Read the caselet carefully and answer the following questions:
1. What are the various types of channel conflicts? Explain.
2. In a globally competitive world, it is no longer viable for manufacturers to use power to resolve and manage conflicts. Discuss the causes for channel conflicts and the methods for solving and managing conflicts.
3. Selection of a distribution channel involves evaluation of channel alternatives. Explain the criteria on which channel evaluation can be based?
If you think adding new distribution channels will only result in increased sales volume, then think again. The consequence could be a spurt of channel wars. Welcome to a world where an infinite number of distribution channels are chasing a finite number of customers. The emergence of the Internet has added considerable complexity to distribution channels by offering a variety of e-market places such as B2B auctions (PEFA.com), reverse auctions (Freemarkets.com), B2C operations (Amazon), C2B auctions (Priceline.com), and C2C formats (Ebay.com).
As a result, the various types of distribution channels available in industries such as airlines, financial services, music industry, publishing, and telecommunication services are exploding. And manufacturers who took pride in the integrity of their distribution channels with specific channels reaching specific customer segments are suddenly facing a dizzying array of choices.
The addition of new distribution channels brings with it the potential for additional sales volume at the cost of greater channel conflict. A new channel, regardless of whether it is the Internet, an emerging low cost indirect channel, or a new manufacturer sales force will increase channel conflict. The fear of conflict with existing channels can paralyse a company. But on the other hand much of what channel members call channel conflict is healthy channel competition. Therefore, the objective of conflict management should not be to eliminate channel conflict but rather manage it so that it does not escalate to destructive levels.
From the manufacturer's perspective, channel conflict becomes destructive when the existing distribution channels react to channel migration by reducing support or shelf space for the manufacturer. In extreme cases, an existing distributor may drop the brand. Channel conflict becomes particularly destructive when parties take actions that hurt themselves in order to hurt the other party.
The rationale for having multiple types of channels should always be built on a clear end user segmentation strategy. For instance, a convenience store and Wal-Mart serve two different segments and each should be encouraged to specialise on its target segment. Of course, the brand owner should ensure that the number of distribution points that they have within a particular type of distribution channel is balanced against the size of the segment that the channel reaches.
Many designers who have pushed for sales through outlet stores have managed the conflict with their existing retailers by developing special products for these outlet stores. Similarly, many luxury brand companies, like Camus Cognac and Guylian chocolates, offer special pack sizes and products that are attractive to travelers at duty-free airports in order to minimise the conflict with their regular high street retailers. On the Internet, manufacturers can offer those SKUs which retailers are usually not willing to carry. At the extreme, some manufacturers dedicate different brands to different channels, sometimes referred to as channel brands.
Having a new 'hit' product helps facilitate channel migration. Goodyear managed the migration to the mass merchandisers with only a reasonable amount of conflict by simultaneously restricting the distribution of its new Aquatred tyre to the independent dealers. This allowed the independent dealer to protect their profit-ability and sales volume through the higher margin, higher value, Aquatred tyre
Some manufacturers agree to compensate the existing channels for sales through the new channel. While it may be perceived as just buying off the support of the existing channels for the channel migration, it can be useful if the existing distribution is given a role to perform in support of the new channel.
Some retailers will be upset that the prices at which they purchase from the manufacturer are higher than those charged to other retailers or the direct sales force. There is often the feeling that the manufacturer is favoring other channels at their expense. While one may never fully be able to overcome these concerns, the best antidote is to treat channels equitably and in a transparent manner. If the manufacturer's prices differ across channels, it should be based on the functions that the particular channel member performs.
The temptation for manufacturers is always to expand the number of distribution points as it usually results in an immediate increase in sales. However, having too many channels chase too few consumers results in channels dropping the level of support to the brand.
In the long run, this can have a deleterious impact on sales as well as brand image. On the other hand, changing customer preferences modify industry structures. Traditional industry leaders have frequently neglected the fastest growing new distribution channels. A delicate balance must be maintained between moving too quickly and unleashing destructive channel conflict versus clinging too long to declining distribution networks.
Marketing case study 