Question

What is the cost of channel conflict? Describe the three types of vertical marketing systems designed to deal with conflict?

Answer 1

Channel conflict can affect the channel partners and vendors in many ways. The channel partners can lose a potential deal and face of the loss of resources such as employees, finance, etc invested in the deal. Hence bypassing the deal by the vendor can affect the channel partners adversely. Such conflicts if left unresolved can also give a negative reputation to the vendors among the partners. The vendor-partner relationship is strained with a distrust build between the two. This will make partners fire their vendors and difficult for vendors to reach certain market segments.

The three types of vertical marketing systems designed to deal with conflict are:

- corporate vertical marketing systems- these bring all the elements of the distribution channel under one business by streamlining the processes. This ownership of the chain can be done from any of the channels of distribution in the chain.

- contractual vertical marketing systems- In these systems the businesses form contractual agreements with other elements in the distribution channel and the distribution channels still operate as individual entities. This helps in getting economies of scale and competitive pricing.

- administered vertical marketing systems- In these systems one of the members of the distribution channel, usually one of a greater size controls and administers activities of other members of the channel.