Managing channel Dynamics
Products of any company should be sent to sale centers for selling out. The way used to send goods / products of a company to consumers is called distribution channel. Distribution channels may not be same forever. Distribution channel should be changed according to environmental changes. Changing of channels according to time is called channel dynamics. As the marketing is dynamic, so the distribution channel is dynamic. It does not remain in traditional structure. It also remains changing and developing according to time and is applied accordingly.
New persons and new organizations enter in marketing channel system at different times. The functions and roles of such channel members become different according to the changes of time. So, distribution channel does not remain same for long, but remain changing.
The channels unsuitable to the new behavior disappear and new channels appear, develop and remain changing. So, it becomes clear that the channel of marketing becomes dynamic. They are directly related factors, market related factors, channel objective related factors, middlemen related factors, company related factors and environment related factors.
Each member involved in channel has his own roles. Such role may be leadership providing role and also may be subordinate or follower’s role. If any change takes place in existing roles of the members, help may increase or conflicts appear. If any change does not come in the roles of channel members, only then marketing channel system can work well. So, roles of all channel members should be clear. Only then all the channel members can perform their responsibilities. As a result, all the activities of distribution channel become fruitful.
Strong channel partners often wield what’s called channel power and are referred to as channel leaders, or channel captains. In the past, big manufacturers like Procter & Gamble and Dell were often channel captains. But that is changing. More often today, big retailers like Walmart and Target are commanding more channel power. They have millions of customers and are bombarded with products wholesalers and manufacturers want them to sell. As a result, these retailers increasingly are able to call the shots. In other words, they get what they want.
Category killers are in a similar position. Consumers like you are gaining marketing channel power, too. Regardless of what one manufacturer produces or what a local retailer has available, you can use the Internet to find whatever product you want at the best price available and have it delivered when, where, and how you want.
The capacity that can change channel members involved in distribution is called power. Channel leader persuades and controls the channel members. Mostly, channel power emerges from following five sources:
- Reward power
The capacity to give financial or non-financial reward to the channel members involved in distribution is called reward power. Mostly, the producers use such type of reward power. Nowadays, this power has become very popular.
- Coercion power
The power to punish, frighten, threaten etc. to all the channel members is called coercion power. Under this power, the channel members are forced to perform any work. Such power can be used by producers against wholesalers and retailers.
- Referent power
Referent power comes out from intense desire of any channel member to be involved in channel system. Many middlemen desire to be involved for dealing with best brand of products. Due to such desire of middlemen, producers may use referent power.
- Expert power
Expert power is acquired from long experience and special knowledge. Every channel member cannot use this power. Only those who have special knowledge and experience can use this power.
- Legitimate power
The power which can influence / persuade and control channel members is called legitimate power. Ownership of reputed brand can provide this type of power. These types of powers makes every business just and regular.
A dispute among channel members is called a channel conflict. Channel conflicts are common. Part of the reason for this is that each channel member has its own goals, which are unlike those of any other channel member. The relationship among them is not unlike the relationship between you and your boss (assuming you have a job). Both of you want to serve your organization’s customers well. However, your goals are different. Your boss might want you to work on the weekend, but you might not want to because you need to study for a Monday test.
All channel members want to have low inventory levels but immediate access to more products. Who should bear the cost of holding the inventory? What if consumers don’t purchase the products? Can they be returned to other channel members, or is the organization in possession of the products responsible for disposing of them? Channel members try to spell out details such as these in their contracts.
No matter how “airtight” their contracts are, there will still be points of contention among channel members. Channel members are constantly asking their partners, “What have you done (or not done) for me lately?” Wholesalers and retailers frequently lament that the manufacturers they work with aren’t doing more to promote their products for example, distributing coupons for them, running TV ads, and so forth so they will move off store shelves more quickly. Meanwhile, manufacturers want to know why wholesalers aren’t selling their products faster and why retailers are placing them at the bottom of shelves where they are hard to see. Apple opened its own retail stores around the country, in part because it didn’t like how its products were being displayed and sold in other companies’ stores.
Channel conflicts can also occur when manufacturers sell their products online. When they do, wholesalers and retailers often feel like they are competing for the same customers when they shouldn’t have to. Likewise, manufacturers often feel slighted when retailers dedicate more shelf space to their own store brands. Store brands are products retailers produce themselves or pay manufacturers to produce for them. Dr. Thunder is Walmart’s store-brand equivalent of Dr. Pepper, for example. Because a retailer doesn’t have to promote its store brands to get them on its own shelves like a “regular” manufacturer would, store brands are often priced more cheaply. And some retailers sell their store brands to other retailers, creating competition for manufacturers.
Vertical versus Horizontal Conflict
The conflicts we’ve described so far are examples of vertical conflict. A vertical conflict is conflict that occurs between two different types of members in a channel—say, a manufacturer, an agent, a wholesaler, or a retailer. By contrast, a horizontal conflict is conflict that occurs between organizations of the same type say, two manufacturers that each want a powerful wholesaler to carry only its products.
Horizontal conflict can be healthy because it’s competition driven. But it can create problems, too. In 2005, Walmart experienced a horizontal conflict among its landline telephone suppliers. The suppliers were in the middle of a price war and cutting the prices to all the retail stores they sold to. Walmart wasn’t selling any additional phones due to the price cuts. It was just selling them for less and making less of a profit on them.
Channel leaders like Walmart usually have a great deal of say when it comes to how channel conflicts are handled, which is to say that they usually get what they want. But even the most powerful channel leaders strive for cooperation. A manufacturer with channel power still needs good retailers to sell its products; a retailer with channel power still needs good suppliers from which to buy products. One member of a channel can’t squeeze all the profits out of the other channel members and still hope to function well. Moreover, because each of the channel partners is responsible for promoting a product through its channel, to some extent they are all in the same boat. Each one of them has a vested interest in promoting the product, and the success or failure of any one of them can affect that of the others.
Flash back to Walmart and how it managed to solve the conflict among its telephone suppliers: Because the different brands of landline telephones were so similar, Walmart decided it could consolidate and use fewer suppliers. It then divided its phone products into market segmentsinexpensive phones with basic functions, midpriced phones with more features, and high-priced phones with many features. The suppliers chosen were asked to provide products for one of the three segments. This gave Walmart’s customers the variety they sought. And because the suppliers selected were able to sell more phones and compete for different types of customers, they stopped undercutting each other’s prices.
One type of horizontal conflict that is much more difficult to manage is dumping, or the practice of selling a large quantity of goods at a price too low to be economically justifiable in another country. Typically, dumping can be made possible by government subsidies that allow the company to compete on the basis of price against other international competitors who have to operate without government support, but dumping can also occur due to other factors.
One goal of dumping is to drive competitors out of a market, then raise the price. Chinese garlic producers were accused of this practice in the early 2000s, and when garlic prices soared due to problems in China, other countries’ producers were unable to ramp back up to cover the demand. U.S. catfish farmers have recently accused China of the same strategy in that market. While there are global economic agreements that prohibit dumping and specify penalties when it occurs, the process can take so long to right the situation that producers have already left the business.
Resolution of Channel Conflict
The task of solving channel conflict is also called conflict management. Conflict surfaces for one or the other reason, but it should be not be let go beyond certain limit. If such conflict is not solved in time, it invites a great accident. So, conflict should be solved immediately by identifying its responsible causes. Generally, the following methods can be applied to solve conflict:
- Problem solving
Various types of conflicts can emerge in distribution channel. They should be solved as soon as possible. Problem solving method is one of many methods. According to this method, all the channel members sit together, interact and find a common solution of the problem. Channel leader or any other members can also do such work.
- Goal modification
Channel conflict can also be solved by modifying goal. Under this method, all the channel members sit together, scrutinize the causes of the conflict and new goal is formed. Such goal should be accepted by all channel members.
Channel conflict can be solved by clearly interpreting subject matter or persuading the channel members. Under this, channel leader persuades and calls all channel members to work for the interest of group members. In this method, the channel leader uses his power to persuade or convince the members and solve the conflict.
In this bargaining method, all the channel members sit together, discuss the responsible causes for the conflict and agree on a new contract. Neutral member plays an important role in facilitating new agreement. Such agreement should be accepted by all the channel members, channel conflict is automatically solved. But, if the channel conflict is to be solved promptly, this method is not suitable.
Conflict among channel members should be minimized at certain level or solved. Diplomatic behavior of management helps in solving conflict. When the conflict appears, the management should give notice or information to all the channel members that it will be properly solved finding out the responsible causes. Because of mannered conduct, equal behavior, evidential logics of the management, channel members feel satisfied by which the conflict can be slowly tapered down.
- Improvement in communication
Distribution channel also needs different information and notices. So, information should be clear, meaningful, and simple. Due to weak information system, conflict arises in channel. Such conflict can be tapered down through improvement in information system. But improvement in communication should be on both sides. Otherwise, information becomes meaningless.
Managing channel Relationships
It’s very important to work tightly with partners on promotional activities. For example, a partner may come to you and say they are doing a trade show or a special event, and they’d like you to be represented. Yes, you will show up as the vendor or the manufacturer, but you’ll play an active role in helping to generate leads. This will also help the partner sales reps see how you sell because you know your product or service intimately. And the best part is you can actively play a role to directly hand over new leads to the partner reps.
Take the time
A great sales rep will understand the importance of co-selling with partners, whether it’s a distributor or a partner sales rep. The channel represents feet on the street above and beyond your single self, so it’s time well invested when you work closely together.
Speaking from practical experience, when a sales rep is active in a social media community, there’s an amazing amount to learn by listening. It’s a very good place to learn what, where, and how you should be selling. Customers are asking questions, but so are distributors and partners. By participating in these forums, a sales rep and all of the other partners can provide their own unique expertise to questions depending on where they are coming from. A sales rep’s time spent on social media communities, particularly the private communities that companies have where they invite their customers, is a tremendous way to sell more effectively through partners.
Co-invest with your channel partner
You can also encourage co-investing between your organization and the channel partner. Remember, a channel partner would always like to have more salespeople, but they cost money. So your company could actually co-sponsor or co-invest with dedicated sales reps. This makes it very attractive to the partner and you have reps who are very interested in your own product.