Types of Channel Conflict and Channel Power
Channel conflict occurs when a member of one channel believes that another channel is acting in a way that interferes with the channels projections and goals for the quarter or any period of time. Channel conflict can arise through four different ways.
4 types of Channel Conflict
- Channel conflict can occur when a channel member decides to buy or sell direct rather than go to the manufacturer’s agents. This can be seen in the case when Wal-Mart decided to purchase products directly from manufacturers rather than the manufacturer’s agents.
- The second cause of channel conflict occurs when one channel member has demands that might prevent a business from meeting their profit margin goals. For example, let’s say you manufacture planes and you’re demanding lower prices from the company that makes the engines. They may not renew the contract since you’re stopping them from reaching their profit margin goals.
- Another reason for channel conflict to occur is when a company feels that one of the channels isn’t giving their product the proper attention. For example, Nike stopped shipping popular sneakers such as Nike Shox NZ to Foot Locker in retaliation for the retailer’s decision to give more shelf space to shoes costing under $120 (Kerin and Peterson 362).
- The fourth and last reason that causes channel conflict happens “when a manufacturer engages in dual distribution and particularly when different retailers or dealers carry the same brands” (Kerin and Peterson 362). This example can be seen through Shaw Industries’ decision to create its own in-store locations. This caused a conflict between them and their retailers' customers like Home Depot, who decided to drop Shaw Industries in light of this situation.
Channel power is when one member of the channel attempts to guide and support members of the other channel. The channel member that assumes this position is known as the channel captain. Channel power occurs in four different ways; economic power, expertise, identification, and legitimate right.
3 Types of Channel Power
- When a channel power arises through economic power this typically means that the company has the power to reward the other by some means due to its’ financial situation.
- Next, a channel power occurs when one company has certain expertise and acts as a helping hand for another. In order for the company to help they are granted some power over the other. Channel power can also arise through identification of a brand through other well- known and well-received [by customers] channels. “For example, retailers may compete to carry Ralph Lauren, or clothing manufacturers may compete to be displayed by Neiman-Marcus or Nordstrom” (Kerin and Peterson 362).
- Lastly, there is channel power through legitimate right. This kind of channel power typically involves a contractual agreement of some sort. This form of channel power is seen in franchises. Franchises’ will operate under terms defined by the franchise. Ultimately, making the franchise the channel power with a legitimate right.
Understanding the different types of channel power and channel conflict can help you understand your current position in current business relationships as well as how to avoid channel conflicts.