Managing Conflict to Increase Channel CoordinationChapter 7Contents ASSESSING THE DEGREE AND NATURE OF CHANNEL CONFLICT THE CONSEQUENCES OF CONFLICT MAJOR SOURCES OF CONFLICT IN MARKETING CHANNELS CLASH OF MARKET DOMAINS FUELING CONFLICT CONFLICT RESOLUTIONS STRATEGIES:HOW DRIVE CONFLICT AND SHAPE CHANNEL PERFORMANCEReview Whats the channel power?Channel power is the ability to alter another organizations behavior.Its a tool,neither good nor bad The power of A is equal to the dependence of B.When is the dependence of B on A high?B derives great utility from dealing with A and cannot find that utility easily in one of As competitors.Real alternatives to A are few when there are few competitors or when B faces very high switching costs if it leaves A.Review Which sources do power come from?Reward Coercive Expert Legitimate ReferentReview Which countermeasures can the dependent party take?Diversifying(building in alternatives supplies of the channel members services)Forming a coalition to bring pressure on the powerful member Exiting the businessReview Can imbalance relationships not function quite well?Imbalance relationships are very common and can function quite well.The key is restraint on the part of the stronger party.Review How to frame an influence attempt?Firstly,consider whether the influence attempt is presented as a positive or a negative.Secondly,consider whether the influence attempt is presented as contingent framing or noncontingent framing.In the short term,a negative framing(what one will lose)or a contingent framing(if you do this,then you get that)is usually inferior to a postive or noncontingent framing.In the long run,performance outcomes substantially override these effects.Review Translating power,a latent ability,into influence involves communications.In channels,there are six common ways to communicate.Please point out which methods we can use in practice.Promises,legalisms,and threats are three fairly obtrusive ways of translating power.In western cultures,they often provoke resentment and conflict.Of these three obtrusive methods,the strategy of making promises(offering rewards for desired behavior)is quite effective,on the whole,and is a staple of strong,long-term relationships.Three other common influence strategies are making requests for no stated reason,exchanging information(failing to draw a conclusion while discussing the other partys business),and making recommendations(the explicit from of exchanging information).Their effectiveness is heightened by their unobtrusive nature.Learning Objectives Distinguish circumstances where conflict is not negative and is neutral or even positive Understand how to diagnose conflict in terms of issues,frequency,intensity,and importance Trace the negative effects of high conflict on channel performance Sketch the inherent sources of conflict in channel relationshipsLearning Objectives Separate conflict into three main causes:goals,perceptions,and domains Understand why multiple channels have become the norm and describe ways to address the conflict they create Understand why many suppliers actually like gray markets Trace the spiral of coercion and reciprocation Forecast the impact of a destructive act and suggest how to reduce itLearning Objectives Describe the workings of institutionalized mechanisms management can use to dampen conflict and distinguish between those that management can decree and those that arise in a relationship Categorize conflict resolution styles and describe their effect on how well a channel functions.Sketch the effect of economic incentives on conflictTHE DEGREE AND NATURE OF CHANNEL CONFLICT This chapter examines how to recognize the many forms of conflict,including latent conflict,perceived conflict,functional conflict,and over conflict.This chapter presents methods to help a third party discern the true nature and level of conflict in a channel relationship.This chapter also covers these questions:What are the effects of conflict,long and short term,on the functioning of the channel,its coordination,its ultimate performance,and its future?How does conflict arise and how can it be managed?What are the best strategies for containing destructive,excessive conflict,and redirecting the antagonists to achieve higher levels of channel coordination and performance?What is channel conflict?In distribution channel,conflict is not negative,but more neutral.Rather than keeping channel members apart and damaging their relationship,some conflict actually strengthens and improves a channel.Channel conflict means:Behavior by a channel member that is in opposition to its channel counterpart.It is opponent centered and direct,in which the goal or object sought is controlled by the counterpart.In contrast,competition is:Behavior in which a channel member is working for a goal or object controlled by a third party(such as customers,regulators or competitors).Competing parties struggle against obstacles in their environment.Conflicting parties struggle against each other.Conflict Conflict implies an incompatibility at some level.Latent conflict Exist at such a low level that channel members do not fully sense it.This conflict is due to conditions that set the interests of the parties at odds.When all parties pursue their separate goals,strive to retain their autonomy,and compete for limited resources,the interest of channel members collide.Perceived conflict Perceived conflict occurs when a channel member senses that opposition of some sort exists:opposition of viewpoints,of perceptions,of sentiments,of interests,or of intentions.If individual members do not experience affective conflict,they would not describe their dealings as conflictual,even though they oppose each other.If individual members experience detrimental emotions(tension,anxiety,anger,frustration,hostility),they describe their channel as conflictual.Manifest conflict Often,emotions of outrage and unfairness reach a point that managers refuse economically sensible choice and hurt their own organizations in order to punish their channel counterparties.If not managed,felt conflict can escalate quickly into manifest conflict.Between two organizations,manifest conflict usually appears as blocking each others initiatives and withdrawing support.In the worst cases,one side tires to sabotage the other or take revenge.Measuring Conflict How should the observer go about diagnosing the true level of conflict that an organization faces in a channel relationship?The best way is to gather four kinds of information.Steps:Counting up the issues Importance Frequency of disagreement Intensity of disputeExample An assessment of how much conflict automobile deals experience in their relationship with car manufacturer.Step 1:counting up the issues What are the major issues of relevance of two parties in their relationship channel relationships?For car dealers,there are inventories,allocation and delivery of cars,the size of the dealers staff,advertising,allowances for preparation of the car,and reimbursement for warranty work.Step 2:Importance How important is each issue to the dealer?This could be done judgmentally or could be done by asking dealers directly.For example,let dealers indicate how important each issue is to the dealerships profitability on a scale of 0 to ten(very unimportant to very important)How important is inventory to the dealerships profitability?Very unimportant|0|_1_|_2_|_3_|_4_|_5_|_6_|_7_|_8_|_9_|_10_|very important Step 3:Frequency of Disagreement How often do the two parties disagree over each particular issue.This could be done judgmentally or by collecting data For example,dealers may be asked to recall discussion with the manufacturer over the issue during the last year and to indicate on a scale of 0 to ten(never to always)how frequently those discussions involved disagreement.During the last year,how frequently did the discussion with the manufacturer over inventory involve disagreement?never|0|_1_|_2_|_3_|_4_|_5_|_6_|_7_|_8_|_9_|_10_|always Step 4:Intensity of Dispute How intensely do the two parties differ on each particular issue Or how far apart are the two parties in their positions This could be done judgmentally or by collecting data.For example,dealers may indicate on a scale of zero to ten(not very intense to very intense)how strongly they disagree during a typical discussion of the issue.How strongly do dealers disagree during a typical discussion of inventory?Not very intense|0|_1_|_2_|_3_|_4_|_5_|_6_|_7_|_8_|_9_|_10_|very intenseIndex of manifest conflict:These estimates can be compared across dealers to see where the most serious conflict occurs and why.Niiii1IntensityFrequencyImportanceConflict There is no real argument over any issue if:The issue is petty(low importance)The different of opinion rarely occurs(low frequency)The two parties are not very far apart on the issue(low intensity)If any of these elements is low,the issue is not a genuine source of conflict.For example,if an allowance for prepping a car is a minor issue,it is of no real import that disagreements over it are intense of frequent.THE CONSEQUENCE OF CONFLICT Conflict is usually thought to be dysfunctional,to hurt a relationships coordination and performance.But there are occasions when opposition actually makes a relationship better.Functional conflict Occurs when channel members recognize each others contribution and understand that each partys success depends on the other.Functional(useful)conflicts leads to:Communicate more frequently and effectively Establish outlets for expressing their grievances Critically review their past actions Devise and implement a more equitable split of system resources Develop a more balanced distribution of power in their relationship Develop standardized ways to deal with future conflict and keep it within bounds When is conflict functional?From the downstream channel members viewpoint,functional conflict is a natural outcome of close cooperation with a supplier.And when channel members are committed,disputes serve to raise performance in the short term and do not damage the level of trust in the relationship.The functional conflict is even more likely if the downstream channel member has considerable influence over the supplier.Are peaceful channels better channels?Much depends on the reason why conflict is low.Often,the two sides are not on in agreement.They simply are not in disagreement,because they do not care.The lack of conflict disguises a lack of engagement.Thus conflict is quite low,and so is the performance of the channel.These channels need to increase their activity levels and communication levels,which will increase welcomed and not avoided conflict.So the channel members need to care enough to communicate,to cooperate and inevitable to discover their points of opposition.But conflict escalate into substantial manifest conflict accompanied by tension and frustration.If not keep within bounds,manifest conflict becomes damaging,and ultimately destructive.An influential channel member is a disputatious one Disputatious channel member is willing to give and take to push the channel to outperform its competition.How intense conflict damages channel performance and coordinate Given that some channel friction is mundane,should it be accepted as inevitable,dismissed as normal?No,because high channel friction creates costs.The high levels of manifest conflict affect an organizations satisfaction in a manner that damages the channels long-term ability to function as a close partnership.How high levels of conflict erode channel relationshipCONFLICTLevel of tension,frustration,disagreement in relationship experienced by focal firmECONOMIC SATISFACTIONof focal firm:positive affective response to financial rewards derived from relationship or economic gratificationNON-ECONOMIC SATISFACTIONof focal firm:positive affective response to psycho-social aspects of relationship,or gratification from non-financial sectorTRUSTFocal Firms belief in counterparts honesty and benevolenceCOMMITMENTFocal Firms desire to continue relationship and to sacrifice to build and maintain it When the channel member senses high level of tension,frustration,and disagreement in a channel relationship,their perceived conflict will increase,as will felt(attractive)conflict and manifest conflict(blocking behaviors).This figure does not suggest that conflict should be minimized on all occasions,but it does suggest that conflict carries costs,some of which take time to materialize.Therefore,conflict should be managed,organizations should choose to enter a conflict rather than discovering that their initiatives are not worth the consequences of the opposition they created.MAJOR SOURCES OF CONFLICT IN MARKETING CHANNELS Most conflict is rooted in differences in:Channel members goals Their perceptions of reality And what they consider to be their domains,or areas where they should operate with autonomy.The most complex of these three sources of conflict is the last because it is now ordinary for manufacturers to go to market by so many different routes that their channel members are bound to compete for some of the same business.Source of conflict:competing goals Each channel member has a set of goals and objectives that are very different from those of other channel members.This built-in difference in what firms seek to achieve is fundamental to all business.Agency theory underscore how competing goals conflict in any principal-agent relationship.The inherent differences in what they are trying to achieve and what they value leads principals to devise ways to monitor and motivate their agents.Example:Nike and Foot Locker Resellers carry a suppliers line in order to maximize their own profits.Achieving higher gross margins per unit(paying the supplier less while charging the customer more)Increasing unit sales Decreasing inventory Holding down expenses Receiving higher allowances from the manufacturer The manufacturer wishes to maximize its own profits and prefer to see the reseller Accept lower gross margins(pay the supplier more while charging the customer less)Hold more inventory(avoid stockouts,maximize selection)Spend more to support the product line.And get by without allowances.Frequent reasons for conflict in a marketing channel are listed behind.Natural sources of conflict:inherent difference in viewpoints of suppliersSupplier ViewpointReseller ViewpointExpression of ClashFinancialFinancial Goals GoalsMaximize ow n profit byMaximize ow n profit bySupplier:Y ou dont put enough effort-H igher prices to reseller-H igher ow n-level marginsbehind my brand.Y our prices are too-H igher sales by reseller(low er prices from our supplierhigh.and higher prices to ourReseller:Y ou dont support me enough.customer)W ith your w holesale prices,w e cant make-H igher reseller expenses-Low er expenses(less support)money.-H igher reseller inventory-Faster inventory turnover(low er reseller stocks)-Low er allow ances to-H igher allow ancesreseller from manufacturersFocus on:Focus on:DesiredDesired Target Target-Multiple segments-Segment correspondingSupplier:W e need more coverage andAccountsAccountsto resellers positioningmore effort.O ur reseller doesnt do enough(e.g.discounter)for us.-Multiple markets-O ur markets onlyReseller:Y ou dont respect our marketing-Many accounts-Selected accountsstrategy.W e need to make money too.(raise volume and share)(those that are profitable to serve)Desired ProductDesired Product-Concentrate on our-A chieve economies ofSupplier:Y ou carry too many lines.Y ouAnd AccountsAnd Accountsproduct category and scope over product categoriesdont give us enough attention.Y ourePolicyPolicyour brand disloyal.-Carry our full line-Serve customers by offeringReseller:O ur customers come first.If w e(a variation for everybrand assortmentsatisfy our customers,you w ill benefit.conceivable need,plus our-D o not carry inferior orBy the w ay,shouldnt you consider pruningefforts to expand our line slow-moving itemsyour product line?outside our traditional(every supplier has some ofstrenghts)these)*Based on Magrath and H ardy(1989)Source of conflict:Differing perception of reality A great deal of tension,anxiety,and frustration in a channel is due not so much to actual goal clashes as to the players perceptions that their goals diverge.Differing perceptions of reality are important sources of conflict because they indicate that there will be differing bases of action in response to the same situation.Perception differ markedly,including:The attributes of the product/service The applications it serves and for which segments The competitionIn addition to these basic topics,the channel member also disagree about more subjective,judgment-laden subjects How readily the product or service is sold The value added of each channel member How each side behaves.In accurate expectations lead to conflict,when the parties fail to react as expected.Why are misperceptions so common and so serious?A major reason is focus.The supplier is focused on its product and its processes and is typically at a remove from customers.A downstream channel member,in contrast,is focused on its functions and its customers and is typically at a remove from manufacturing.Different information and influences give them different perceptions.How to reduce the misperceptions of channel members?A lack of communication exacerbates conflict due to different perceptions of reality.Especially,the different culture background exacerbates conflict.Frequent,timely,and relevant communication assists in aligning perceptions and expectations How to reduce the misperceptions of channel members?(cont.)The solution to this problem is twofold One is communication,which is made more difficult by cultural divergence.The other solution is for each organization to develop greater sensitivity to business culture of the other.Greater cultural sensitivity,in turn,is built on the foundations of respect for and understanding of the channel counterparts language,customs,values,attitudes,and beliefs.Clashes over domains Each channel member has its own domains,or spheres of function.Much conflict in channels occurs when one channel member perceives that the other is not taking proper care of its responsibility in its appropriate domain.。