Channel dynamics and conflicts

Channel dynamics and conflicts

1. CHANNEL DYNAMICS &  CONFLICTS

2. CHANNEL DYNAMICS

3. Meaning of channel dynamics Products of any company should be sent to sale – centers for selling out. The way used to send goods / products of a company to consumers is called distribution channel. Distribution channels may not be same forever. Distribution channel should be changed according to environmental changes. Changing of channels according to time is called channel dynamics.

4. As the marketing is dynamic, so the distribution channel is dynamic. It does not remain in traditional structure. It also remains changing and developing according to time and is applied accordingly. New persons and new organizations enter in marketing channel system at different times. The functions and roles of such channel members become different according to the changes of time. So, distribution channel does not remain same for long, but remain changing.

5. Types of channel dynamics

6. 1.Vertical Marketing System (VMS)  A  Vertical Marketing system (VMS)  comprises of the main distribution channel partners - the producer, the wholesaler and the retailer who work together as a unified group to serve the customer needs. In conventional marketing system, the producer, wholesaler and the retailer worked separately with the intention to maximize their profits even at the expense of one another.  This led to the unending conflicts between the channel partners resulting in less profits for the business as a whole.

7. Vertical Marketing System is further divided into three parts: Corporate Vertical Marketing System Contractual Vertical Marketing System Administered Vertical Marketing System

8. 1. Corporate Vertical Marketing System – In Corporate VMS, one member of the distribution channel be it a producer, a wholesaler or a retailer  Owns all the other Members of the Channel,  thereby having all the elements of production and distribution channel under a single ownership. For example  : Amway is an American cosmetic company, which manufactures its own product range and sell these products only through its authorized Amway stores. Here the ownership of production and distribution is with the company itself. 2. Contractual Vertical Marketing System – In Contractual VMS, every member in the distribution channel works independently and integrate their activities on a  Contractual Basis  to earn more profits that are earned when working in isolation. The most common form of Contractual VMS is  Franchising.  In franchising, the producer authorizes the distributor to sell its product under the producer’s name against some annual license fee. For example  :  Mc-Donalds, Dominos, Pizza Hut, etc. are all forms of the franchise which are working on a contractual basis.

9. 3. Administered Vertical Marketing System – Under Administered VMS, there is no contract between the members of production & distribution channel but their activities do get influenced by the  Size and Power  of any one of the member. In simple words, any powerful and influential member of the channel dominate the activities of other channel members. For example :  Big brands like HUL, ITC, Procter& Gamble, etc. command a high level of cooperation from the retailers in terms of display, shelf space, pricing policies, and promotional schemes.

10. 2. Horizontal Marketing System (HMS) A  Horizontal Marketing system  is a form of distribution channel wherein two or more companies at the same level unrelated to each other come together to gain the economies of scale. In other words, Horizontal marketing system is the merger of two unrelated companies who have come together to exploit the market opportunities.

11. Horizontal marketing system has gained popularity in the recent times due to an immense competition in the market where everybody is striving to gain a good position in the market along with huge profits. In this marketing system, the collaboration can be between: Two or more Manufacturers- With an objective of making optimum utilization of scarce resources. Two or more Wholesalers-With the objective of covering a larger area of the distribution of goods and services. Two or more Retailers- With the objective of providing bulk quantities in a particular area.

12. Examples of Horizontal Marketing: Nike and Apple  have entered into a partnership, with the intent to have a Nike+ footwear in which the iPod can be connected with these shoes that will play music along with the display of information about time, distance covered, calories burned and heart pace on the screen. Johnson & Johnson,  a health care company, have joined hands with Google, with an objective of having a robotic-assisted surgical platform. That will help in the integration of advanced technologies, thereby improving the healthcare services.

13. 3. Multi-channel Distribution System   Also known as Hybrid Marketing System. Multi-channel distribution system is a method or structure in which a single company sets up two or more sales and marketing channels to reach one or more customer segments.  This system can include selling through a brick-and-mortar store, an online marketplace like Amazon or eBay, a large retailer, wholesaler, direct marketing, or resellers.

14. CHANNEL CONFLICT

15. Channel Conflict Channel conflict can be explained as any dispute, difference or disorder arising between two or more channel partners called Channel Conflict. It arises in case where one partner's activities or operations affect the business, sales, profitability, market share or similar goal accomplishment of the other channel partner.

16. Types of Channel Conflicts a) Vertical channel conflicts -   A  vertical conflict  is conflict that occurs between two different types of members in a channel—say, a manufacturer, an agent, a wholesaler, or a retailer. b) Horizontal channel conflicts - A   horizontal conflict  is conflict that occurs between organizations of the same type—say, two manufacturers that each want a powerful wholesaler to carry only its products.

17. c) Multi – channel level conflict – This conflict occurs when the manufacturers uses a dual distribution strategy, i.e., the manufacturer uses two or more channel arrangements to reach to the same market. For Example : Conflict between E-commerce and Retail shops. A brand sells directly by ecommerce and through a network of retail shops. Steep discount on the ecommerce platform cause sales to drop as the retail shops. d) Inter – type channel conflict – This conflict occurs when the intermediaries dealing in a particular product start trading outside their normal product range.  For Example : Supermarkets also sell vegetables and fruits and thus compete with small retailers selling these products.

18. Reasons of Channel conflict Role ambiguity Resistance to change Communication difficulty Price wars Too many members to serve few customers

19. Channel conflict is related to human behavior. The humans have to perform their works remaining within a certain organizational environment. Misunderstanding may occur among them for several reasons. Such conflict may arise among individuals, groups, places, situations, organizations etc. In this way, conflict may arise between two sides or more in different situations. So, channel conflict can be resolved through talks, change in objective, improvement in communication and restructure of channel. So, conflict should be minimized as soon as possible not letting it spread from certain limit.

20. Resolution of Channel Conflict The task of solving channel conflict is also called conflict management. Conflict surfaces for one or the other reason, but it should be not be let go beyond certain limit. If such conflict is not solved in time, it invites a great accident. So, conflict should be solved immediately by identifying its responsible causes. Generally, the following methods can be applied to solve conflict: Problem Solving Goal Modification Persuasion Bargaining Diplomacy Improvement in Communication

21. 1. Problem solving Various types of conflicts can emerge in distribution channel. They should be solved as soon as possible. Problem solving method is one of many methods. According to this method, all the channel members sit together, interact and find a common solution of the problem. Channel leader or any other members can also do such work. 2. Goal modification Channel conflict can also be solved by modifying goal. Under this method, all the channel members sit together, scrutinize the causes of the conflict and new goal is formed. Such goal should be accepted by all channel members.

22. 3. Persuasion Channel conflict can be solved by clearly interpreting subject matter or persuading the channel members. Under this, channel leader persuades and calls all channel members to work for the interest of group members. In this method, the channel leader uses his power to persuade or convince the members and solve the conflict. 4. Bargaining In this bargaining method, all the channel members sit together, discuss the responsible causes for the conflict and agree on a new contract. Neutral member plays an important role in facilitating new agreement. Such agreement should be accepted by all the channel members, channel conflict is automatically solved. But, if the channel conflict is to be solved promptly, this method is not suitable.

23. 5. Diplomacy Conflict among channel members should be minimized at certain level or solved. Diplomatic behavior of management helps in solving conflict. When the conflict appears, the management should give notice or information to all the channel members that it will be properly solved finding out the responsible causes. Because of mannered conduct, equal behavior, evidential logics of the management, channel members feel satisfied by which the conflict can be slowly tapered down. 6. Improvement in communication Distribution channel also needs different information and notices. So, information should be clear, meaningful, and simple. Due to weak information system, conflict arises in channel. Such conflict can be tapered down through improvement in information system. But improvement in communication should be on both sides. Otherwise information becomes meaningless.