[MUSIC] Nice to see you again. No matter how well channels are designed and managed, interest of independent business entities do not always coincide. So conflicts among channels emerge as a logical consequence of company's growth and maturity. There are three stages in channel development. The first one is growth. Channels may grow organically, means with subsidiaries, their own sales force, or stores, or inorganically, for example, through acquisition to achieve penetration. The objective in this stage is to grow, grow and expand, to achieve maximum market coverage. Until overlapping among different channels appears, and conflicts begin to arise. The next stage is a rationalization. In this second phase, we put order. We establish different criterias to keep the best channels, and we get rid of those that are not among the top performers. And the final one would be consolidation. If you're growing organically, a first source of conflict appears when you have to rationalize the network. To minimize conflict, we must establish clear criterias to define boundaries among different channels. So one would be, for example, geographical or territorial exclusivity, no? A certain branch, agent, representative, that has exclusivity over a certain territory, for example, McDonald's franchises. There can be also segmentation by product. The exclusivity is given based on product lines. In some industries than in other ones, for example, if I am in Group. You may reach an agreement to say okay, you will be distributing, or you will have a franchise of and you will have another one for retail. We can also segment by industry. Customer segmentation is based alongside different industries. For example, financial sector, government and health, far moving consumer groups, there are many of them. If for segmentation could be sized, customers are served in different units depending on the size of the customer. So we can have global accounts, large accounts, small, medium enterprises and individual consumers. Channel conflict is generated when one channel member's action prevents another one, another channel from achieving its goals. And also channel members depend on the other, they often act alone in the short-term best interest. And they often disagree over goals, goals and rewards, and generate channel conflict. So there are several type of conflicts. For example, horizontal, that is among firms in the same level of the channel. So for example, if I am a pizza chain, no, I may be complaining about others, cheating with ingredients, for example, or that they are not providing a good service. There is the vertical conflict between different levels in the same channel. For example, when the group Estee Lauder, when they decided to launch in their website not selling Clinique products, the department stores decided to reduce their sprays for Estee Lauder products. And the third one would be multichannel, when a manufacturer has established two or more channels that sell the same market. So for example, we talk about Goodyear, the tires. They can be selling, for example, through major retailers, and this can injure to the independent dealers. So there are also several causes of channel conflict. The main ones are goal incompatibility, unclear roles and rights, differences in perception, and the intermediaries' dependence on the manufacturer. So managing conflict is important. Some can be constructive and lead to a better adaptation and to changing the environment. But too many of them are dysfunctional. So the challenge is not to eliminate, but to manage these conflicts better. So there are some mechanism we can use to manage the conflict. I'm going to point out just some of them. For example, would be the strategic justification, no? You justify why to serve different segments, so then you may even develop different products. Or dual compensation, I pay the existing channel for the sales made through the new channel. Or can be an employee exchange, or where we can go into, for example, into diplomacy, mediation, arbitration. And the last one, of course, should be the legal course. But I would like to talk about channel coordination, that this occurs when channel members are brought together to advance the goals of the channel. Having a clear leadership and willingness to cooperate are some of the main keys. So in the next class, we will learn about the channel cooperation. That's why we'll understand trade marketing, and why it has become so important and how channels now are evolving from being client to partners of the manufacturer. [MUSIC]
