4/8/2020 What is Channel Conflict?

Definition, Types, Causes, Consequences, Management, Example - The Investors Book

INVESTMENT HUMAN RESOURCE BUSINESS MANAGEMENT MARKETING

BANKING ECONOMICS

Channel Con ict

July 15, 2019 By Priya C — Leave a Comment

Definition: Channel conflict can be explained as any dispute, difference or

discord arising between two or more channel partners, where one partner’s
activities or operations affect the business, sales, profitability, market share or
similar goal accomplishment of the other channel partner.

As we know that every manufacturing company needs to plan its distribution and
marketing channel appropriately, to ensure market captivity and customer
satisfaction along with growth and profitability.

In the process of the constant supply of products in the market, several channel
partners and intermediaries join the supply chain of the brand. Any clash and
disturbance among these trading partners can be considered as a channel conflict.

Content: Channel Con ict

1. Types
2. Conflict Magnitude
3. Causes
4. Consequences
5. Management
6. Example

Types of Channel Con ict

The channel conflict can be classified majorly into the following four categories
depending upon its flow and the parties involved:

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Vertical Level Conflict

In the vertical level conflict, the channel partner belonging to a higher level enters
into a dispute with the channel member of a lower level or vice-versa.

For instance, channel conflict between dealers and retailers or wholesalers and
retailers.

Horizontal Level Conflict

The conflict among the channel partners belonging to the same level, i.e., issues
between two or more stockists or retailers of different territories, on the grounds of
pricing or manufacturer’s biases, is termed as horizontal level conflict.

Inter-type Channel Conflict

These type of conflicts commonly arise in scrambled merchandising, where the

large retailers go out of their way to enter a product line different from their usual
product range, to challenge the small and concentrated retailers.

Multi-channel Level Conflict

When the manufacturer uses multiple channels for selling the products, it may face
multi-channel level conflict where the channel partners involved in a particular
distribution channel encounters an issue with the other channel.

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Con ict Magnitude
The level to which the conflict is considered critical or needs the attention of the
channel leader, i.e., manufacturer, is known as its magnitude.

The magnitude of conflict can be determined through the proper analysis of the
change in market share and the company’s sales volume in a particular area or
region.

Causes of Channel Con ict

What are the reasons responsible for a channel conflict?

Following are some of the key reasons for which the organizations need to face
channel conflict:

Role Ambiguity: The uncertain act of an intermediary in a multi-channel

arrangement may lead to disturbance in the channel of distribution and cause
conflict among the intermediaries.

Incompatible Goals: When the manufacturer and the intermediaries do not

share the same objectives, both work in different directions to meet their ends, this
results in channel conflict.

Marketing or Strategic Mis-Alignment: Sometimes, two-channel partners

promote the manufacturer’s product in a different manner, which created two
different images of the same product in the consumers’ mindset, which creates
conflicting brand perception.

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Difference in Market Perception: The manufacturer’s understanding of the

potential market and penetration into a specific region or territory, may vary from
the perception of the intermediaries, which can create conflict and reduce the
intermediary’s interest in capturing that particular market.

Change Resistant: When the channel leader plans to modify the distribution
channel, the intermediaries may or may not accept this change. Thus, it may result
in a condition of discord or non-cooperation.

Improper Geographic or Demographic Distribution: If the sales territory

has a narrow consumer base, and the channel leader allows many selling partners,
they tend to lose interest soon because of low profit and limited sales.

Consequences of Channel Con ict

Now that we know about the causes of such conflicts, we must also understand how
dangerous these may prove to be for an organization.

Given below are some of these outcomes:

Price Wars: Due to channel conflict, the partners compete with each other
on the grounds of price, and therefore, the consumer may defer the purchase
searching for the best deal.
Customer Dissatisfaction: If there exists a channel conflict, then the
distributors or retailers may show much interest in the company’s products
and resist to assist the consumers, which results into their resentment
towards the brand.
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Sales Deterioration: Conflicts can adversely affect the sales of the products
due to the decline in distributors’ interest and an increasing number of
consumers shifting to competitors’ products.
Distributors Exit: For the manufacturers, it is essential to retain the
distributors or partners to increase product sales. When there is a channel
conflict, the chances of various distributors leaving the channel increases.
Poor Public Relations: The unsatisfied distributors may negatively publicize
the brand and its products as a result of manufacturer’s unhealthy public
relations with them.

Channel Con ict Management

It is a universal fact that the conflicts cannot be eliminated, though these can be
handled smartly to reduce its negative impact on business.

Following are some of the ways to manage the channel conflicts:

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Mediation, Arbitration and Diplomacy

To resolve a dispute, the manufacturer can adopt the strategy of intervention where
a third person intervenes to create harmony. The other option is arbitration, where
an arbitrator listens to the argument of the parties involved in a conflict and
declares a decision. Or, the parties can resort to diplomacy where the
representatives of both the parties conversate and find a solution.

Co-optation

The manufacturer should hire an expert who has already gained experience in
managing the channel conflicts in other organizations, as a member of the
grievance redressal committee or board of directors, for addressing such conflicts.

Dealer Councils and Trade Associations

To handle the horizontal or vertical conflicts, the manufacturer forms a dealer

council where the dealers can unanimously put up their problems and grievances
in front of the channel leader. To bring in unity among the channel partners or
intermediaries, they can be added as members in trade association which
safeguards their interest.

Superior Goals

Establishing a supreme goal of the organization and aligning it with the individual
goals or objectives of the channel partners, may reduce the channel conflicts.

Regular Communication

The channel leader should take regular feedback from the channel partners
through formal and informal meetings to know about market trends and dynamics.
Also, the channel partner’s issues and conflicts can be addressed through frequent
interactions.

Legal Procedure

When the conflict is critical and uncontrollable by the channel leader, the aggrieved
party can seek legal action, by filing a lawsuit against the accused party.

Fair Pricing

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Most of the channel conflicts are a result of the price war, and therefore, these can
be resolved by ensuring that products are equally priced in all the territories and a
fair margin is provided to the channel partners.

Channel Con ict Example

The world-renowned brand ‘Samsung Electronics‘, faced a multi-channel level
conflict in its Indian market in the year 2014. The company was selling its products
(especially mobiles) through multiple channels, i.e., via offline mode and online
mode.

The offline channel partners raised the issue that the e-retailers are providing high
discounts to attract more and more customers, which had ultimately affected the
offline sale of the product.

Due to this, many retailers and distributors in the offline market, distance
themselves from the brand and its products.

To address this issue and retain its offline distributors and retailers, Samsung
provided the right to sell forty-eight models of its brand exclusively through the
offline distribution channel, thus, re-energizing the brick and mortar channel
partners.

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