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Submitted by: Somya Harsh, 11171, Section B Submitted to: Prof.

Jojo Joy N Date: 15-07-2012

Assignment- Paint Companys managing channel conflict Case Facts: An excellent distribution network forms one of the critical success factors in the paint industry. The company has four manufacturing facilities and more than 2,800 Stock Keeping Units. These are supported by six regional distribution centers, which cater to 55 depots. Each centre has a branch manager and several salespersons that cater to more than 14,500 distributors, wholesalers & retailers and customers in the more than 3,500 big and small cities all over the country. The company follows a Multi-Plant Distribution System (MPDS) which means - the depots are serviced by all the four plants depending on the availability of the product at the plant warehouse. Possible areas of channel conflict are as follows: Multi-point contact with institutional buyers (company sales representatives and retailers) . Direct contact of wholesalers as well as retailers with the final consumer. Direct contact of wholesaler as well as retailer with the company depot.

Q1. Identify the areas of conflict 1. Horizontal Channel Conflict: Horizontal Conflict arises when two or more partners of the same channel compete against each other. As a product's distribution base is broadened (more accounts, stores, and types of stores are added), the likelihood of horizontal channel conflict increases between and among organizations operating in the same "layer" of the distribution network. This sometimes causes conflict between the retailers and wholesalers and the wholesalers go for undercutting, thus creating conflict. 2. Multi-channel Conflict: Multi-Channel Conflict occurs when a manufacturer has established two or more channels that compete against each other in selling to the same market. This happens as companies attempt to reach different customer segments by utilizing multiple distribution channels (including direct from the manufacturer). More specifically, when multiple channels are employed and distribution intensity increases, three profit threats may confront a retailer: sales cannibalization, margin dilution, and customer diversion. When such channel

conflict increases, retailers' support for a product typically deceases. Also, multi-point contact with institutional buyers may lead to dilution of brand.

Q2. Use decision making frame work- Accenture Model

While some level of channel conflict is inevitable, especially as products mature, it can be (and should be) mitigated. The case says company has excellent distribution system and for a paint company the wholesalers and retailers are inevitable to penetrate well in the market and do business. Channel partners here are important, and according to Accenture model of decision making, Paint company should go for Co-operate. In order to contain the level of conflict, companies need to embrace distribution philosophies that: (1) Adopt a long-run perspective and refrain from opportunistic initiatives that may jeopardize established channel relationships for the sake of potentially transient shortterm gains. (2) Are respectful of system economics, recognizing that channel partners must earn fair financial returns to stay motivated. (3) Stay open and flexible by avoiding restrictive long-run agreements (formal or "common law") that foreclose adaptation to changing markets. On a more tactical level, companies should: (1) Avoid premature distribution through margin-crunching channels despite their sometimes alluring potential to satisfy the "thrill of volume". (2) Delineate clear rules for territorial coverage and "account ownership" so that competing channels (including the manufacturer direct channel) avoid fighting over the same set of customers. (3) Build and maintain "fences" between competing channels to minimize leakage. For example, many companies market different brands to different intermediaries, or offer derivative models that are similar to, but different from their base products, that match

the needs of different channels (e.g. newest full featured models to specialty stores, older "stripped down" models to discounters), and that "shelter" retailers from headto-head price competition.