Channel Conflict - Explained
What is a Channel Conflict?
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Table of ContentsWhat is a Channel Conflict?Different Types of Channel ConflictsHorizontal Conflicts Vertical Conflicts Multichannel Conflicts Academic Research for Channel Conflicts
What is a Channel Conflict?
Channel conflict, as the name implies, means that there is some form of conflict in the manner by which a company delivers a value proposition to a customer, client, or end user. It often refers to a situation where a manufacturer bypasses all necessary parties in the chain of production and attends directly to the consumer. In this case, the wholesaler, retailer, and any other party which was initially involved in transferring the products from the manufacturer to the consumer are cut off from the negotiations by the producer.
Channel Conflicts are usually as a result of internet availability.
Different Types of Channel Conflicts
Here, the conflict occurs between two or more similar parties, serving under the producer or wholesaler. Let us assume that a wholesaler supplies goods to four different retailers based in counties W, X, Y, Z. Now if there is a major agreement between all parties to stick to their counties, a channel conflict can only occur when one retailer decides to sell products in another county. This will surely raise conflicts, and in a case where it cannot be solved, there is a possibility that all parties involved in supplying that product (from the manufacturer down to the retailers) will be affected. It is also possible that consumers might get affected if the products in those counties are only sold by these retailers.
Unlike the horizontal conflict, vertical conflicts occur between two members on a consecutive level, like a wholesaler and a retailer. Assume that a retailer gets products from a wholesaler for $30 each, and happens to sell them at $90 each to consumers. If consumers happen to get to know the actual cost of such a product, they might make a complaint to the manufacturer who in turn might phone the wholesaler. Thus, the wholesaler will have to question the retailer on such actions, especially if it is affecting the demand of such a good in the market.
This generally refers to conflicts that affect different members of the supply circle without any particular order. Let us assume that a manufacturer happens to own two marketing channels; traditional and online. Now, he supplies products through the traditional channel at the cost of $40, and on the online marketplace at a price of $25. Now, merely looking at this, one can conclude that itll present issues for the retailer of such products. However, let us assume that the wholesaler happens to buy these products at $40 from the producer and aims to sell them at $43 each to the retailer. Since the retailer merely needs a sufficient enough amount of such products, one that is enough to attend to market demands, he decides to buy this product directly from the manufacturer through the online marketplace at $25 each. Now, if he decides to sell such products at $30 each to consumers, hell be able to get more sales compared to when hes buying from the wholesaler, and less sales when hes competing with the manufacturer. From this, we can see that this directly affects all three involved channels. Here, the retailer will lose more because consumers can make use of the online marketplace to get products for $5 less, while hed save $18 compared to buying from the wholesaler. Either way, the wholesaler wont be selling, because there is no retailer to buy at that price, and neither will the retailer be selling as much since there is a cheaper price available through another channel. Here, the manufacturer will have to either resolve the pricing issues, or decide to strike out the traditional sales method. It would be stupidity to choose the latter.
Academic Research for Channel Conflicts
- Interorganizational relations in marketing channels, Reve, T., & Stern, L. W. (1979). Academy of Management Review, 4(3), 405-416. This paper focuses on relationships in marketing channels. A little reference is provided in the exhaustive research done in the marketing subject addressing distribution channels interactions in many papers published in the journals of organizational behaviour. This paper aims to bring the related materials to the organizational behaviour and sociology fields that will definitely make inter-organizational relationships theories better.
- The impact of channel function performance on buyerseller relationships in marketing channels, Van Bruggen, G. H., Kacker, M., & Nieuwlaat, C. (2005). International Journal of Research in Marketing, 22(2), 141-158. This article investigates how the channel function performance of distributors influence their relations with organizational customers and how the interdependence framework of the relation leaves the effect of these actions on the quality of relations. The authors conduct a survey by collecting data from Belgium and the Netherlands informants. The findings are that the channel function performance level of a distributor is an important customer perceptions driver of relations quality. The interdependence framework of the customer-distributor pair or buyer-seller dyad moderates this relationship in terms of relative customer dependence and total interdependence.
- Direct marketing, indirect profits: A strategic analysis of dual-channel supply-chain design, Chiang, W. Y. K., Chhajed, D., & Hess, J. D. (2003). The emergence of e-commerce enables several manufacturers to engage themselves in direct sales and redesign the conventional channel structures. This paper builds a game of price-setting between independent retailers and a manufacturer. Direct marketing promotes the profits flow indirectly with the help of retail channel and assist the manufacturer in making overall profitability better. The direct channel is not detrimental always to the retailer. This is because a wholesale price decline will accompany it. This manufacturer push and pull combination can be advantageous for the retailer in the state of equilibrium. Merely, the direct channel introduction threat can enhance the cooperative gains negotiated a share of the manufacturer.
- Opportunities and challenges in multichannel marketing: An introduction to the special issue, Rangaswamy, A., & Van Bruggen, G. H. (2005). Journal of Interactive Marketing, 19(2), 5-11. Customers know how to use different interface technologies, including wireless devices and websites to make an interaction with the firms. Increasingly, they select the channels and the times by which they deal with the companies for multiple aspects of interactions. The authors refer to those who interact with firms by using more than one channel being multichannel customers and the marketing strategies to approach these customers referred to as multichannel marketing. As per research made by Doubleclick in 2004, the multichannel shopping incidence among online customers has risen up from 56 percent to 65 percent between the holiday season of 2002-2003.
- Intrachannel Conflict and Use of Power., Etgar, M. (1978). Journal of Marketing Research (JMR), 15(2). This article provides suggestions on conclusions drawn by Lusch that coercive power causes more intra-channel conflicts may not be correct. This is because his research did not take into consideration the dynamic prospects of conflict relations/power channels.
- Managing marketing channel opportunism: the efficacy of alternative governance mechanisms, Brown, J. R., Dev, C. S., & Lee, D. J. (2000). Journal of Marketing, 64(2), 51-65. This paper evaluates 3 governance mechanisms on how well in marketing channels they minimize opportunism. The authors use the hotel industry of the United States and examine how ownership, investing in transaction-specific assets and relational exchange norms limit the opportunism. They also throw light on how several governance mechanisms combinations influence opportunistic attitude in hotel channels. The overall results, in general, support focusing on relational norms in opportunism management in marketing channels. The authors conclude that one can exacerbate the opportunism when one emphasizes investing in transaction-specific assets or ownership as governance policies.
- Managing marketing channel multiplicity, Van Bruggen, G. H., Antia, K. D., Jap, S. D., Reinartz, W. J., & Pallas, F. (2010). Journal of Service Research, 13(3), 331-340. Advances in IT and changing customers requirements for channel service outputs significantly influence the routes to markets in several industries. This paper claims that these changes have caused highly important alterations in how customers make interaction with firms and as a result to a phenomenon called Channel Multiplicity. Customers dependence on different information sources from independent channel organizations and rising demand for consistent experience in the whole buying process characterize channel multiplicity. The authors specify the operating realities of new market driving channel multiplicity and overviews the consequences of channel management and design and also addresses issues created by the developments.
- Negotiation strategies and the nature of channel relationships, Ganesan, S. (1993). Journal of marketing research, 183-203. This paper examines the effect of situational factors on the use of different negotiation strategies, for example, aggression in the relationship of the channel, PS (Problem Solving) and compromise. It investigates the effect of satisfaction and different strategies on channel member results. The author uses data from one hundred and twenty-four retail buyers in six chains of the regional departmental store. The findings are that when retailers are long-time oriented, the author uses passive and Problem Solving (PS) aggressive strategies to resolve conflicts on big problems which consequently provided greater satisfaction and higher outcomes as compared to aggressive strategies or compromise.
- Modeling Conflict and Coordination in Multi-Channel Distribution Systems: A Review, Tsay, A. A., & Agrawal, N. (2004). In Handbook of quantitative supply chain analysis (pp. 557-606). Springer, Boston, MA. Any company which has to sell its products considers it important to make it available to the customers easily. This is not less than a strategic problem as the product development itself is. The internet is playing a vital role in the procurement activity of business and consumer. Its expansion has given new opportunities to customers for access. Material and information handling tech have widened the feasible sales set and distribution activities which a producer is able to perform reasonably. The logistic networks, the shipping powerhouses 3rd party deploys, have transformed the material delivery economics, e.g. United Parcel and Federal Express Services.
- Product marketing and channel management in electronic commerce, Subramaniam, C., Shaw, M. J., & Gardner, D. M. (2000). Information Systems Frontiers, 1(4), 363-378. This paper is based on suggestions that the use of virtual communities, web marketing and virtual storefronts open the door of innovative opportunities for advertisers to understand the preferences of the consumers, make communication with them and personalize the advertising offers at quite lesser cost and more effectively as compared to traditional ways. Taking the unique features of the traditional channels and the web into consideration, the authors suggest using the market and product features in recognizing the right channel and the right product. They propose a new structure of channel management policies to assist the organizations in integrating the web channel effectively into the marketing policy.
- Multi-channel strategy in business-to-business markets: Prospects and problems, Rosenbloom, B. (2007). Industrial marketing management, 36(1), 4-9. The multichannel advertising strategy is the main force in (Business-to-Business) B2B distribution channels, specifically since the online channels option has emerged a few years ago. Ensuring the availability of services and products to business markets through a large number of multiple channels may provide enhanced levels of service and customer choice. But integration and cooperation of several channels which operate at high-efficiency levels compelled the managers to be responsible for managing the channel and cope with a number of challenging problems. It includes the e-commerce role in the multichannel framework, finding the best channel mix, constructing strategic alliances creating synergies and sustainable competitive gains.