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Chapter 7 Managing Conflict to increase Channel Coordination Channel Conflict The word conflict is derived is from the Latin confligere, to collide. Channel conflict is a 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. Competition Vs. Conflict Competition This is the behavior in which a channel member is working for a goal or object controlled by a third party (such as customer , regulators , or competitors Competing parties struggle against obstacles in their environment Conflicting parties struggle against each other Types of Conflicts Latent Conflicts Incompatibility at such a low level that members do not sense it. . Perceived Conflicts These exists when a channel member sense that a opposition of some sort exist: Opposition of view points, of perception of sentiments of interests or of intentions. It is cognitive i.e. emotionless and mental. Felt or Affective Conflict The organization members experience detrimental emotions: tension, anxiety, anger , frustration, hostility. Manifest Conflict Opposition is visible (manifest) as it is expressed in behavior by either withdrawing support or blocking each others initiatives. Measuring Conflict Counting Up the Issues Importance Frequency of disagreement Intensity of dispute Conflict = ∑Importancei x Frequencyi x N Intensityi i=1 Measuring Conflict Example Issue Delivery Allowances Advertising Inventories Total Conflict Importance Frequency Intensity Total 8 5 8 9 8 2 0 5 9 3 2 2 576 30 0 90 696 The Consequences of Conflict When Conflict is desirable Functional conflict Natural outcome of close cooperation with supplier as cooperative relationships are noisy and contentious Influential downstream member is a disputatious one- and is willing to give and take to push the channel to outperform its competitors. Peace and harmony vs. indifference Dysfunctional conflict The Consequences of Conflict How intense conflict damages channel performance and coordination Major Sources of Conflicts in Marketing Channel Competing goals Margins Vs. Profits The attribute of the product The application it serves and for which segments The competition Reasons are: Focus Business culture Differing perception of reality Solution: Communication Increased sensitivity Goal Conflict Manufacturer Higher margin for self Reseller Higher margin for self Higher price to reseller Reseller holding more inventory No allowances Lower price to reseller Reseller holding less inventory More allowances Lower price to end-user Higher price to end-user Increase unit sales Increase unit sales Major Sources of Conflicts in Marketing Channel Clash of market domains Research Inventory Pre & Post Sale Support Domain Conflict Responsibility for flows and functions Market domains Intrachannel conflict Manufacturer Reseller Reseller’s target segments Selective distribution Assortment of best-selling models of various brands Sell to multiple segments Intensive distribution Category exclusivity with full line of mfr’s brand Clash of Market Domains Intra channel competition Competitor representation Perception of Selectivity/ Exclusivity Multiple types of channels in the same market Unwanted channels: Gray Markets Fueling Conflict Conflicts begets more conflict Threats Industrial marketing Channels in developed economies How destructive actions impact dealers Gray Markets Selling authorized goods through an unauthorized channel Occur when: Differential pricing to different channel members Pricing differently to different geographic markets Manufacturer cannot effectively sell at different prices in different markets Erodes potential volume for authorized dealers who may also provide after-sales service Effects Gray Markets Growing quickly Often tolerated Violations difficult to detect Gray markets sometimes give more category exclusivity Costs of taking action against gray markets often more than the benefits Manufacturer gets greater market coverage May be an intended channel Conflicts begets more conflict Conflict creates more conflicts It happens when relationship has experienced high level of tension and frustration. The foundation of trust are thoroughly eroded by high level of conflicts. Threats Threaten means to imply punishment or negative sanction. Threats raises the temperature of relationship by increasing conflicts and reducing channel member satisfaction. Threats are perceived as coercion. When coercion handled well, will be overlooked in short term. Forgiven in medium term. Appreciated in long term. In short time horizon, conflict is often handled by the use of aggressive or coercive strategies. Industrial marketing Channels in developed economies Industrial marketing channels in developed economies are good example of balanced power. Upstream and downstream channel members are powerful within the relationships. Each side use influence strategies in their relationship. Important relationship encourages noncoercive influence attempt. Channel members hesitate to jeopardize these relationships and realize that coercion can create a spiral of aggression and retaliation. One of the best way for a channel member to gain power is to perform it channel role exceptionally well. Powerful parties rely on persuasion and communication rather than resorting easily to heavy-handed strategies. Coercion is a channel that is not comparable to coercion in a personal relationship. In sum, in marketing channels the use of coercion rapidly escapes the users control. Threats are an extremely potent way to raise conflict. Threats should be used with caution, in the realization that coercion can easily be taken too far. How Destructive Actions Impact Dealer Dealers are dependent on narrow range of products and suppliers, which makes them vulnerable to destructive acts by the manufacturer whose line they carry. Conflict Resolution Strategy: How They Derive Conflict And Shape Channel Performance Approaches to Resolve the Conflict One is to try to keep conflict from escalating into the dysfunctional zone in the first place. (This is done by developing the institutionalized mechanism such as arbitration boards or norms of behaviors) Other is to use pattern of behavior to try to resolve the conflict after it become manifest. Institutionalized Mechanism These mechanism include: Joint membership in trade association. Distributors Channels. Exchange of Personal Program. An appeal to third party (such as Arbitration or Mediation). Or Building Relational Norm. Third Party Mechanism. Mediation And Arbitration are ways to bring in third parties that are uninvolved with Channel. Mediation is a process whereby third party attempt to secure settlement of dispute by pursuing the parties either to continue their negotiation or substantive recommendation. Effective mediation succeeds in clarifying the facts and issues. Mediation also encourage channel members to increase their communication with each other. Mediation help the parties to devise their own decisions. While an alternative to mediation is Arbitration where third party actually makes a decision. Arbitration: Arbitration can be compulsory or voluntary. In compulsory Arbitration the parties are required by law to submit their dispute to third party, whose decision is final and binding. In Voluntary Arbitration the parties voluntary submit their dispute to third party, whose decision is final and binding. Building Relational Norms. In channels it is common to observe norms such as. Flexibility. Channel members expect each other to adapt readily. To changing circumstances with minimum negotiation. Information Exchange. Share all type of information freely, quickly and thoroughly. Solidarity. Channel members expect each other to work for mutual benefits. Style of Conflict Resolution. High cooperativeness Accommodation COOPERATIVENESS Concern for other party outcome Compromise Collaboration or Problem solving High Assertiveness Competition or Aggressiveness Assertiveness Low assertiveness AVOIDANCE Low cooperativeness Selecting the Best Decision Technique to Handle the Conflict. Model Assumptions •Problem clarity •Known options •Clear preferences •Constant preferences •No time or cost constraints •Maximum payoff A major study of how dealers react to such destructive actions shows that five quite different reactions are common. Passive acceptance, saying or doing very little about the issue. Venting, complaining vigorously without taking action. Neglecting the supplier, relegating the line to lower priority and cutting back on resources ( which can mean the entrepreneur pulls back resources from the entire business, not just the supplier brands). Threatening to resign the line (even if it means closing down the business). Engaging the supplier in constructive discussion to try to work things out and improve the situation. One solution that appears to work well is the use of dealers councils, groups of carefully selected dealers who works with the supplier both to reduce the actions destructive impact and to communicate both ways between dealers and suppliers. Negotiation: The Art of Give and Take Evaluating Desired Relationship Outcome Choosing a Negotiation Strategy Predatory Negotiation Symbiotic Negotiation Separates the people from the problem Focuses on needs rather than positions Develops options for mutual gain Uses only objective criteria Creating versus Claiming Value Do their homework Deal only from the top of the deck Remember that quitters never win, and winners never quit. Remember that attitude is everything. Build bridges (relationships) rather walls. Procedural Steps for a Typical Negotiation Process: 1. 2. 3. 4. Identify and Define the Problem: Get the Facts: Generate Possible Solutions: Evaluate Possible Solutions: Select Solution (s): Implement the Solution (s): Evaluate the Results: 1. Remember that a problem well defined is a half-solved. 5. 6. 7. 2. Be sure to distinguish between facts and assumptions. 3. Suspend all evaluation during the generation session; no criticism, either implied or spoken, should be allowed. 4. When and where possible, use logic and mature judgment rather than personal values. 5. Remember, a combination of alternatives may be preferable. 6. Spell out who will do what to carry out the solution. 7. If things are not working out, it may be necessary to reactivate the problemsolving process. A Matrix of Likely Consequences to Channel Negotiations Strategy of Channel Member A Symbiotic Predatory Consequences Symbiotic Consequences Excellent (in Short Run) For Member A Devastating for Member B Good for Member A Good for Member B Strategy of Channel Member B Consequences Excellent (in Short Run) for Member B Devastating for Member A Consequences Substandard for Member A Substandard for Member B Predatory Potential Benefits of Conflicts within Channel Settings When properly approached, conflict can: Bring problems out into the open where they can be effectively dealt with. Lead to the development of new perspectives on old problems or situations. Lead to new ideas and new approaches to dealing with problems, if creativity and the right negotiating strategies are brought to the table. Allow channel members to ventilate feelings that needed to be aired. Lead to harmony and more productive, growing relationships. Lead to a greater awareness of and appreciation for the needs of other channel members. Cause channel members to better understand themselves, their motivations, their goals, and their behaviors. Problem Solving Strategies Logrolling Strategy Compromise Strategy Aggressive Strategy Persuasive Mechanisms Three Steps: 1. Gaining Personal Acceptance 2. Confirming Motivation 3. Dispensing Rewards Legalistic Strategies Relationships are tough. Clear and open communication often fails. Situation Degrades. No other solution works. As a last option law suits are filled Lawsuits sometimes aggravate the situation.
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