agreement between parties to settle disputes by asking a third party to mediate differences voluntarily. The third-party (Voluntary negotiator) does not have any power to force the conflicting parties. The agreement is reached, and a conciliation statement based on the signed agreement is recorded.
Resolution through Arbitration
Arbitration is the most practical, popular, and reliable method of conflict resolution in the distribution channel. Under this method, either the conflicting party or both the conflicting parties may request the third party to settle the existing conflict.
The conflicting parties are gathered together with the members of negotiating committee. The members of negotiating committee are powerful and take action against the conflicting parties. The conflicting parties will express their opinion one by one and disclose all facts.
On the basis of their opinion and problems, the members of negotiating committee will help to make an agreement between conflicting parties to continue the business with a full of understanding and confidence. This method permits them to pursue their business in the future too without damaging the goodwill of either of the parties. Timely resolution of the channel conflict is another positive point of this method of resolution.
Resolution through Regulation/Litigation
Under resolution through regulation or litigation, conflicts are resolved through law. All the conflicting parties take the help of the law and go to court for the resolution of their disputes. The judges will give the decision to end the conflict between the conflicting parties.
It is an expensive, time-consuming, method of resolution. Moreover, it is harmful as it may damage the goodwill of both the parties and make it difficult to develop understanding between them in the future.
Therefore, this method of conflict resolution is not popular and practical. This method will be adopted only when the channel conflict between the parties is severe and difficult to settle through arbitration.