Channel Conflict: Horizontal & Vertical Conflict
- 0:05 Channel Power
- 2:54 Horizontal Conflict
- 3:54 Vertical Conflict
- 4:55 Lesson Summary
A marketing logistics plan can have channel conflict. This occurs when channel members do not agree with pricing, distribution or even logistical operations. The channel members ultimate goal is to create a comprehensive channel partnership to eliminate any conflict and drive product efficiently to consumers.
Everyone wants power! Power can be used to influence people, maintain control and even force decision-making. In marketing channel development, certain members of the channel have more power. Channel power is when a certain marketing channel member controls or influences the behavior of other channel members. A powerful channel member is usually a manufacturer or a retailer. The channel leader or channel captain is the member who assumes channel leadership and exercises authority and power. In the local metropolitan area, Cheap-Mart is the perfect example of a channel leader. They have the ability to control the retail price, inventory and post sales follow up.
Not all channel relationships are smooth in nature. Traditionally, channel members have difficulty agreeing. Channel conflict is when there is a clash of goals and methods between distribution channel members. Some conflict can actually be good for the overall marketing channel relationship. For example, Cheap-Mart does not accept retailers' practices of offering in- store coupons. They only will stock the lowest prices and demand the price-cut without having customers use coupons. The Cheap-Mart demand actually benefits consumers in the long run, as it saves them time and money.
Channel conflict can also occur because of conflicting business goals. For example, Cheap-Mart wants to sell as much candy as possible due the Halloween season. The retailer does not care if it's Sugar Rush, Hershey, Mars or Willy Wonka branded. Whereas, the individual channel member manufacturers do care who gets the best shelf space and the most support from Cheap-Mart.
Another area of conflict that can occur is when one channel member fails to fulfill expectations of another channel member. This can happen due to communication issues or not following member guidelines. For instance, Cheap-Mart believes that their customer is always in the right, and they also offer a very generous return policy. The manufacturers do not like getting large product returns. Since Cheap-Mart is the channel leader with the most power, the manufacturers have to play by Cheap-Mart's rules or not have their products stocked. This, in turn, would result in a huge loss of sales since Cheap-Mart is the largest retailer in the area.
There are two distinct types of channel conflict that can occur in the marketing channel system. Horizontal conflict happens with channel members who are on the same level, such as two different retailers who both stock the manufacturer's product line. The stores Save Value and Cheap-Mart both carry Sugar Rush's candy line. Save Value believes that Sugar Rush offers Cheap-Mart special deals on their candy that they don't have access to. For example, at Halloween, Cheap-Mart got special pumpkin flavored candy treats in an extra-large value bag for the price of $9.99. Sugar Rush did not offer Save Value the same product selection. In order to pacify Save Value, Sugar Rush had to create a popcorn flavored value bag with the same price offering. This type of channel conflict is usually viewed as healthy because it keeps competition fierce and equal.
The second type of channel conflict is called vertical conflict and occurs when problems develop between different levels of marketing channel members. Examples would be if a problem occurred between a manufacturer and retailer, or a manufacturer and wholesaler. Sometimes a producer can decide to bypass the wholesaler and sell directly to the retailer or consumer. An example would be if a large technology company who sold their tablets to Cheap-Mart decided to also build their own store and offer their product in the same shopping plaza. This could easily cause an issue between the retailer and the manufacturer.
Another example of vertical conflict that can occur between the retailer and manufacturer can revolve around pricing and profit. Sugar Rush Candy Company decided to offer standardize pricing to all their customers. Cheap-Mart was used to getting the lowest price and felt that it hurt their competitive edge in the marketplace.
The end goal of marketing channel relationships should be channel partnering. This occurs when there is a combined working relationship between all the partners to create the best value for consumers. A marketing plan must be able to deliver products to consumers despite the development of any channel conflict, whether vertical or horizontal in nature.
Chapters in Business 102: Principles of Marketing
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