Marketing Channels & Logistics Management: Chapter Seven - Managing Channel Conflict

Chapter Seven: Managing Conflict in the Marketing Channel

Channel conflict occurs when manufacturers (brands) disintermediate their channel partners,
such as distributors, retailers, dealers, and sales representatives, by selling their products directly
to consumers through general marketing methods and/or over the Internet.
Conflict in marketing channels has been defined as “a situation in which one channel member
perceives another channel member to be engaged in behavior that is preventing or impeding him
from achieving his goals” (Stern and El- Ansary, 1977, p. 283).
Conflict is an inherent behavioral dimension in all social system including the marketing
channel. In any social system, when a component perceives the behavior of the other component
to be impending the attainment of its goal or the effective performance of its instrumental
behavior pattern, an atmosphere of frustration prevails. When this frustration is not resolved by
the other component, a stage of conflict may exist. More over if the other component also
perceive it as the blockage in its attainment of goal then both the components become objects of
each other frustration and the conflict arises. In distribution channel, the same is also applicable.
Here the conflict may be sales man versus distributor, distributor versus wholesaler, wholesaler
versus retailer and so on. Some time in bigger organizations the conflict may arise between
Product Company versus Supply Company, sales department versus production department. This
type of channel conflict are more common in the organizations where every department is an
independent cost center or profit center and its effectiveness is monitored separately.
No matter how well channels are designed and managed, there will be some conflict, if for no
other reason than the interests of independent business entities don't always coincide. Here we
examine three questions: what types of conflict arise in channel? What are the major causes of
channel conflict? What can be done to resolve situations of conflict?
7.1 Types of Conflict and Competition
Channels conflict arises when one channel member believes another channel member is engaged
in behavior that prevents it from achieving its goals. Three types of conflict can be identified.
Namely: vertical conflict, horizontal conflict and multi-channel conflict.
Vertical conflict occurs between different levels in a marketing channel; for example, between a
manufacturer and a wholesaler or retailer or between a wholesaler and a retailer. Three sources
of vertical conflict are most common. First, conflict arises when a channel member by passes
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Marketing Channels & Logistics Management: Chapter Seven - Managing Channel Conflict

another member and sells or buys products direct. Second, disagreements over how profit
margins are distributed among channel members produce conflict. A third conflict situation
arises when manufacturers believe wholesalers or retailers are not giving their products adequate
attention.
Vertical channel conflict arises when a manufacturer tries to sell on its own while still
maintaining working relationships with third-party retailers and distributors. This leads to
competition for sales, and retailers and distributors often get lower profits for selling the same
product or service as the manufacturer is selling. Since it is primarily the retailers' and
distributors' role to build awareness of the product, this can lead to an overall decrease in sales.
This situation is called a vertical channel conflict because it affects two different levels of
business -- third-party sales and bottom-line sales.
Horizontal conflict occurs between intermediaries at the same level in a marketing channel,
such as between two or more retailers or two or more wholesalers that handle the same
manufacturer's brands. Two sources of horizontal conflict are most common. First, horizontal
conflict arises when a manufacturer increases its distribution coverage in a geographical area.
Second, dual distribution causes conflict when different types of retailers carry the same brands.
In this type of channel conflict, a manufacturer not using third-party retailers faces a struggle
between two of its own sales divisions, such as its online and regular sales departments. Usually,
one division starts to cut into the sales and profit of the other division, devaluing the latter.
Horizontal channel conflicts occur between two departments on the same level of importance.
Multi-channel conflict exists when the manufacturer has established two or more channels that
compete with each other in selling to the same market. Multi-channel conflict is likely to be
especially intense when the members of one channel either get a lower price (based on larger
volume purchases) or are willing to work with a lower margin.
Multilevel channel conflicts arise when a manufacturer creates competition between its own
sales and promotion arms, while also having business relationships with third-party retailers and
distributors. The reason for this approach may be to aggressively and more quickly expand its
sales and promotion network, but it can create both internal and external discord between the
various divisions and third parties.
7.2 Causes of Marketing Channel Conflicts

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Marketing Channels & Logistics Management: Chapter Seven - Managing Channel Conflict

Various channel analysts have advanced a number of causes of conflicts. Robert Little point to
such cause as misunderstood communication, divergent functional specialization and goals of the
channel member and failing in joint decision making process. Some other experts suggest
different economic objective and ideological differences among channel members as cause of
conflict.
The most comprehensive list of causes of marketing channels conflicts are given below:
1. Role incongruities: A role is a set of perception defining what the behavior of position
member should be. When applied to the marketing channel, any given member of the channel
has a series to role to which he is expected to fulfill. For example a franchiser is expected to
provide extensive management assistance and promotional support for his franchises. In return
the franchisees are expected to operate in strict accordance with the franchiser standards
operating procedure. If either of the franchisee or franchiser deviates from his role, conflict
situation may result.
2. Resource scarcities: This refers to conflict stemming between channel members over the
allocation of some valuable resources needed to achieve their respective goals. A common
example of this is the allocation of resources between the wholesaler and the salesman. In the
case both wholesaler and salesman as a valuable resource necessary to achieve their target view
the retailer. Frequently the wholesale distributor decides to keep some of high volume retailers
for himself as his accounts. This leads to objection by salesperson over what they consider to be
an unfavorable allocation of resources. This kind of disputes is often one of the conflicts.
3. Perceptual difference: Perceptions refers to the way an individual selects and interprets
environmental stimuli. The way stimuli are perceived however is often quite different from
objective reality. In a marketing channel context, the various channel members may perceive the
same stimuli but attach different interpretation to them. A common example of this is the case of
sale material provided by manufacturing company for their retailer to put on at their retail
counters. From the company point of view these sale materials are valuable promotional tools
needs to move their products of the retailer shelves. Whereas the retailer often perceives the
material, as useless junk which serves only to take up its valuable space.
4. Difference in expectation: Various channel members have expectations about the behavior of
the other channel members. In practice, these expectations are predictions or forecast concerning

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Marketing Channels & Logistics Management: Chapter Seven - Managing Channel Conflict

the future behavior of the other channel members. Sometimes this forecast turns out to be
inaccurate but the channel members who make the forecast will take action based on the
predictive outcome. By doing so, he can elicit a response behavior from other channel member
which might now have occurred in the absence of the original action. An example of this could
be seen at the retail end where a retailer expects stock on credit due to his past experience, now if
the salesman, upon instructions of the distributor, tries to tighten the credit suddenly the retailer
might refuse to oblige, resulting in possible conflict.
5. Decision domain disagreement: each channel member explicitly or implicitly carves out for
himself an area of decision making which he feels is exclusively his own. In contractual channel
system such as franchise, the decision domain is quite explicit and usually spelled out clearly in
franchise contract. But in more traditional loosely aligned channels made up of independent
firms, the decision domains are sometime up for grabs. Hence conflicts can arise over which
member has the right to moves to make the decision.
6. Goal incompatibilities: Each member of the marketing channel has his own set of goals and
objectives that are very often incompatible with those of other channel members. When goals of
two or more members are incompatible, conflicts may result and incompatible goals often arise
between channel members for example the most common conflict issues, which arise between
manufacturer and industrial distributor.
 How to handle large accounts
 The required inventory stocking levels
 The quality of distributors management
 Size of distributor’s margin
Clearly underline many of these issues, are the difference in goals, aims and values among
channel members involves. Furthermore in consumer goods market there are literally items of
thousands of small retailer served by large manufactures. Large manufacturers tend to be growth
oriented where as small retailers are more interested in status quo. The likelihood of the conflict
is high in such situation is because in their pursuit of policies that re congruent with their
dynamic goal. The former would likely adopt innovative programs that contradict the more static
orientation of the latter.

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Marketing Channels & Logistics Management: Chapter Seven - Managing Channel Conflict

7. Communication difficulties: Communication is the vehicle for all interactions among these
channel members, whether such interactions are cooperative or conflictive. A foul up or break
down in the process of communication can turn quickly a cooperative relationship into a
conflicting one. For example, manufacture often make changes in product design, prices and
promotional strategies. The resellers generally feel that they are entitled to ample advance notice
of such changes so that they can make appropriate strategic adjustments, if necessary. If adequate
communication is not provided and these failing results in negative consequences for a channel
member, severe conflict can result.
7.3 Managing Channel Conflict
Conflict can have destructive effects on the workings of a marketing channel, so it is necessary
to secure cooperation among channel members. One means is through a channel captain, a
channel member that co-ordinates, directs and supports other channel members. Channel
captains can be producers, wholesalers, or retailers. A firm becomes a channel captain because it
is typically the channel member with the greatest power to influence the behavior of other
members. Power can take four forms.
First, economic power arises from the ability of a firm to reward or influence other members.
Expertise is a second source of power over other channel members.
Third, identification with a particular channel member may also create power for that channel
member.
Finally power can arise from the legitimate right of one channel member to dictate the behavior
of other member.
Other than the role of channel captain in avoiding and resolving conflict, there are several ways
to managing conflict.
- Developing a partnership: this calls for frequent interaction between producer and resellers
to develop a spirit of mutual understanding and cooperation. Producers can help channel
members with training, financial help and promotional support. Distributors, in turn, may
agree to mutually agreed sales targets and provide extra sales resources. The objective is to
build confidence in the manufacturer's products and relationships based on trust. When
conflicts arise there is more chance they will be resolved in a spirit of cooperation.

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Marketing Channels & Logistics Management: Chapter Seven - Managing Channel Conflict

Organizing staff exchange programs can be useful in allowing each party to understand the
problems and tensions of the other rather than animosity.
- Training in conflict handling: staffs who handle disputes need to be trained in negotiation
and communication skills. They need to be able to handle high pressure conflict situations
without resorting to emotion and blaming behavior. Instead, they should be able to handle
such situations calmly and be able to handle concession analysis, in particular the
identification of win-win situations. These are situations where both the producer and reseller
benefit from an agreement.
- Market partitioning: to reduce or eliminate conflict from multiple distribution channels,
producers can try to partition markets on some logical basis such as customer size or type.
This can work if channel members accept the basis for the partitioning. Alternatively,
different channels can be supplied with different product line.
- Improving performance: many conflicts occur because of genuine reasons. For example,
poor delivery by manufacturers or inadequate sales effort by distributors can provoke
frustration and anger. Rather than attempt to placate the aggrieved partner, the most effective
solution is to improve performance so that the source of conflict disappears. This is the most
effective way of dealing with such problems.
- Channel ownership: an effective but expensive way of resolving conflicting goals is to buy
the other party. Since producer and channel member is under common ownership the
common objective is to maximize joint profits. Conflicts can still occur but the dominant
partner is in a position to resolve them quickly.
- Coercion: in some situations, conflict resolution may be dependent on coercion: one party
forces compliance through the use of force. For example, producers can threaten to withdraw
supply, deliver late, or withdraw financial support to channel members. On the other hand,
can threaten to delist the manufacturer's products, promote competitive products and develop
own label-brands.
7.4 Resolving Conflict
Although the ultimate aim of any business is to avoid the creation of channel conflicts,
sometimes they do occur. The practice of conflict regulation and control is known as channel
conflict resolution, and it is considered to be a branch of strategic business management. If

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Marketing Channels & Logistics Management: Chapter Seven - Managing Channel Conflict

manufacturers do not recognize channel conflicts quickly, the sales bottom-line will be adversely
affected. To resolve a channel conflict, manufacturers may need to temporarily change their
approach to create a more level playing field for all parties involved. Without expedient
resolution of channel conflicts, dissatisfaction in the internal workforce and third-party disloyalty
may arise.
The strategies used by the parties to resolve conflict will either improve or reduce the quality of
the relationship among channel members. It is important to a difference that the common goals
are not readily apparent to the two parties. The aim is to reduce differences between the sub-
goals of the two organizations by emphasizing the super ordinate goals of the marketing channel.
Bargaining is likely to be the preferred conflict resolution strategy when common goals are not
expected and the two parties have a zero-sum orientation. One party is expected to win at the
expense of the other party that in effect is considered to lose.
Politics is likely to be the preferred conflict resolution strategy when there is fixed disagreement
over goals and a zero-sum orientation (like in bargaining), but also includes third-party
intervention. The two parties are unable to resolve the conflict by themselves and seek the
assistance of a third party to bridge their differences.
The choice of conflict resolution strategies is expected to depend on relational norms. The
conflict resolution strategy will in turn influence the relationship between the channel members.
A marketing channel conflict could affect the channel efficiency positively in the sense that
when the members involved in the conflicts realize and identify the possible reasons for conflict
and work towards removing these areas of disagreement. The conflicts might actually become
functional. The need is therefore to sit back and understand the cause of conflict and to devise
ways to overcome by working out a better solution.
A central task in channel management is to seek ways to manage conflicts. In other words ways
must be found to keep conflict from becoming dysfunctional and to harness the energy in
conflict situation to provide innovative resolution. If conflict with in marketing channel is to be
managed it will eventually be necessary for the members involved to groups with the underlying
causes of conflictive issues that arise among them. The specific strategies employed will depend
upon not only on the cause of conflict but also on the weight of power of the channel member
seeks to manage the conflict. Therefore, the effective use of power only required in specific roles

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Marketing Channels & Logistics Management: Chapter Seven - Managing Channel Conflict

within the channel, it is also essential in dealing with conflict that inevitably arise among the
channel members.
Several strategies used in managing channel conflicts are mentioned briefly below, each of
which can be modified depends upon the situational variable present and the structural
dimensions of specific channel.
1. Diplomacy: Channel diplomacy is the method by which inter-organizational relations are
conducted, adjusted and managed by persons operating at the boundaries of the member
organization. The function of a channel diplomat should be to conduct negotiations with
channel member, to whom he is assigned, to observe and report everything that may be of
interest to the firm employing him. The next role if to provide information concerning hid
firm to the operatives in counterpart channel organization.
2. Joint membership in trade association: Membership in the association of channel
counterpart can prove to be extremely beneficial in managing channel conflict situation. In
this way both members have a common interest to achieve the goal and some of the conflicts
are ignored by the channel members.
3. Exchange of persons: This conflict management strategy involves a bilateral trade of
personal for specific time period. The techniques involved in such programs are essentially
the same as role reversal. A procedure where one or both of the participant in a discussion
present the view point of the other. Conflict theorists have suggested that role reversal would
create greater understanding of the others party positions than merely presenting ours side of
issue.
4. Co-optation: Co-optation is the process of absorbing new element into leadership or policy
determining structure of the organization as a means of averting threat to its stability or
existence. Co-optation may permit the ready accessibility among channel members in that. It
requires the establishment of routine and reliable channel through which information, aid and
request may be brought. Co-optation also permits the sharing of responsibility so that variety
of channel members may become identified and committed to the program developed for a
particular product or service.
5. Mediation: Mediation is a process by which a third party attempts to secure settlement of
dispute by persuading the parties to either continue their negotiations or to consider

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Marketing Channels & Logistics Management: Chapter Seven - Managing Channel Conflict

procedure or substantive recommendations that the mediator may make. Mediation

essentially involves operating in the field of conflicting parties in such a way that both parties
perceived to be the moves which otherwise have not brought in between. Solutions might be
given and acceptability by being suggested by the mediation and hence acquire a degree of
saliency that is important in making them mutually acceptable.
6. Arbitration: Arbitration can be compulsory or voluntary. Compulsory arbitration is a
process wherein the parties are required by law to submit their dispute to a third party whose
decision is final and binding to both parties. Voluntary arbitration is a process wherein
parties voluntarily submit their disputes to a third party whose decision is considered to be
final and binding.
7. Adopting super ordinate goal: Super ordinate goals are those ends, which cannot be
attained by resources and energies of each of the parties separately, but which requires the
concentrated effort of all the parties involved. Conflict resolution of a relatively permanent
nature requires an integration of need of both sides to the dispute so that they find a common
goal without sacrificing their basic economic and ethical principles. The most critical factor
of resolving the conflict by this method is that the super ordinate goal should be greatly
desired by all those, caught in dispute or conflict.
Thomas-Kilmann Conflict Mode Instrument
The Thomas Kilmann Conflict Mode Instrument is a model for handling conflict:
The model organizes five conflict management styles based on two dimensions: assertiveness
and cooperativeness.
Five Conflict Management Styles

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Marketing Channels & Logistics Management: Chapter Seven - Managing Channel Conflict

Here are the five conflict management styles according to Thomas, K.W., and R.H. Kilmann:
1. Accommodating–This is when you cooperate to a high-degree, and it may be at your
own expense, and actually work against your own goals, objectives, and desired
outcomes. This approach is effective when the other party is the expert or has a better
solution. It can also be effective for preserving future relations with the other party.
2. Avoiding– This is when you simply avoid the issue. You aren’t helping the other party
reach their goals, and you aren’t assertively pursuing your own. This works when the
issue is trivial or when you have no chance of winning. It can also be effective when the
issue would be very costly. It’s also very effective when the atmosphere is emotionally
charged and you need to create some space. Sometimes issues will resolve themselves,
but “hope is not a strategy”, and, in general, avoiding is not a good long term strategy.
3. Collaborating–This is where you partner or pair up with the other party to achieve both
of your goals. This is how you break free of the “win-lose” paradigm and seek the “win-
win.” This can be effective for complex scenarios where you need to find a novel
solution. This can also mean re-framing the challenge to create a bigger space and room
for everybody’s ideas. The downside is that it requires a high-degree of trust and
reaching a consensus can require a lot of time and effort to get everybody on board and to
synthesize all the ideas.
4. Competing–This is the “win-lose” approach. You act in a very assertive way to achieve
your goals, without seeking to cooperate with the other party, and it may be at the
expense of the other party. This approach may be appropriate for emergencies when
time is of the essence, or when you need quick, decisive action, and people are aware of
and support the approach.
5. Compromising–This is the “lose-lose” scenario where neither party really achieves what
they want. This requires a moderate level of assertiveness and cooperation. It may be
appropriate for scenarios where you need a temporary solution, or where both sides have
equally important goals. The trap is to fall into compromising as an easy way out, when
collaborating would produce a better solution.

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