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Managing Channel Relationship
A marketing channel is more than a set of instructions linked by economic ties; social relationships play an important role in building unity among channel members. A critical aspect of managing distribution channels is managing the social relationships among channel members to achieve synergy. The basic social dimensions of channels are power, control, leadership, conflict and partnering.
1. Channel power, control and leadership
Channel power is a channel member’s capacity to control or influence the behaviour of other channel members. Channel control occurs when one member affects another member’s behaviour. To achieve control, a channel assumes channel leadership and exercises authority and power; this member is termed the channel leader. In one distribution channel the manufacturer may be the leader because it controls product availability, whereas in another channel the retailer may be the channel leader because it wields great power and control over the retail price and inventory. Large retailers like Wal-Mart and Tesco wield great power in pricing and inventories and are channel leaders in convenience goods markets in the US and Europe.
2. Channel conflict
Inequitable channel relationship often leads to channel conflict, which is a clash of goals and methods among the members of the distribution channel. Conflicts can arise because a channel member refuses to adapt with the time and therefore becomes inefficient.
Often conflicts arise due to channel pursuing different goals. A multi brand home appliances retailer would want sell as many products as possible, regardless of brand, to improve his overall sales and profitability. On the other hand a particular company would want him to push their products more, as they desire a certain sales volume and market share. Companies that have a long and deep product lines also set sales targets for different SKU’s and would want channel members to keep their sales in line with these targets; individual channel members would want to push those SKU’s which deliver greater profitability, regardless of the targets.
Conflicts can also arise when channel members fail to fulfill expectations of other channel members; for instance if a franchise does not follow the rules set the rules set by the franchiser. A lack of communication between company and channel members is also very common cause of conflict. A company may change its policy with regards to the period of warranty coverage and fails to communicate the same to the dealer. The dealer continues to make repairs free of charge to the consumer, expecting to be reimbursed by the company. Ideological differences and different perceptions of market retailers are also a source of conflict. Retailer and dealers come face-to-face with customers and are more likely to empathize with the customer and believe that the “customer is always right”. They would like the company to offer a more liberal return policy. On the other hand, many companies hold the view that customers may “try to get something for nothing” or don’t follow product instructions carefully.
Conflicts can occur at any level within the distribution chain. A conflict among channel members at the same level, such as two retailers or stockiest, is known as horizontal conflict.
3. Channel partnering
Regardless of the power equation, channel members rely heavily on each other. Even the most powerful of companies rely on their dealers to sell their products and most powerful of retailers require the products supplied by companies. In a sharp contrast to the adversarial relationships of the past between manufacturers and sellers, contemporary channel management emphasizes close working partnerships among channel members. Channel partnering or channel co-operation is the joint effort of all channel members to create a supply chain that serves the customers and creates a competitive advantage.
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1. Channel power, control and leadership
Channel power is a channel member’s capacity to control or influence the behaviour of other channel members. Channel control occurs when one member affects another member’s behaviour. To achieve control, a channel assumes channel leadership and exercises authority and power; this member is termed the channel leader. In one distribution channel the manufacturer may be the leader because it controls product availability, whereas in another channel the retailer may be the channel leader because it wields great power and control over the retail price and inventory. Large retailers like Wal-Mart and Tesco wield great power in pricing and inventories and are channel leaders in convenience goods markets in the US and Europe.
2. Channel conflict
Inequitable channel relationship often leads to channel conflict, which is a clash of goals and methods among the members of the distribution channel. Conflicts can arise because a channel member refuses to adapt with the time and therefore becomes inefficient.
Often conflicts arise due to channel pursuing different goals. A multi brand home appliances retailer would want sell as many products as possible, regardless of brand, to improve his overall sales and profitability. On the other hand a particular company would want him to push their products more, as they desire a certain sales volume and market share. Companies that have a long and deep product lines also set sales targets for different SKU’s and would want channel members to keep their sales in line with these targets; individual channel members would want to push those SKU’s which deliver greater profitability, regardless of the targets.
Conflicts can also arise when channel members fail to fulfill expectations of other channel members; for instance if a franchise does not follow the rules set the rules set by the franchiser. A lack of communication between company and channel members is also very common cause of conflict. A company may change its policy with regards to the period of warranty coverage and fails to communicate the same to the dealer. The dealer continues to make repairs free of charge to the consumer, expecting to be reimbursed by the company. Ideological differences and different perceptions of market retailers are also a source of conflict. Retailer and dealers come face-to-face with customers and are more likely to empathize with the customer and believe that the “customer is always right”. They would like the company to offer a more liberal return policy. On the other hand, many companies hold the view that customers may “try to get something for nothing” or don’t follow product instructions carefully.
Conflicts can occur at any level within the distribution chain. A conflict among channel members at the same level, such as two retailers or stockiest, is known as horizontal conflict.
3. Channel partnering
Regardless of the power equation, channel members rely heavily on each other. Even the most powerful of companies rely on their dealers to sell their products and most powerful of retailers require the products supplied by companies. In a sharp contrast to the adversarial relationships of the past between manufacturers and sellers, contemporary channel management emphasizes close working partnerships among channel members. Channel partnering or channel co-operation is the joint effort of all channel members to create a supply chain that serves the customers and creates a competitive advantage.
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