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Conflict, Cooperation, and Competition in Channels
Companies have to build channels to work effectively in the market. It is rightly said that one person cannot do everything, but everyone can do something to contribute to success, and this is exactly how the distribution system works in the business environment. For example, producers manufacture the product, and wholesalers keep the product stored in high quantities. Agents help in connecting the wholesaler with different buyers who will be interested in buying the product. Retailers buy small quantities of those products and sell them to consumers.
So, for one manufactured good, we see various people getting involved. Now that so many people are involved in this scenario with different personal greed, it is understood that conflict and competition are going to arise in channels, and companies have to find a way to cooperate between them.
In this article, we will dive deep into why conflicts arise in the channels. What are the different types of conflicts that arise in channels? And what could be the various methods to resolve those conflicts in the market?
There are multiple reasons why the channel partners are going to fight in between them; to list a few, they would be −
Goal incompatibility − Though everyone is here for professionals, their desire to achieve the product differs from individual to individual. Dealers or retailers might want to achieve high margins on the product, as well as the producer, who might look at the long run and want to penetrate the market with low-cost, quality goods, causing conflict.
Unclear roles, areas of work, and rights − the company might be abrupt, or the channel partners might misread the rules and regulations. For example, the area sales manager is trying to cover and capture retailers outside their working domain.
Personal greed − everyone involved in the channel is here for profit, and they would also try to exploit the people around them to ensure higher margins of profit for themselves in the market. This leads to sour relationships with each other, an increased price of the product, and a bad image of the company.
Difference in perception − The production team might think about the economic growth and hence ask the retailers to maintain huge stocks; on the other hand, the retailers might witness the bullish market and want to risk less.
Dependence on the channel steward − There is always going to be one person in the channel partners who has more power than the rest because of the resources, scarcity of rights and resources, or other factors, and this might cause conflict between the partners.
The Different Types of Conflicts that Arise in Channels
No matter how hard the companies try, conflicts are going to arise, and it is best to understand the different types of conflicts to better deal with them.
Horizontal conflict − This is a type of conflict in which conflict arises between people doing the same type of work. For example, different Macdonald’s outlet owners might fight with each other because if one outlet provides sub-standard quality products, the sales of all the McDonald's partner outlets will be impacted. This is because customers would not want to waste their money, and it is the general perception that if a brand could not serve you well once, then they might not be in other outlets as well.
Vertical conflict − This occurs between the different channel partners involved in the selling decision-making process by the company. For example, if a retailer buys Fast Moving Consumer Goods (FMCG) from different brands like HUL, P&G, Dabur, Nestle, and others, and if the brand gives preference to one and not to the others, then conflict will arise. For example, a retail store owner might give more shelf space to HUL than P & G.
Multi-channel conflict − This is a situation in which the company or the distribution channel is serving multiple channels at the same time. For example, P&G sells its products to both big shopping malls and small retailers. The big store owners are going to get the benefits of deep discounts or bulk discounts that retailers might not get, and hence the customer would prefer purchasing from the big stores to the retailer’s houses.
Different Ways to Manage Channel Conflicts
Conflicts need to be managed and the different ways it can be done.
Strategic justification − The company here tries to give strategic justification to the channel members for the differentiation faced by them. For example, in multichannel conflicts, the brand might try to make channel partners understand that they are not that competitive and that a little here and there is not making much difference in their sales.
Dual compensation − Here the company understands the issues and problems of the channel partner and tries to improve the situation by offering double compensation to the channel partner. When the brands went online and retailers complained of lower sales volume, many brands provided more discounts on the purchase of the brand product, so the retailers started getting more margins and hence were cooperative with the brand for the time being.
Superordinate goal − Here the channel members face their own differences and try to achieve the superordinate goal of the company. This generally happens when the brand faces an external threat.
Employee exchange − companies can ask the different channel partners to work on the inter-channel fields to get a better understanding of their situation and problems, thus restoring channel harmony.
Legal resources − If the channel partners feel that damage will happen or is happening because of a step by the company or another channel member, they can join hands to file a lawsuit.
Diplomacy, mediation, and arbitration − Companies can also take up different approaches to deal with conflicts, and those are to remain diplomatic, i.e., not take sides; mediation is to find the middle ground between the issue or the product so that the case could be win-win for both of them; and arbitration happens when the company asks each channel partner to place their points and thus take the most viable decision for the channel as a whole.
It is important for companies to maintain channel harmony to earn profits in the short run and gain an advantage over their competitors in the long run. Companies can maintain harmony by being all ears to their channel partners and then taking the right course of action for the overall good of the company. Having a cooperative, conflict-free, and happy channel will help the company thrive in this cutthroat market environment.
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