Channel Conflict Challenges
This activity highlights several common channel conflict situations, across three different industries. For each situation, your task is to determine how you could minimize the level of conflict.
ACTIVITY/TASK
Chemists (drug stores) and Supermarkets
Pharmaceutical (drug/medicine) companies make a broad range of products. Some must be sold via chemists/pharmacies (such as medicines), whereas some can be sold in supermarkets (such as headache tablets). Obviously, supermarkets offer significantly greater sales potential. This channel conflict challenge revolves around the distribution of a range of popular vitamin tablets. Traditionally, they have been sold only in chemists. However, as the overall market has become more health conscious, the major supermarket chains have approached the pharmaceutical firm, as they now want to also sell this product.
The chemist’s channel is not happy with this news. Obviously, the supermarket chains are in a position to under-cut them on price, which would mean that they would lose this profitable product line, as well as a number of their customers who only visit a chemist to buy this product. Therefore, the chemist’s channel has indicated to the firm that they want to keep their exclusive arrangement in place; otherwise they will be less willing to distribute the firm’s range of other products (that is, medicines).
Insurance Companies
Traditionally, most insurance products have been sold via agents and brokers. However, with the advent of call centers and the internet, it has become easier for insurance companies to sell their products directly to end-consumers. Clearly, by dealing direct and not paying commissions, the insurance firms can usually offer their products at much cheaper premiums. Naturally, insurance agent/brokers are not very happy with this situation.
The initial challenge for the insurance company is that most of their sales are achieved through insurance agents/brokers. These distributors find and sell to the customer and place the business with the insurance company. If they became unhappy with a particular insurance company, they would simply stop placing any business with them. Therefore, how could an insurance firm start selling insurance directly to end-consumers without upsetting their traditional (and very important) insurance agent/broker channel?
Franchisee Conflict
Sometimes there is conflict between the various franchisees of different Burgers Galore stores. One example of this is in regards to price setting. This occurs because all franchisees are free to set their own prices (as per Australian law). The franchisor does publish a list of recommended prices, but the franchisee is not obliged to follow.
The recommended price for a kid’s meal is $4.99, which most stores follow. However, one franchisee in a city location charges $7.99. Their rationale is that they do not get many children in the store and they want to discourage these sales. Other franchisees complain – as some of the customers in the city store are also parents, and will be less likely to take their children to a suburban Burgers Galore store on the weekend (as they will think that kid’s meals are $7.99 in all stores?
QUESTIONS
How would approach/resolve each of the above situations?
How often, do you think, that channel conflict occurs in real business life?
If it is common, then is it worthwhile for some firms to minimize the number of channels that they use?
What type of firms/products would benefit from using many different distribution channels?
1. How would approach/resolve each of the above situations?
In order to resolve such scenario a joint meeting with Super market, chemists and company needs to arranged where representative of each party should be present so that they can share their issues and can therefore further reach to agreement that Supermarket can sell only limited generic item for which no expertise of medicines or vitamins is needed and Chemists will sell those drug for which understanding of medicines is required including Vitamines. Company can use and offer rewards to chemist if they choose to sell vitamins product also so that Chemist can be get motivated to sell all such products further company may also agree to offer product on same price for which it will be sold by super market so that they sell these products. All of these are strategies to retain important channel partner.
Insurance agents are important part of insurance business, however as for company in order to sustain in the world of competition it is important for the company to explore different mode through which company can increase its sales and therefore company can call all insurance & brokers agents meeting where they can motivate insurance agents to sell their policies and acknowledge their efforts in making their business successful and may advise for some bonus if they exceed "n" number of sales in a month/quarter, this will help agents to make them more happy and also to achieve more however in addition to this, company can also inform them that in order to survive in the world of competition it is important for the company to look for other sources to sell their product as they have noted through their surveys that some of the customer does not want to meet insurance agents, this may be due to their business schedules or lack of interest and only for such customer company have decided to sell their policies through online mode and through their corporate call center, so that company can capture such market as well and not loose on such customer.
Only way to approach such situation is to guide and educate customer. All franchisees who are complaining of such situation can request franchisor to make a website where the list of all franchisees with their location is listed with all the menu items and their price and further also run a campaign/advertisement to educate customer on the product and prices, they may communicate that our different store offer different products and they have unique selling strategy and therefore it is advisable for customer to visit our website or store to know more regarding prices of our product and services for our different outlets.
2. How often, do you think, that channel conflict occurs in real business life?
Very often i will say, all of the situations which are listed in the case are quite relatable to current life situations and this shows that where there are multiple channel it is bound to have multiple perspectives and opinions hence it becomes quite normal to have situation where their will be conflict and it is for the companies best interests to resolve those conflict as soon as possible.
3. If it is common, then is it worthwhile for some firms to minimize the number of channels that they use?
No, in the era where we live currently, it is important for companies to use all channel through which they can sell their products as company cant take chances not to sell their product or service through one mode of channel because in case if they decide to do so they might loose a huge chunk of customer base which will definitely not beneficial for company growth, as one decision can ruin the company future.
4. What type of firms/products would benefit from using many different distribution channels?
In my view following are the products that will benefit if they choose to use different distribution channels
Channel Conflict Challenges This activity highlights several common channel conflict situations, across three different...