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Distribution Channel Conflict Management: A Brazilian Experience Author Details Author 1 Name: Gabriel Sperandio Milan University/Institution: University of Caxias do Sul Town/City: Caxias do Sul Country: Brazil Author 2 Name: Eric Dorion University/Institution: University of Caxias do Sul Town/City: Caxias do Sul Country: Brazil Author 3 Name: José Alberto da Rosa Matos University/Institution: University of Caxias do Sul Town/City: Caxias do Sul Country: Brazil Corresponding author: Eric Dorion Corresponding Author’s Email: edorion@ucs.br Acknowledgments (if applicable): n/a Biographical Details (if applicable): n/a

Structured Abstract: Purpose: The paper aims to identify the mechanisms adopted by the distribution channel of a leading

Brazilian truck manufacturing company which generates various conflicts that have a negative impact on the performance of the

channel operations, with a focus on its causes. The study aims to expand the domain of distribution channel conflict management as

a benchmark activity by exploring the potential sources of conflict occurring in a major Brazilian distribution channel.

Design/methodology/approach: The research method is exploratory, using a case study from a major company of the automotive

sector of Serra Gaúcha, Brazil. The distribution processes are analyzed in a real and specific context, implemented by means of

individual in-depth interviews, with the application of a basic script of questions.

Findings: The findings indicate the existence of seven potential sources of conflict and twenty-three conflicting issues, considered

relevant and of negative impact on the distribution channel performance of the manufacturing company.

Research limitations/implications: The sample cannot be considered as representative but it is to a certain point reliable because

it refers to one and only entity.

Practical implications: The results of this research can serve as indicators for the managers of a company to invest time and the

necessary resources for the maintenance and the consolidation of the relationships with its dealerships.

Originality/value: The present work shows its originality through the study of consumers’ preference for determined products and

services as a conflict management basis for Brazilian national distribution channels stakeholders. In this context, a distribution

channel conflict case study may constitute an important empirical source of data for a benchmark strategy. Keywords: Brazilian manufacturing; distribution channel; conflict management; organizational performance; benchmark strategy. Article Classification: Research paper

For internal production use only Running Heads:

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DISTRIBUTION CHANNEL CONFLICT MANAGEMENT:

A BRAZILIAN EXPERIENCE

STRUCTURED ABSTRACT

Purpose: The paper aims to identify the mechanisms adopted by the distribution channel of

a leading Brazilian truck manufacturing company which generates various conflicts that

have a negative impact on the performance of the channel operations, with a focus on its

causes. The study aims to expand the domain of distribution channel conflict management

as a benchmark activity by exploring the potential sources of conflict occurring in a major

Brazilian distribution channel.

Design/methodology/approach: The research method is exploratory, using a case study

from a major company of the automotive sector of Serra Gaúcha, Brazil. The distribution

processes are analyzed in a real and specific context, implemented by means of individual

in-depth interviews, with the application of a basic script of questions.

Findings: The findings indicate the existence of seven potential sources of conflict and

twenty-three conflicting issues, considered relevant and of negative impact on the

distribution channel performance of the manufacturing company.

Research limitations/implications: The sample cannot be considered as representative but it

is to a certain point reliable because it refers to one and only entity.

Practical implications: The results of this research can serve as indicators for the managers

of a company to invest time and the necessary resources for the maintenance and the

consolidation of the relationships with its dealerships.

Originality/value: The present work shows its originality through the study of consumers’

preference for determined products and services as a conflict management basis for

Brazilian national distribution channels stakeholders. In this context, a distribution channel

conflict case study may constitute an important empirical source of data for a benchmark

strategy.

Key-words: Brazilian manufacturing; distribution channel; conflict management;

organizational performance; benchmark strategy.

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1. Introduction

The aspects and the trends that influence consumers’ preference for determined

products and services have an impact on the issues related to distribution channel

management (Frazier, 1999), which are also called marketing or distribution channels.

Those channels are interdependent organizational networks involving the necessary

activities to dispose of products and/or services, from the manufacturer up to the proper

consumer (El-Ansary; Stern, 1972; Stern; El-Ansary; Coughlan, 1996; Rosenbloom, 2003;

AMA, 2007). It is important to mention that a distribution activity is one of the four main

strategic decision areas of a company and, in relation to its marketing composition; it

includes the decision areas of product/service, price and communication.

After the composition of a distribution channel, changes are generally more difficult

to be implemented than other strategic decisions, such as the alterations in prices and the

modernization of lines of products and/or services (Stern; Sturdivant, 1987; Kotler;

Armstrong, 2007). Such difficulties elapse from the proper nature of a distribution channel,

where the integration of various independent companies creates a network of relationships

(personal and inter-organizational), with rights and obligations that cannot arbitrarily be

modified, based on rigorous legal and contractual control.

Although a distribution channel is initially formed by economic interests, it is not

restricted to this dimension only, since any competition does not only occur between the

organizations. It may also occur between the channel systems (Rosenberg; Stern, 1970) and

incorporate the inter-organizational social aspects from where may appear any

compartmental conflict dimension, which must be duly managed not to provoke negative

effects on the global performance of the channel (Rosenbloom, 1973; 2003; Singh, 2006).

As an external resource, distribution channels are constituted of significant

corporate commitment from each participating company. They are considered as important

as the internal resources, which pre-suppose lasting long term relations that take years to

consolidate (Corey, 1991). Those channels involve behavioural systems between firms that

must operate in an integrated way, creating synergy in search of efficiency and

competitiveness (Rosenberg; Stern, 1971).

For international manufacturers, each case may constitute an important benchmark

process, due to its rich endogenous data which is not usually perceivable from standard

research procedures.

2. Conceptual Background

2.1. Performance of a distribution channel

The American Marketing Association (AMA) establishes channel performance by

result evaluation, which may be done through various dimensions. Firstly, the dimension of

effectiveness based on how well a channel responds to the necessities and desires of its

customers. Secondly, the dimension of efficiency, referring to how well a company

minimizes its costs related to the functions and the execution of the channel. Thirdly, the

dimension of productivity, which is mainly based on the Internal Rate of Return (IRR) of

the channel but not only including the financial aspects; and finally, the dimension of

profitability, which refers to the economic performance of the channel (AMA, 2007).

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Although, the performance of distribution channels tends to be evaluated under

financial aspects (Gaski, 1984; Singh, 2006), there is an increasing argumentation in the

literature in favor of the complementary use of non financial measures. Brashear et al.

(2007) reviewed the main approaches of performance evaluation from the literature and

suggest a typology of evaluation models, based on financial and non financial measures.

They group them in five categories: strategic, client-buyer, operational, relational and

financial. Table 1 shows this classification and presents that the main studies of the area

have evaluated performance mainly through economic measures.

Table 1: Typology of evaluation and measurement of performance in distribution channels

Categories Evaluation dimensions

Strategy Adaptation of each dealership, contribution to growth, strategic

performance and competitive advantage.

Client-Buyer Customers’ satisfaction, sales performance, perceived satisfaction,

customers’ retention and net profits.

Operational

Allocation and delivery of vehicles, payback of guarantees, relative

performance of the dealerships, supply management, ability of the

dealerships, efficiency, relative rate of error, assistance between the

companies, rate of prescribed deliveries, conformity of the dealerships,

quality of the advice of the representatives of the manufacturer and

percentage of acceptance.

Relational Cooperation of the representatives of the manufacturer, coordination,

loyalty of the dealerships, satisfaction and commitment.

Financial

Generation of demand from the manufacturer, performance in sales,

sales objectives, sales contribution, lost sales, sales growth rate, net

sales, total margin, costs of sales and services, commissions, profit

contribution, return on investments, costs of supply, economic

performance, performance in profit, effectiveness, end of period supply.

Source: Adapted from Brashear et al. (2007).

2.2. Conflicts in distribution channels and their possible sources

Conflicts are inherent, inevitable and are widely spread out in channel systems due

to the constant interaction and interdependence of its stakeholders in a search for mutual

objectives (Stern; Sternthal; Craig, 1973; Gaski, 1984; Singh, 2006; Koza; Dant, 2006;

2007). Many times and to a certain degree, they are beneficial for the reinforcement and the

upgrade of joint business actions (Coughlan et al., 2006). In another perspective, conflicts

are defined as a situation that occurs when a channel stakeholder has the perception that the

actions of another one show a committed behavior in preventing or not allowing the

accomplishment of its proper goals or the effective performance of its standards of behavior

(Etgar, 1979; Stern; El-Ansary; Gaski, 1984; Hunt, 1995; Rosenbloom, 2003). Conflicts

can have a positive, negative or neutral effect on the efficiency of a channel (Rosenbloom,

2003; Coughlan et al., 2006). On one hand, a highly conflicting channel can portray an

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active and engaged channel with functional conflicts, which must be managed accordingly.

On the other hand, an indifferent and very passive channel can, in reality, be hiding great

differences in motivations and intentions (Coughlan et al., 2006). Therefore, an efficient

conflict management process in distribution channels is a key factor that contributes to the

success of a long term relationship between the stakeholders (Koza; Dant, 2006).

In fact, a channel’s stakeholders must fulfill three basic stages to deal with channel

conflicts: (i) to detect them; (ii) to evaluate their effect; and (iii) to solve them; which does

not necessarily mean a radical conflict elimination but an effort to maintain the channel’s

efficiency. In some cases, companies may have to increase the level of conflict in the

proper channel (Rosenbloom, 2003), due to the fact that in a strategic management

approach, intrinsic relationships within the channel may generate sustainable competitive

advantages in relation to its competitors, generating performance improvements and mutual

benefits.

Inter-channels conflicts can be grouped, in essence, in seven possible causes, which

are: (i) role incongruence; (ii) lack of resources; (iii) differences in perception; (iv)

differences in expectation; (v) disagreement in the decision process; (vi) incompatibility of

objectives; and (vii) difficulties of communication (Rosenbloom, 2003). The incongruence

of roles refers to the inadequate performance of the aspects defining how should be the

stakeholders behavior in a channel. If a member does not act as prescribed by the

determined functions and expectations of the channel, or in the case where there would not

be a clear definition of the roles or of the understanding on how it should be defined, a

situation of conflict may arise. Various authors recognize that the incongruence of roles is

one of the main causes of intra-channel conflict (Pondy, 1967; Stern; Heskett in Rosenberg;

Stern, 1970; Etgar, 1979; Neves, 1999; Rosenbloom, 2003; Kotler; Armstrong, 2007;

Kotler; Keller, 2009). For them, the lack of resources or the competition itself refers to any

discord that may occur between the members of a channel, in reference to the allocation of

the necessary resources to achieve its goal. The term “resource” does not restrict itself only

to financial matters, but it refers to any internal resources of the proper channel. Such

situation happens when demands for resources from the channel exceed its availability

(Pondy, 1967; Etgar, 1979; Neves, 1999, Rosenbloom, 2003).

Referring to the stakeholder’s view on performance, the differences in reality

perception refer to the interpretation of the stimulus from the environment. Such stimulus

can be perceived in various ways by the channel stakeholders. Firstly, dealerships tend to

see the competition only in a local perspective, giving little importance to the markets

where they do not operate. Secondly, manufacturers tend to see the competition under a

more broaden perspective, considering the macro-implications of the competition and

demand (Etgar, 1979). Various authors perceive perception differences as an intra-channel

potential source of conflicts (Rosenberg; Stern, 1971; Etgar, 1979; Neves, 1999;

Rosenbloom; 2003; Coughlan et al., 2006; Kotler; Keller, 2009). Furthermore, expectation

differences refer to the expectative that the members have about their behaviour and the

attitudes of other members of the channel, considering that they take decisions and base

their actions on their proper expectations. A conflict can appear in a case where an expected

behavior does not occur (Etgar, 1979; Neves, 1999; Rosembloom, 2003). In this context,

discordance relates to the areas of performance and decision that the members of a channel

consider, explicitly or implicitly, to be of its own reach. In other terms, it is a dispute

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between autonomy and control, where from one side, a member tries to acquire control, and

of the other side, where another member fights for its autonomy and independence (Pondy,

1967; Rosenberg; Stern, 1971; Etgar, 1979; Rosenbloom, 2003, Coughlan et al., 2006). The

incompatibility of objectives and goals is based on the individual objectives of the

participants of a channel which are divergent, incompatible, competing or mutually

exculpatory between them, considering that the organizations base their decision process on

those criteria. It is demonstrated in the literature, from a point of view of intra-channel

conflict, that when the parties are forced to cooperate, they do not achieve consensus or and

will pursue different objectives and goals (Pondy, 1967; Rosenberg; Stern, 1970; 1971;

Etgar, 1979; Brown; Day, 1981; Neves, 1999; Rosenbloom, 2003, Coughlan et al., 2006;

Kotler; Armstrong, 2007).

One other aspect studied by Rosenbloom (2003) refers to communication

difficulties. As communication is considered as the vehicle for inter-channel interactions

(Mohr; Nevin, 1990), such process inefficacy can create confusion, incorrect disagreements

and frustration. Any positional differences can reflect in losses of communication and

differences of availability, method and capacity of processing the information. Those

situations may appear from a constant exchange of information between the members of a

channel, considering that information exchange remain essential in a decision making

process and also influences the behavior of the members of the channel (Rosenberg; Stern,

1970; Etgar, 1979; Neves, 1999; Rosenbloom, 2003).

In addition, other sources of intra-channel conflict have been identified from the

literature. Rosenberg and Stern (1970; 1971) and Brown and Day (1981) refer to a positive

correlation between the conflict and the dissatisfaction of a member of a channel with the

performance of another member. The level of satisfaction of an intermediate stakeholder of

a distribution channel varies with the level of existing conflict, concluding that without a

conflict incidence, the satisfaction level is low; with a level of natural conflict, the

satisfaction level is higher than from its absence; and also that when a conflict level is

perceivable and obvious, the satisfaction level diminishes significantly (Schul; Babakus,

1988; Dant; Shul, 1992; Gaski, 2004). It is important to mention that channel conflict tends to appear when it involves

disputes on subjects, considered important for its members, such as the maintenance of

levels of supply, discounts in sales, sales for proper or exclusive store of the manufacturer,

policies of representation and pricing (Stern; Sternthal; Craig, 1973), and when a distributor

may represent other major competitors of the supplier (Webster, 1976).

2.3. Conflict effects in channel efficiency

The evaluation of the effect of conflicts in distribution channels still tends to occur

in a conceptual level for organizations’ managers (Rosenbloom, 2003). Although, it is

encountered a reasonable quantity of studies on channel conflict and its relation with

efficiency and their real impact on organizations has received little attention (Singh, 2006).

In a channel perspective, conflicts can have dysfunctional effect and be fatal (Rosenberg;

Stern, 1970; Pondy, 1967), especially when their members do not recognize their common

objectives or create a closed coercive system (Assael, 1969). For example, the

incompatibility of objectives and goals and the dispute for resources can lead the

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stakeholders to engage in behaviors focused on the others, causing confusion and

frustration with the final consumers (Webb; Hogan, 2002).

Although conflicts may have destructive consequences, its complete absence would

be dysfunctional, or else, a sensible or “adjusted” level of conflict that can be considered

functional (Rosenberg; Stern, 1970; Stern; Sternthal; Craig, 1973; Singh, 2006; Kotler;

Armstrong, 2007). Consequently, the literature recognizes that any excess or absence of

conflicts can obstruct the effectiveness of a channel (Dommermuth, 1976) and its effect can

be either functional or dysfunctional (Lusch, 1976a and b; Anderson; Narus, 1990; Brown;

Day, 1981; Hunt, 1995). Functional conflicts occur when their consequences give origin to

long term benefits for the stakeholders of the channel; generating new solutions and

resolving divergences in a friendly manner or stimulating creativity and innovation

(Anderson; Narus, 1990; Morgan; Hunt, 1994; Hunt, 1995). Then, the consequences of a

conflict will determine if it is being beneficial, or not, for its members (Rosenberg; Stern,

1970).

In that sense, Frazier (1999) affirms that a raise in conflict levels can lead to an

increment in channel performance. Rosenberg and Stern (1971) point out that a functional

conflict can produce a sense of unity in a channel, while Rosenbloom (1973) comments that

it even can impact on the re-evaluation of the effective channel policies.

2.4. Conflict resolution in distribution channels

Instead of eliminating a conflict in a context of distribution channels, the best would

be to understand its process which could be managed to increase the unity and the

effectiveness of the channel as a whole. Such management implies a close coordination

between the members of the channel (Rosenberg; Stern, 1970) and requires the ability to

understand and to control the process of conflict resolution (Koza; Dant, 2006). Therefore,

companies must consider in which aspects they must be stiffer, or flexible, in their decision

process, considering that both positions have its inherent cost and implication.

For Deutsch, in Frazier and Rody (1991), an open sharing informative context

would allow each party to better perceive what the conflict issues are, and to have a more

understandable and detailed look at the problem; defining and evaluating it more precisely.

In that sense, Etgar (1979) affirms that conflict resolution mechanisms, based on the

elimination of perception bias and communication inconsistencies, are most important

because they can reduce problems’ causes, level and intensity before spending more

resources to resolve structural differences between the members of the channel.

In an organizational context, the implementation of communication programs aim at

the supply of additional and clearer information for the stakeholders of the channel, such as

role expectations, objectives and future projections; which can substantially reduce channel

conflicts, considering that the differences can arise from a lack of or a bad communication

and differences in their capacity to process information. This can generate divergence in the

expectations of the members’ roles and their perceptions (Etgar, 1979). However, if the real

positions of each party should be opposed, an opening in the communication process would

consequently exacerbate the existing conflict (Pondy, 1967). Schul and Babakus (1988)

detach that the development and the implementation of participative decision programs for

the leader and member organizations of the channel can reduce conflict possibilities; can

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increase the acceptance of its policies and programs, cooperation and commitment between

the parties in relation to the objectives of the system.

In general terms, there are two conflict resolution method basic categories. The first

one consists in institutionalized mechanisms, representing systematically implemented

policies for channel leaders. The second one consists in underlying activities that appear in

the absence of institutionalized mechanisms (Dant; Schul, 1992). Coughlan et al. (2006)

also detach two ways from which the organizations can face channel conflicts. Either with

institutionalized mechanisms, which treat channel conflict in its initial period; or before the

proper conflict appear, by giving distribution advice, staff interchange programs and

intensive information mechanisms; or also through the implementation of behavior

standards that cannot simply be created by anyone, considering that they must include

flexibility, exchange of information and solidarity.

Furthermore, March and Simon, in Dant and Schul (1992), claim that organizational

reactions for conflict resolution occur by means of four specific behavior processes:

problem resolution, persuasion, negotiation and policies definition.

In a problem resolution process, the parties which share a common objective

involve themselves in a high risk integrated process to identify solutions that may satisfy

both. The focus resides in an open information collection and trade of goals and priorities,

tolerance, behavior and search of new alternatives. In a persuasion process, each party tries

to modify the perspective or the decision criteria of the other party in relation to a specific

subject. The intention is to reduce the differences between the secondary objectives

stipulated by the common goals. It differs from a problem resolution approach of the

existence of previous persuasive intentions, even though both parties have a coordinated

orientation, but less pronounced, and that can still include zero-added orientation behavior.

In a negotiation process, there are no expected objectives and common goals.

Disagreements on objectives and goals are clearly recognized. Such behavior generally

includes low risk, high inflexibility, no concession, threats, promises and games; even

though, this includes a call for justice and shared values. As in the persuasion strategy, it

differs clearly from the other because of its zero-added orientation. Finally, in regard to

policy definition, there is an assumption of disagreement on the objectives and goals and a

zero-added orientation, even though every party shows a low level of negotiation

behavioral aptitudes. In this approach, the parties extend the negotiation enclosure to third

parties. This strategy presents signals of weakness from the parties in reaching an

acceptable solution through interpersonal scheme. Thus, the search for arbitration or

mediation demonstrates non integrated and low risk behavior (Rubin; Webb in Dant; Schul,

1992).

In a different approach, when evaluating the effectiveness of two conflict

management processes in distribution channels, Stern, Sternthal and Craig (1973) have

concluded that between the introduction of a main objective and staff exchange program,

the last one would have a stronger effect. A main objective relates to the introduction of a

common intention, much desired by the members involved in the dispute, demanding

participation and equitable contribution between the parties.

Chopra and Meindl (2001) believe that existing conflict management must enhance

communication and the overcoming of the differences between the parties, creating more

confidence between them. A formal specification of the roles and directives would help to

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establish confidence since it would facilitate the exchange of information. In a long term

period, it would help to transform the relations based on restrictions (contracts) and to

transform them into relations based on processes, where the interactions throughout time

fortify confidence and cooperation, and where conflicts are more easily managed. The

realization of frequent and periodic meetings between the parties facilitates communication,

the reach for high level solutions, propitiating involvement and questioning before major a

conflict occur. In a more practical perspective, the model of food distribution planning

proposed by Neves (1999) possibly can be adapted to other contexts. According to the

author, the most adequate forms of conflict management include: (i) sensitive training,

where are enhanced the most potential areas of conflict; (ii) task division, by means of

relation marketing practical; (iii) joint establishment of objectives and goals, where all the

members of the channel are involved; (iv) implantation of the channel committee, where

periodic meetings for problem questioning and decisions monitoring and; (v) conciliation,

through the intervention of an ombudsman. As a possible alternative, the presence of an

ombudsman has shown of great utility in a conflict resolution process.

In Brazil, the retail group Pão de Açúcar is a pioneer in such use. Acting with

independence and authority to resolve the conflicting matters, the ombudsman acts as a

facilitator in an approximation process between the parties and for the creation of an

organizational culture focused on quality, watching over the rights and the expectations of

the customers (in this case the distributors).

2.5. Case study as a benchmark strategy

The activity of benchmark is widely being used to understand better what is

happening in the productive and business markets. The main objective of such activity is to

obtain a better reading on a specific business situation, either for competitive or strategic

reasons. Such activity may be realized on a regional, national or international scale. Xerox

Corporation is one of the pioneers to practice benchmark activities among American

companies. Robert Camp, the logistics engineer who initiated Xerox’s benchmarking

program and who is generally regarded as the pioneer of the benchmarking practice, offers

a clear definition, “Benchmarking is the search for industry best practices that lead to

superior performance” (CAMP, 1989). It is a management tool that integer research

systematic processes relating to operation procedures, innovation and best practices

enhances business strategies oriented toward better performance (BOGAN and

CALLAHAN, 2001). Steudler and Williamson (2001) base their thoughts on a World Bank

Report which presents some principles that lead to organizational performance, such as (i)

clear objectives; (ii) clear strategy; and (iii) monitoring indicators; and iv) results

evaluation. Furthermore, the European Benchmarking Co-operation (EBC) (2010),

considers that a benchmarking strategy aims at improving business processes, a search of

processes that never ends. Benchmarking is not a single action, but a continuous, cyclical

process.

Saunders; Mann; Smith (2007) believe that benchmarking practices enhanced for

quality improvement within a networking environment is a recent phenomenon. However,

Simatupang and Sridharan (2004) had mentioned, through their literature review, that in a

benchmarking activity case involving supply chain schemes, little attention was being paid

about the design of a benchmarking scheme based on network collaboration, where the

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joint activities of the chain members enable the network to be more responsive to

customers’ demands. One of the reasons is the lack of reliable method and performance

measurement system (Choy; Chow; Lee, 2007). Despite the clear indications on the

efficiency of such practice, single companies cases show a lack of efficient tools, using

endogenous methods, usually unstructured, to compare their business practices with other

competitors (BJORKLUND;2010).

Consequently, considering that benchmarking practices do measure company’s

products and processes, comparing them with successful firms’ indicators (Choy; Chow;

Lee, 2007), it is relevant to consider that a case study is an efficient way to do a benchmark

activity. In this context, a distribution channel conflict case study constitutes an important

empirical source of data for a benchmark strategy, not only for its business value, but also

for its exploratory relevance. The study of a national Brazilian case constitutes key data for

the positioning of an international manufacturer, taking into consideration the importance

of the national reality into an international perspective.

3. Method

The research is about an assembly plant of the automotive sector, which acts in

various segments of the metal-mechanic industry, with dealerships located over all the

Brazilian national territory. The distribution channel in study can be classified as a vertical

system of contractual distribution, where the manufacturer is the leader of the channel and,

the coordination and the integration between partners occur by the adhesion of each

dealership with a contract (Kotler; Armstrong, 2007; Kotler; Keller, 2009).

In relation to its structure, the channel has three levels: (i) the manufacturer and

leader of the channel; (ii) the intermediate, which are the dealerships and who compose the

network of dealers; and (iii) the final consumers. In relation to its intensity, the channel can

be considered as an exclusive distribution process, with various dealerships in each

Brazilian State. Although it deals with a generalization scheme, each dealership has a

specific and differentiated posture, which is relevant in this context of analysis. It is worth

mentioning that the distribution network of automotive vehicles in Brazil is strongly

regulated by laws, contracts and conventions1, demonstrating that this type of products can

only be distributed by means of commercial concession.

The main objective of this research is to identify the actions or mechanisms that

could be adopted by the leader company of the distribution channel in study, to manage

conflicts that impact negatively on its performance, with a focus on its causes. In this

context, were established three specific research objectives: (i) to detect the main themes on

existing conflicts between the channel partners; (ii) to evaluate the relevance and the effect

of those conflicts on the performance of the channel; and (iii) to consider actions or

mechanisms capable of managing such conflicts.

As an attempt to anticipate the possible outcomes of the study (Denzin; Lincoln,

2005; Malhotra, 2006), it was presumed the following assumptions:

– A1: it is possible that conflicts exist, latently or manifestly, in the distribution

channel in study;

1 For more details, consult: Brazilian Law 6.729/79 altered by Brazilian Law 8.132/90.

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– A2: it is supposed that the channel in study presents insatisfaction between its

stakeholders as a potential source of conflict;

– A3: it is supposed that the conflicts in the channel in study have a negative impact

on its performance;

– A4: it is considered that viable conflict management actions or mechanisms, if

implemented, will lead to an upgrade in channel efficiency.

The present work has opted for a qualitative approach, which characterizes itself as

an exploratory study, using in-depth interview techniques (Denzin; Lincoln, 2005; Flick,

2008), by means of a case study. In this context, Gummesson (2006) defends that a

qualitative approach is superior to a quantitative approach in the way to access the non

linear aspects of phenomena, accepting their complexity, context and the effect of

behavioral characteristics of the participants through a holistic vision. Consequently, this

approach is considered adequate for the study of the relationship management between the

manufacturers and its dealerships in a context of distribution channels (Bonoma, 1985;

Eisenhardt, 1989). In total, eight people were interviewed, four participants from the

dealerships and four participants from the manufacturing company. The participants were

chosen by criterion of judgment or intentional (Gaski; Ray, 2004). The selection criteria for

the participants of the manufacturer were: (i) to act in departments that interact constantly

with the dealerships; (ii) to have a constant relationship with the dealerships; (iii) to have

knowledge of possible existing disagreements in the channel; (iv) to personally know most

of the executives of the dealerships; (v) to have a broaden knowledge of the distribution

functions in study; (vi) to be in an executive position that conferred the representation of

the interests of the manufacturer and of the dealerships; (vii) to have at least three years of

permanency at the manufacturer; and (viii) to have personal characteristics that enhance a

tendency to speak out about the channel’s problem.

In relation to the selection of the participants from the dealerships, three participants

were from the dealerships and one from the trademark class type association. The selection

criteria were: (i) the market where the dealership is has to be significant, meaning that the

participant have to be in one of the ten most important places in Brazil in terms of sales

volume; (ii) the dealership must have been a member of the channel for at least five years;

(iii) the dealerships have to occupy different sales positions, based on the A/B/C sales curve

(invoicing volume) for the year 2008; (iv) the participants should have either occupied a

key position and have knowledge of the channels activities and problems; (v) the

participants should occupy an executive position at the dealership and have a decision

authority on the issues of disagreement with the manufacturer; and finally (vi) the

participants should have personal characteristics that enhance a tendency to speak out about

the channel’s problem.

4. Analysis and Results

In this research, were realized in-depth individual interviews followed by content

analysis techniques, as proposed by Bardin (2004) and Flick (2008), giving exhaustiveness,

representation, homogeneity and relevancy in the research process. The conflicts brought to

evidence, from both the manufacturing company and the dealerships were identified in 23

concepts of conflict, linked to their potential source, as introduced in Table 2.

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Table 2: Channel main conflicts encountered

Conflict themes under the

angle of the manufacturer Encountered possible

conflict sources Conflict themes under the

angle of the dealerships

1. Fulfillments of the vehicle

sales goals

2. Dealerships’ propaganda

3. Dealerships vehicles in stock

4. Mechanics’ qualification

5. Installations: identification

and adequation

6. Dealerships’ parts in stock

7. Dealerships’ other businesses

8. Support to consortia

9. New segments: lack of

support and investment

10. Equipments and tools

Role incongruousness

Goals incompatibility or impediment

Lack of resources

Disagreement on decision domain

Difficulties in the communication

process

Differences in perception

Dissatisfaction between partners

1. Manufacturer’s propaganda

and promotion

2. Manufacturer’s vehicles in

stock

3. Manufacturer’s guarantee

4. Price of vehicles

5. Intolerance of

manufacturer’s accounts

receivable

6. Price of parts

7. Manufacturer’s after-sales

service

8. Manufacturer’s training

9. Vehicles market positioning

10. New products development

11. Dealerships identification

12. Manufacturer’s direct

contacts with clients

13. Focus on market niche

Source: Elaborated by the authors based on research data.

In the perspective of the participants pertaining to the manufacturer, the main

conflicts within the network of dealerships are about: (i) the achievement of the sales

objectives for the trucks, in the sense that the dealership network is not committed to reach

those goals; (ii) the marketing strategy, in the sense of passing this responsibility to the

dealerships network, considering that the manufacturer acts strongly with cooperative and

regional strategies and, considering it acts in specific market niches; it would not be

compatible to have a massive and general marketing strategy; (iii) the acquisition of

equipment and tools to allow an adequate technical and assistance service, considering that

the dealerships network do not want to invest in such equipments; (iv) the supply of trucks

at the dealerships, even though the manufacturer recognizes the inherent difficulties related

to the high costs of stocks; (v) the training of the mechanics, in the sense that the

manufacturer believes that the level of quality of the mechanics in the dealerships is low;

(vi) the proper installations of the dealerships, in the aspect of their adequacy, presentation

and identification as representatives of the Brazilian manufacturing trademark; (vii) the

supply of parts in the dealerships, being considered low or inadequate in its variety; (viii)

other activities in the dealership that deviate the focus from the full distribution of the

trucks; (ix) lack of support of the dealership in their participation in the Manufacturing

financing Company; and (x) the lack of support and investment from the dealerships in new

product segments.

On the other hand, in the perspective of the participants pertaining to the

dealerships, the main conflicts within the network of dealerships are about: (i) the sale

12

prices of the vehicles fixed by the manufacturer, considering that the price of the trucks

should be lesser than the current one, in virtue of the trademark perception differences in

the market; (ii) the lack of marketing strategies and promotions from the manufacturer,

considering that the manufacturer, contrary to the competition, did not develop objectives

that regard to the promotion of its products for the market, and nor does internal promotions

for the network to achieve its corporate goals; and (iii) the manufacturer’s warranties,

referring to the payment of services given to customers in their guarantee policy, which is

below the average amount paid by the competitors.

The revelation of those subjects of conflict confirms that it is possible for conflicts

to exist, latently or manifestly, in a distribution channel, ratifying a widely accepted

theoretical proposal that conflict is inherent to the relationships existing in the distribution

channels (Pondy, 1967; Rosenberg; Stern, 1970; 1971; Stern; Sternthal; Craig, 1973; Etgar,

1979; Gaski, 1984; Skinner; Gassenheimer; Kelley, 1992; Rosenbloom, 2003; Coughlan et

al., 2006; Singh, 2006; Koza; Dant, 2006; 2007; Kotler; Arsmstrong, 2007; Kotler; Keller,

2009).

The interdependence between the partners of the channel becomes obvious. It is not

possible to determine with precision until what point a conflict source is a cause of

disagreements and from what point it is caused by another source of conflict. Also, it is

possible to understand that one determined source of intra-channel conflict is, at the same

time, its proper cause and consequence.

In fact, up to what point the incongruence of roles is a cause of conflict, or is a

consequence of the differences of the participants’ perception of the reality, or else, is a

consequence of decision domain disagreements? In response, a conflict can be caused by

incongruence of roles, which can be originated by other source(s) of conflict, such as the

difficulty in the communication process and so on. The use of the typology developed by

Brashear et al. (2007) on performance evaluation of distribution channels helps to identify

the perceptions of the participants to possible conflicts, which affect channel performance.

The results show that conflict matters have a negative impact on the performance of the

channel, on its trademark image, on customers’ satisfaction, on the assistance between the

companies, on the business ability of the dealerships, on the channel stakeholders

satisfaction, on the coordination, on the volume of sales, on the economic performance and

on the demand generation of the manufacturer.

It is observed that the use of diverse approaches of evaluation on channel

performance is not, by itself, absolute. It occurs that the same dimension of performance,

subject to conflict, can be classified in more than one performance categories, as proposed

by Brashear et al. (2007). They can be classified in other dimensions such as the

operational one, where it involves guarantees refund request processes. Also, they can be

classified as relational, where it may affect coordination, loyalty, satisfaction and

commitment. Moreover, they can be classified as strategic, where the organizational

positioning established for service differentiation can have an impact on customer’s

satisfaction and retention.

The conceptual model proposed by Rosenbloom (1973) and extended by Singh

(2006) indicates that channel conflicts can have three types of effect on efficiency:

negative, null or positive. The performance of the channel can be evaluated in function of

distinct dimensions, including effectiveness, efficiency, productivity and profitability of the

channel (AMA, 2007) and strategic categories, such as client-buyer, operational, relation

and economic (Brashear et al., 2007). Consequently, the effects of a conflict are not the

13

same in all the dimensions of a channel performance at the same time. It is possible that the

effects of a conflict on channel efficiency are different depending on the dimension or

category of performance that is being evaluated.

In reference to the confirmation state of the assumptions of research, it was

previously recognized that all four assumptions were confirmed. This way, the first

assumption (A1) suggests that it is probable that conflicts exist, latent or active, within the

distribution channel. This assumption was confirmed that there are conflicts between the

manufacturer and the dealerships for the distribution of trucks on the national market. The

analysis and the interpretation of the empirical evidences have disclosed the existence of

twenty three conflict issues, including ten from the perspective of the manufacturer and

thirteen under the angle of the dealerships, ratifying then the widely accepted theoretical

proposal that conflicts are inherent to the relationships within distribution channels (Pondy,

1967; Rosenberg; Stern, 1970; 1971; Stern; Sternthal; Craig, 1973; Etgar, 1979; Gaski,

1984; Skinner; Gassenheimer; Kelley, 1992; Rosenbloom, 2003; Coughlan et al., 2006;

Koza; Dant, 2006; 2007; Singh, 2006; Kotler; Keller, 2009).

The second assumption (A2) admits that there is insatisfaction between the partners

of the channel, which is generated by conflicts. An important theoretical consideration

about the sources of conflict in distribution channel is widely recognized in the literature

about marketing channels. It is perceived that certain interdependence exists between them.

In fact, it cannot be determined with precision until what point a conflict source is the cause

of those disagreements and up to what point those disagreements are caused by (an)other

source(s) of conflict. Also, it is possible that one determined conflict source is, at the same

time, the consequence of an inter-channel conflict. Finally, conflicts can to be caused by

role incongruence, which can be originated from perception differences, or from any other

communication matters, such as the difficulty in the communication processes and so on.

The third assumption (A3) considers that distribution channel conflicts may have a

negative impact on distribution channel performance. Although not all conflict matters

were identified, nor studied, this assumption also was confirmed. Generally, all the

participants agree that the conflicts elements between the distribution channel members

have a negative impact on the channel’s performance. It is important to mention that

performance evaluation tools for distribution channels have still not been studied in detail

(Singh, 2006) and there are increasing theoretical and empirical affirmations about the use

of non-financial performance indicators to complement the financial measures of

performance (Brashear et al., 2007). However, such classification is valid when it allows an

anticipated analysis of how the channel is pretended to be evaluated, either in theory or in

practice. Moreover, this classification allows raising questions referring to possible effects

on channel performance. The conceptual model of Rosenbloom (1973), which was

extended by Singh (2006), indicates that channel conflicts can have three types of effect on

the proper efficiency of the channel: negative, null or positive. Already the performance of

the channel is an evaluation of its result, considering that it can be evaluated through

performance dimensions, such as: the effectiveness, the efficiency, the productivity and the

profitability of the channel (AMA, 2007) and the strategic categories, of the client-buyer,

operational, of relationship and economic (Brashear et al., 2007).

The fourth and last assumption (A4) suggests that there are viable actions or

mechanisms that can be used to manage conflicts, leading to enhance the efficiency of the

14

channel. The confirmation of this assumption is the essence of the response to the research

problem. It is considered that this assumption was also confirmed, in concordance with

what is argued in the next section, the managerial implications.

5. Managerial Implications

Considering that the manufacturer acts in a highly competitive market, whose

national competition includes the greatest players world-wide and, considering that the

distribution of its products and services can only be made by means of its truck dealerships

network, the conflict management in such network assumes a vital importance for the

maintenance and the raise in competitiveness of the channel as a whole.

Although the results coming from this research cannot be generalized, they can

serve as indicators for the managers of a company to invest time and the necessary

resources for the maintenance and the consolidation of the relationships with its

dealerships, acting in a conflict management perspective that includes the manufacturer and

the dealerships, to finally impact more directly on the performance of the company.

It is important to mention that the literature about distribution channels does not yet

offer enough significant principles, directives and empirical evidences to guide the decision

makers in an attempt to manage distribution channel conflicts, being limited at suggesting

some approaches and recommendations. Today, the evaluation of channel conflicts in the

organizations still occurs at a subjective level of channel control (Rosenbloom, 2003).

The conflict management proposals explored in this study are based on the generic

models of the literature and do not distinguish their use in a specific and determined

conflict. In that sense, the approach proposed in this research prioritizes the performance of

channel conflict management from its sources. This study identified the existence of a

specific Trademark Agreement, which has the responsibility to determine and communicate

the functions, rights and obligations of the stakeholders of the channel. However, it also

disclosed the existence of a certain obsolescence and recognition that many roles and

definitions of this Agreement are not being fulfilled, by both parties. Possibly, the

dynamics of the market may have imposed important changes in the relations, which were

not yet transferred to the agreements; generating a hiatus, which could to be filled by the

perceptions and the interpretations of the parties.

5.1. Joint establishment of objectives and goals

As for the sales objectives and goals of the dealerships, they must be established

together with more precision and clearly displaying the market information and the

techniques used for their achievement.

The creation of a systemic of attribution of goals, clear and transparent, which

discloses important information on the individual market of each dealership, and allows to

analyze its viability, as well as what are the conditions and necessary actions to make it

reachable and fundamental for the maintenance of commitment.

5.2. Stock financing adoption programs

15

Stock financing adoption programs represent the most difficult source of potential

conflicts to be managed, considering that it involves investments, generally expressive. In

this context, the adoption of a capitalization network plan, where an invoicing percentage is

reserved to the constitution of a fund destined for the acquisition of a supply of vehicles for

the dealerships and, the establishment of a partnership with a banking institution for the

management of a recurrent credit for supply are practical examples of the most common

strategies of the automotive segment.

5.3. Establishment of a representative committee of the channel

It is necessary to adopt strategies involving networks of discussion on issues such as

market positioning and in investment decisions. A closer involvement of the participants of

the channel is suggested, where the focus should be on relationship, team work, and real

openness on communication. Initially, this performance strategy shows a problem

resolution approach through the share of common objectives in an integrated process.

However, many conflict matters may be resolved through a negotiation process.

For example, a channel committee representative could periodically regroup

representatives of the manufacturer and the dealerships, aiming to discuss and resolve

current channel problems. The management of the sources of conflicts, with the adoption of

such strategy could have and positive impact on the solution of the themes of conflict

linked to any disagreement about the decision domain

5.4. Establishment of a distributors committee for product development

In reference to product development, the study shows that the dealerships have

expressed complaints that the manufacturer does not invite them to do research and

development (R&D) as a joint process and, frequently have to resolve product problems

with clients. In this context, the idea of establishing a channel committee, involving the

dealerships in the decision taking on new products would increase the acceptance of the

policies and the programs of the company, increasing cooperation and commitment in

relation to the established objectives and goals, as suggested for Schul and Babakus (1988).

With the adoption of such mechanism, different from the use of a conflict resolution

policy strategy and involving the participation of external participants, the mediation would

be promoted internally, with the proper leader of the channel, without reducing any mutual

relationship confidence. The adoption of this mechanism, as well as the establishment of a

representative committee of the channel would possibly lead to an effective management of

the divergences found in the after-sales process of the manufacturer and of the dealerships.

6. Conclusions

The subject of distribution channels is very particular and specific. Even though

were presented constructs from the literature about channels, and considering that many of

the findings are consonants with the theoretical references, the conclusions do not allow

any generalization. Furthermore, it was not possible to verify the effects of conflict

management proposals on the performance of a distribution channel through time.

16

For the distribution of trucks in Brazil, the creation of rules, impositions, rights and

obligations are mainly made through national legislation, leaving the conventions of

trademark and the internal rules to the proper distribution channel management processes

and strategies. Understanding that a trademark agreement does not represent a formal and

complete agreement between the manufacturer and the dealerships in a channel distribution

channel, the manufacturer still has to manage the business relationships between all parties

to guarantee an expected behavior. In this case, all parties have demonstrated some

dissatisfaction, but still believe that the relationship is beneficial and therefore they remain

as a channel stakeholder, considering and understanding that the details specified in their

convention are not easily resolvable in practice.

The results show that the manufacturer does not make a general use of legal suit;

which constitute a coercive strategy in function to persuade the partners of the channel for

the use of a specific strategy. On one end, it corroborates with the recognition of the

dealerships participants who recognize the rights of the manufacturer to establish sales

quotas, general standards, the organization and the levels of services of the channel

structure for the dealerships and to request its fulfillment. On the other end, however, it

shows a lack of follow-up and monitoring from the manufacturer to achieve the prescribed

sales objectives and standards.

It is important to mention there are a few cases of distribution channel which show

an integer management strategy, more specifically based on mutual perceptions. The

existing studies are elaborated either under a manufacturer’s perspective or from the view

of the other actors of the distribution channel; but none include all parties of a distribution

channel. Furthermore, the subject, given its complex and controversial nature, is more

susceptible to be studied in a qualitative perspective, as suggests Gummesson (2001). In

that sense, the use of a qualitative methodology showed an adequate strategy, with a more

in-depth perspective, reaching the perception of all stakeholders of the channel.

In regard to its limitations, one aspect refers to the sample that was selected in

function of the inherent interests of the researcher, and therefore, it cannot be considered as

representative. In reference to the data collection process with the dealerships

representatives, more specifically on their perceptions about the manufacturer, it was to a

certain point, reliable because it referred to one and only entity. However, the interview

process with the manufacturer about the dealerships had practically no single focus,

creating bias that had an impact on the internal validity of the research process, considering

that the proper distribution channel, composed of various dealerships, does not constitute

one concrete entity. In this context, it must be recognized the difficulty of getting answers

that make justice to a collective character. Another important limitation of the study refers

to a possible inertia of the participants to participate, considering the requests of

confidentiality, which has created a distance of the participants in the research itself.

Furthermore, the evaluation of the effects and the relevance of the conflicts themes

encountered in the channel have been carried through on the basis of the main perception of

the participants. The results demonstrate that was not clearly or directly established a

relation between the potential sources of conflict, the conflict themes and their impacts in

the performance of the channel. Consequently, new studies could establish a focus on the

search of existing associations between the potential sources of conflict and the evidenced

issues of conflict; establishing what are the sources that are at the origin of the conflict

17

issues and the magnitude of their impact. The adoption of a quantitative approach, with the

use of causal relation models, could be an interesting method option. In the same sense, it

could be established a relation between the identified conflict themes and its effects on the

channel efficiency.

Finally, it is necessary to advance in the construction of models with a focus on

inter-channel conflict resolution. That is why future exploratory research works in different

levels of the supply chain, or in different countries of the world, where the business activity

is clearly intense and focused, would contribute to validate and to understand the necessity

of doing case study as a benchmark strategy in a systematic way. The existing theory

findings are still general and with few practical applicability. This way, the creation of

more models destined to the intra-channel conflict resolution, in the most diverse contexts,

could serve as a base for the construction of a practical guide to assist the managers in such

research process.

18

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