Topic 4

Topic 4
CHANNEL STRATEGY, MARKETING
LOGISTIC AND CHANNEL CONFLICT

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MARKETING CHANNEL

• also call as distribution channel or trade channel
• is defined as a set of interdependent organizations that

make a product or service available to customer for use
• the decisions are long term decisions

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MARKETING LOGISTICS

• also call physical distribution

• consist of delivering the completed products to customers
and channel intermediaries

• Performing the tasks of storing and moving their goods
and services, engage the services of warehouses and
transportation companies

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Factors that affect the distribution of
industrial goods

1. Geographical Distribution
◦ The business market distributors are concentrated highly in the business
markets they serve
◦ They are found where business market exits, like large towns and cities with
business estates
◦ Eh; Johor Bahru – Pasir Gudang, Selangor – Shah Alam, Melaka – Batu
Berendam

2. Channel Size
◦ the business markets tend to have fewer or shorter channels of distribution
◦ sometimes the channels are direct from the manufactures to the customers
◦ the reason for the shorter channels - organizational buyers expect immediate
product availability, technical expertise and prompt after-sales service.

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3. Characteristic of Intermediary

o The intermediaries involved in business marketing are technically
qualified

o maintain very close relationship with industrial organizations.

o Industrial manufacturers tend to depend more heavily on each
member of the channel

3. Mixed system
◦ Some business marketers use a mixture of direct and indirect channel
in order to meet the requirement of different market segments
◦ To cater to large-volume customers, business firms generally use their
own sales force
◦ To cover small scale organizations, they use independent distributors.
◦ In case of large geographical territories, due to resource constraints
they use their agents called as ‘manufacturers’ representatives’.

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4.2 Structure of Business Channel

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Direct Channel Structures

All the entire task to create sales and to deliver the products to business
customers is performed by the manufacturers themselves.

◦ contacting the potential customers,
◦ communicating and negotiating with them,
◦ financing and selling,
◦ storing the products,
◦ transportation
◦ providing related services.

This approach is viable to the company only if

◦ the buying process is lengthy, the selling includes extensive technical and commercial
negotiations at various levels, including top management,

◦ the business buyer insists on buying directly from the manufacturer, and
◦ the value of each transaction is large.

Examples of direct channel are

◦ direct sales (through the company sales force) and
◦ direct marketing (through direct mail, telemarketing, Internet marketing)

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Indirect Channel Structures

The various tasks discussed above is shared both by the manufacturer and the
intermediaries.
An indirect distribution approach is appropriate when :

◦ the business buyers are widely dispersed,
◦ the value of transaction or sales are low,
◦ the business buyers purchase many product items in one transaction, and
◦ the manufacturer has limited resources

Examples of indirect channel are manufacturer’s representatives (or agents),
brokers, commission merchants, commission merchants, industrial dealers or
distributors, value-added resellers, jobbers, drop shippers.

Indirect distribution is used in industrial chemicals, construction materials,
electrical wiring materials and supplies, general industrial machinery, iron and
steel products, etc.,

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TYPES OF BUSINESS MIDDLEMEN OR
INTERMEDIARIES

The business middlemen are the intermediaries
used by the manufacturers to deliver their products
to the end users.

A full-function intermediary – is the one who
perform all or most of the distribution functions
A part function intermediary - they consist of
contacting, promoting and negotiating.

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Industrial Distributors / Dealers

Sometimes referred as full function intermediaries

They perform many functions like buying, storing, promoting, financing, selling, transporting
and servicing certain geographic market, & are given discounts.

Most preferred middlemen that are typically small and independent serving narrow
geographic markets.

They are offered trade discounts on the price list of the products as their compensation

Major categories are
i. General – line distributors; supplies houses that stock wide variety of products and
sell to a diversified group of customers. They are referred to as the supermarkets of
industry.
ii. Specialized distributors - specializes in products they handle or customers they serve.
Limit their inventories to specific product range like office equipment and supplies,
electrical equipment and supplies, or cutting tools etc.
iii. Combination house - sell directly to industrial customers as well as some other
retailers or dealers, who in turn sell to final consumers.

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Manufactures’ Representatives / Agents

They perform functions like promoting manufacturers’ products /
services, getting orders, and collecting market information.

They do not buy, store or finance the transactions

They are paid commission on the value of sales or orders booked.

These agents have:

◦ A good product knowledge
◦ Understanding of the markets cover by them
◦ Excellent contact with the industrial buyers

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Value-added Resellers (VARs)

• They add some value or feature to an existing product and sell
to end-users as a new package.

• They are new type of intermediaries from computer industry
where a company purchases computer components and builds
a fully operational personal computer.

• Customers would purchase a computer from the reseller to
either save time or if they do not have the skills to build a unit
themselves.

• They are paid discounts.

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Brokers

• They bring together buyers and sellers when information is not available
completely.

• Brokers usually have a temporary relationship with the buyer and seller while
a particular deal is

• They can represent either a buyer or a seller
• Their function is to find potential buyers, negotiate, complete the sale & give

information about what the buyer needs and what supplies are available
• They do not buy products & services.
• They are paid on commission basis.

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Commission Merchants

• They represent sellers / manufactures, mostly with bulk commodities like
raw materials

• Used in agricultural markets where farmers must have someone to handle
the shipment

• They do not own the products they sell

• They perform functions like arranging inspection, transporting, negotiating
and

• They are paid commission on the value of sales

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Channel Conflict

• A channel conflict may be defined as a situation in which one channel
member perceives another channel member(s) to be engaged in
behavior that prevents it from achieving its goals.

• A typical channel will flow like this

Manufacturer  C&F Distributor  Retailer  End consumer

• The manufacturer is level 1, the carrying or forwarding (C&F) agent is
level 2, the distributor is level 3, the retailer is level 4 and the end
consumer is level 5.

• Understanding the levels is important to understand which level the
channel conflict is arising from or is it on multiple levels.

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Three (3) type of channel conflicts

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1) Horizontal Channel Conflicts

 One of the most common type of channel conflicts to occur are the
horizontal ones.

 Horizontal channel conflict is a conflict between two channel
members at the same level in the distribution channel.

 For e.g., conflict between two distributors or a conflict between two
retailers is known as horizontal channel conflict.

 These conflicts can offer some positive benefits to the consumers.
Competition or a price war between two dealers or retailers can be in
favour of the consumers.

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Reasons behind horizontal conflicts
1. Price-off by one dealer / retailer can attract more customers of

other retailers.
2. Aggressive advertising and pricing by one dealer can affect business

of other dealers.
3. Extra service offered by one dealer / retailer can attract customers

of others.
4. Crossing the assigned territory and selling in other dealers/ retailers/

franchises area.
5. Unethical practices or malpractices of one dealer or retailer can

affect other and spoil the brand image.

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Example of Horizontal channel conflict

There are two stores in a region which are given a territory each.

◦ Store 1 is given territory 1
◦ Store 2 is given territory 2

The channel conflict occurs, when store 1 services customers from territory
2 or vice versa.

◦ This means that the channels are not following rules set by the company and
hence it is creating conflict.

Such channel conflicts are one of the most common kinds of conflict in
channel management. These arise due to human nature.

Distributor in territory 1 might be more aggressive and the one in territory
2 might be passive.

Thus, encroachment happens and is not controlled till the distributor 2
raises his voice against the injustice.

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2) Vertical Channel Conflict

 The vertical channel conflict happens at different levels of
the distribution channel.

 A typical conflict might be between the retailer and the
distributor, or it might be between the distributor / C&F
and the company.

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Some common reasons for vertical conflict are :-

1. Dual distribution i.e. manufacturers may bypass intermediaries and
sell directly to consumers and thus they compete with the
intermediaries.

2. Over saturation, i.e. manufacturers permit too many intermediaries
in a designated area that can restrict, reduce sales opportunities for
individual dealer and ultimately shrink their profits.

3. Partial treatment, i.e. manufacturers offer different services and
margins to the different channels members even at same level or
favor some members.

4. New channels, i.e. manufacturers develop and use innovative
channels that create threat to establish channel participants.

5. No or inadequate sales support and training to intermediaries from
the manufacturers.

6. Irregular communication, non-cooperation and rude behavior with
the channel members.

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Example of vertical channel conflict

Take the example of an Ice cream company.
To motivate its dealers, many ice cream companies provide FREEZERS at discounted
price along with the ice cream to their retailers.
These freezers are used to keep the ice cream at frozen temperatures.
Now, an ice cream company notices that Region 1 is not performing well and it can
motivate region 1 by providing the freezer completely free. So it gives freezers for
free in the market with ice cream so that ice cream sale rises.
However, Region 2 now gets news that this is happening in region 1 and that
freezers are being provided for free to all retailers in region 1.
The retailers of region 2 immediately revolt and ask for further discounts on freezers
or to give the freezers completely free. They don’t understand that sales in region 2
is already high and margins are low for the company.
Ultimately, this creates a vertical channel conflict for the company. Now the
company has to decide whether it will support region 1 or region 2.

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Another example of vertical channel conflict is a Distributor
preferring one retailer over the other.

In such a case, retailer 1 might get extra credit, he might get
deliveries faster, and he might get further discounts,
whereas due to whatever reasons, retailer 2 might not get
such benefits.

It might be due to the distributors relations with Retailer 1
or it might be due to the nature of retailer 2 (haggling,
rudeness).

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3) Multiple Channel Conflict

 Multi-channel conflict occurs when the manufacturer uses a dual
distribution strategy, i.e. the manufacturer uses two or more channel
sell to the same market.

 Manufacturers can sell directly through their exclusive showroom or
outlets. This act can affect the business of other channels selling
manufacturer’s brands.

 Manufacturers can bypass the wholesalers and sell directly to the
large retailers.

 Conflict becomes more intense in this case as the large retailers can
enjoy more customers and so the profit due to offering more variety
and still economical prices, which is possible due to a volume
purchase.

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Causes of Channel Conflict

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Causes / Sources of Channel Conflict

1. Unclear Roles and Rights: The channel partners may not have a clear
picture of their role i.e. what they are supposed to do, which market to
cater, what pricing strategy is to be adopted, etc.
o E.g. The manufacturer may sell its products through its direct sales
force in the same area where the authorized dealer is supposed to
sell; this may result in the conflict.

2. Goal incompatibility: Different partners in the channel of distribution
have different goals that may or may not coincide with each other and
thus result in conflict.
◦ E.g. The manufacturer wants to achieve the larger market share by
adopting the market penetration strategy i.e. offering a product at
low price and making the profits in the long run, whereas the dealer
wants to sell the product at a high cost i.e. market skimming strategy
and earn huge profits in the short run.

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3. Different in Perceptions: The channel partners may have different
perceptions about the market conditions that hampers the business as a
whole thereby leading to the conflict.
o E.g. The manufacturer is optimistic about the change in the price of
the product whereas the dealer feels the negative impact of price
change on the customers.

4. Lack of Sources: The primary causes of conflict are identified as
competition over scarce resources
o E.g. There are limited resources, which all of them want to utilise in
the pursuit of their goals or too many channels (or channel partners)
compete for too few customers

5. Differences in Target: Conflict is viewed as being inevitable because of
inherent differences in the performance targets and goals of the
organizational members.
o E.g. Channel member wanting to pursue his own goals. Each wants
to retain his independence.

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6. Communication Breakdown: This is one of the major reasons that
lead to the conflict among the channel partners. If any partner is not
communicated about any changes on time will hamper the
distribution process and will result in disparity.
◦ E.g. If retailer urgently requires the stock and the wholesaler
didn’t inform him about the availability of time may lead to the
conflict between the two.

7. Conflict in decision power: Conflict may arise due to overdependence
of distributor on manufacturer. Hence, distributor is highly
susceptible to change in market & manufacturer’s strategies
◦ E.g. unstructured channel management processes, such as
partner recruitment, pricing structures, incentive systems and
promotional strategies can all lead to channel conflict

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Conflict Resolution Strategies

i. Negotiation Strategies
◦ Negotiation involves mutual discussion aimed at
resolving conflict.
◦ It is a fact of marketing life that should be mastered
rather than feared.
◦ Boundary personnel should continuously consider
the impact that their negotiating strategies will have
on channel relationship.
◦ Negotiating strategies should not be selected until
after channel members have evaluated what they
seek for their relationship’s future.
◦ Negotiation strategies divided into two types:

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a. Predatory Negotiation
◦ It consider the idea of relationship-sustaining bargaining sessions
unsophisticated or weak.
◦ Predatory negotiators try to grab as much as possible by giving the
other as little as possible.
◦ Channel members who are willing to lose, conceal information, or
stands by commitments to accept only favourable settlements
generally prevail.
◦ Predatory or aggressive negotiation tactics are often used by
seasoned negotiators to get concessions when they perceive
weakness or “neediness” on your part. Most are predicated on the
need to assert power over an adversary to gain the upper hand.
◦ These “power games” can drive your agreements in an unfavourable
direction- even derail them- unless you know what to look for.

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b. Symbiotic Negotiation

◦ It designed to create mutual value through
cooperation and collaboration are diametrically
opposed to predatory strategies intended to claim
value.

◦ Such actions might be taken to build a more
productive relationship. Join gains can be achieved
through win-win strategies.

◦ Here, participants seek to avoid behaviours that
would worsen their relationship. Behaviours that
would increase the substantive elements of the issue
under negotiation are actively sought out.

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Conflict Resolution Strategies

ii. Problem Solving Strategies
◦ It is a strategy when channel members share common
goals and want a solution that satisfies the decision
criteria of both parties. The common goals are readily
apparent to both parties.
◦ It is a plan of action based on a channel member’s
goals or objectives and its analysis of the situation.
◦ The problem solving strategies divided into three
strategies:

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a) Logrolling – one problem-solving strategy in which each party
identifies its priorities and offers concessions on those issues they
view as less significant.

b) Compromise – wherein conflicts are resolved by establishing a
middle ground based on the initial positions of each party.

c) Aggressive – one-sided attempts to solve problems by threats,
persuasive arguments or punishments.

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Conflict Resolution Strategies

iii. Persuasive Mechanism
◦ The act of persuasion implies that one channel member has
influenced another member’s behaviour, with those behaviours
relating to a course of action sought by the persuader.
◦ But, persuasion is not something one channel member does to
other channel members. Persuasion is done with others.
◦ It involves a cooperative effort, and a process of give and take.
◦ It is a strategy when one part attempts to alter the other party’s
decision criteria so as to move the other party to a common set of
goals.
◦ It is similar to problem solving with the important difference that
the common goals are not readily apparent to the two parties.
◦ The aim is to reduce differences between the sub-goals of the two
organizations by emphasizing the superordinate goals of the
marketing channel.

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Conflict Resolution Strategies

iv. Legalistic Strategies

◦ Arbitration and settlements are legalistic strategies aimed at
gaining compliance or a solution to an otherwise unresolvable
problem.

◦ Either method should only be used as a final option. Their use
suggests that a solution to the problem could not be worked out
through other, more harmonious procedures administered
through normal marketing channels.

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The Importance of Logistics

i. Maintaining competitive edge
• Successful business logistics provide a competitive edge against
other organizations. It provides a system or process by which
customer needs can be fulfilled in a more efficient manner.
• A business should strive to provide shipments of merchandise in a
more accurate and fast manner than competitors do.

ii. Build Good Customer Relations
• Providing product in efficient manner, which business logistics
helps to do, also helps to build good customer relations.
• This is not only important for immediate monetary gain, but also
because good customer relations can mean more business.

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iii. Providing Organization
• Each time a product is created, business logistics can help to
ensure the process goes efficiently.
• It is important that inventory be tracked, transported, stored and
manufactured in a way that accommodates all of an organization’s
department.
• Controlling this flow so that each department knows what to do
and what is expected will help to ensure that the company’s plans
and goals stay on track.

iv. Warehousing / Ease the Distribution Process
• Every company must store its good while they wait to be sold. The
storage function overcomes differences in needed quantities and
timing.
• A company must decide on how many and what types of
warehouses it needs and where they will be located.

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v. Meeting Customer Demand

• Meeting customer demand and providing superior service is one
of the most important benefits of good logistics management.

• Consumers demand better service and this mandate has ripple
effects up the supply chain, creating a need for shippers to
provide fast, accurate and quality service.

• Logistic management is responsible for satisfying customer
demands.

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Physical Distribution Activities

1. Transportation
• Transportation involves the physical delivery of goods from the company to
the distributor or dealer and from the dealer to the end customer.
• Shipping of products on time and right place
• Transportation is a cost to the dealer as well and reduces his profit

2. Warehousing
• The distributors must store the products properly at their warehouse to
assure product in good condition to the industrial user.
• Keeping of goods until they are delivered, makes decisions on site selection,
number of distribution centres in the system, layout, and methods of
receiving, storing and retrieving goods.

3.Inventory control
• Inventory control is one of the most important logistics functions.
• This activity is to ensure the production of inventories are timely and to
ensure inventory levels are sufficient and affordable.

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4. Packaging
• Packaging the product is a responsibility of the logistics team because otherwise the
product will reach damaged to the end customer and this is a huge cost to the
company
• There are two types of packaging
1. On the shelf of supermarkets or hypermarkets where the package appears
attractive and makes the customer buy the packages.
2. Transport packaging where the products are packed in bulk so as to avoid any
breakage or spillage and yet allow them to transfer huge volumes of the product
safely from one place to another.

5. Material handling
• Increases speed and minimize costs of order-picking, loading and unloading
operations.
• Moving goods over short distances into and out of warehouse and manufacturing
houses

6. Order Taking and Processing
• Taking and processing customer orders, efficient order-taking procedure, stock
replenishment and prevent stock outs.
• Receiving, recording, filling and assembling orders for shipment

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7. Communication
• Effective communication system is one of the crucial elements in making a smooth
operations in logistics industry.
• Physical distribution will provide up-to-date inventory, transportation and warehousing
information.
• For example: information on inventory:- existing stock position at each location, future
commitments, required stock addition capability etc.
• Efficient communication is needed to determine the overall effectiveness of the distribution,
the availability of the right information and further savings can be made.

8. Factory and warehouse location
• The warehouse should be nearby to the dealer or the distributors’ place and it should
facilitate the easy delivery of goods
• Once a brand establishes itself in a new territory, the first thing it does is to lease a new
warehouse so that it can be closer to the territory and closer to the end customers.
• The location of warehouses also reduces the pressure on mother warehouse (large
warehouses which stock most of the products).
• When there is a peak in demand or if there is a drop in production, these warehouses can
take the pressure of deliveries and they can become interdependent to ensure delivery of
goods to consumers.

9. Customer Servicing and Support
• Provide after-sales support required include delivery, installation, product testing, training
in product use, maintenance and repair, stocking of product parts and accessories.

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Logistical Rights within Marketing Channel

i. Attaining Market Coverage
• The number of active retail and/or wholesale outlets (relative to

saturation level) that sell a specific firm’s brands in a given market.
• Required market coverage is achieved by following concentrated

marketing, differentiated marketing or undifferentiated marketing
strategy.
• A company has three basic choices for market coverage strategy:
a. Undifferentiated – ignore segmentation variables and go after the

whole market with one brand.
b. Differentiated – operate in all or several segments of the market and

design separate brands for each.
c. Concentrated – operate in one or only a few segments of the larger

market following a niche strategy with one brand.

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ii. Delivering Customer Service

• Customer service that is good was part of business. Marketer could
offer promotions and prices to attract new customers.

• Customer service that is good was bring attraction customers back and
get positive feedback on business.

• If marketer truly want to have good customer service, all they have to
do is ensure that business consistently does these things:
 Answer your phone
 Don’t make promises unless you will keep it.
 Listen to customers
 Deal with complaints
 Be helpful – even if there’s no immediate profit in it.
 Train the staff to be always helpful, courteous and knowledgeable
 Take the extra step

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iii. Ensuring the Right Product Characteristics
• In the conventional context, the right product is demand-driven concept
that can be loosely defined as a product with features and functions that
meet a customer’s need.
• Operationally though, the definition of the “right product” should also
include that (a) the product is genuine and (b) the product was delivered
through its authorized distribution channel.
• In other words, the right product is not a counterfeit and has not been
diverted.
• In this context, supply and demand chain management processes extend
beyond SOP and operational metrics to include ensuring the
authenticity of products and product handoffs to make certain
customers really receive that for which they are paying.

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iv. Achieving Cost Containment
 To reduce logistics costs, company have to review the distribution
processes. By periodically reviewing and analysing their supply chain
networks, companies can pinpoint issues and proactively address
them.
 Strategies to reduce or eliminate bottlenecks include addressing vessel
schedule planning, ensuring proper documentation and regulatory
compliance for imports and exports and revamping network design.
 Companies also often stock excess inventory because they lack supply
chain visibility.
 To effectively reduce excess inventory, you have to gain reliable
information on future orders.

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