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  • 1. Article Title PageDistribution Channel Conflict Management: A Brazilian ExperienceAuthor DetailsAuthor 1 Name: Gabriel Sperandio MilanUniversity/Institution: University of Caxias do SulTown/City: Caxias do SulCountry: BrazilAuthor 2 Name: Eric DorionUniversity/Institution: University of Caxias do SulTown/City: Caxias do SulCountry: BrazilAuthor 3 Name: José Alberto da Rosa MatosUniversity/Institution: University of Caxias do SulTown/City: Caxias do SulCountry: BrazilCorresponding author: Eric DorionCorresponding Author’s Email: edorion@ucs.brAcknowledgments (if applicable): n/aBiographical Details (if applicable): n/aStructured Abstract: Purpose: The paper aims to identify the mechanisms adopted by the distribution channel of a leadingBrazilian truck manufacturing company which generates various conflicts that have a negative impact on the performance of thechannel operations, with a focus on its causes. The study aims to expand the domain of distribution channel conflict management asa 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 automotivesector of Serra Gaúcha, Brazil. The distribution processes are analyzed in a real and specific context, implemented by means ofindividual 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, consideredrelevant 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 becauseit 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 thenecessary 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 andservices as a conflict management basis for Brazilian national distribution channels stakeholders. In this context, a distributionchannel 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 paperFor internal production use onlyRunning Heads:
  • 2. 1 DISTRIBUTION CHANNEL CONFLICT MANAGEMENT: A BRAZILIAN EXPERIENCESTRUCTURED ABSTRACTPurpose: The paper aims to identify the mechanisms adopted by the distribution channel ofa leading Brazilian truck manufacturing company which generates various conflicts thathave a negative impact on the performance of the channel operations, with a focus on itscauses. The study aims to expand the domain of distribution channel conflict managementas a benchmark activity by exploring the potential sources of conflict occurring in a majorBrazilian distribution channel.Design/methodology/approach: The research method is exploratory, using a case studyfrom a major company of the automotive sector of Serra Gaúcha, Brazil. The distributionprocesses are analyzed in a real and specific context, implemented by means of individualin-depth interviews, with the application of a basic script of questions.Findings: The findings indicate the existence of seven potential sources of conflict andtwenty-three conflicting issues, considered relevant and of negative impact on thedistribution channel performance of the manufacturing company.Research limitations/implications: The sample cannot be considered as representative but itis 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 managersof a company to invest time and the necessary resources for the maintenance and theconsolidation 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 forBrazilian national distribution channels stakeholders. In this context, a distribution channelconflict case study may constitute an important empirical source of data for a benchmarkstrategy. Key-words: Brazilian manufacturing; distribution channel; conflict management;organizational performance; benchmark strategy.
  • 3. 21. Introduction The aspects and the trends that influence consumers’ preference for determinedproducts and services have an impact on the issues related to distribution channelmanagement (Frazier, 1999), which are also called marketing or distribution channels.Those channels are interdependent organizational networks involving the necessaryactivities to dispose of products and/or services, from the manufacturer up to the properconsumer (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 mainstrategic decision areas of a company and, in relation to its marketing composition; itincludes the decision areas of product/service, price and communication. After the composition of a distribution channel, changes are generally more difficultto be implemented than other strategic decisions, such as the alterations in prices and themodernization 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 bemodified, based on rigorous legal and contractual control. Although a distribution channel is initially formed by economic interests, it is notrestricted to this dimension only, since any competition does not only occur between theorganizations. It may also occur between the channel systems (Rosenberg; Stern, 1970) andincorporate the inter-organizational social aspects from where may appear anycompartmental conflict dimension, which must be duly managed not to provoke negativeeffects on the global performance of the channel (Rosenbloom, 1973; 2003; Singh, 2006). As an external resource, distribution channels are constituted of significantcorporate commitment from each participating company. They are considered as importantas the internal resources, which pre-suppose lasting long term relations that take years toconsolidate (Corey, 1991). Those channels involve behavioural systems between firms thatmust operate in an integrated way, creating synergy in search of efficiency andcompetitiveness (Rosenberg; Stern, 1971). For international manufacturers, each case may constitute an important benchmarkprocess, due to its rich endogenous data which is not usually perceivable from standardresearch procedures.2. Conceptual Background2.1. Performance of a distribution channel The American Marketing Association (AMA) establishes channel performance byresult evaluation, which may be done through various dimensions. Firstly, the dimension ofeffectiveness based on how well a channel responds to the necessities and desires of itscustomers. Secondly, the dimension of efficiency, referring to how well a companyminimizes its costs related to the functions and the execution of the channel. Thirdly, thedimension of productivity, which is mainly based on the Internal Rate of Return (IRR) ofthe channel but not only including the financial aspects; and finally, the dimension ofprofitability, which refers to the economic performance of the channel (AMA, 2007).
  • 4. 3 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 Adaptation of each dealership, contribution to growth, strategicStrategy performance and competitive advantage. Customers’ satisfaction, sales performance, perceived satisfaction,Client-Buyer customers’ retention and net profits. 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 theOperational companies, rate of prescribed deliveries, conformity of the dealerships, quality of the advice of the representatives of the manufacturer and percentage of acceptance. Cooperation of the representatives of the manufacturer, coordination,Relational loyalty of the dealerships, satisfaction and commitment. Generation of demand from the manufacturer, performance in sales, sales objectives, sales contribution, lost sales, sales growth rate, netFinancial 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
  • 5. 4active 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 greatdifferences in motivations and intentions (Coughlan et al., 2006). Therefore, an efficientconflict management process in distribution channels is a key factor that contributes to thesuccess 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 channelconflicts: (i) to detect them; (ii) to evaluate their effect; and (iii) to solve them; which doesnot necessarily mean a radical conflict elimination but an effort to maintain the channel’sefficiency. In some cases, companies may have to increase the level of conflict in theproper channel (Rosenbloom, 2003), due to the fact that in a strategic managementapproach, intrinsic relationships within the channel may generate sustainable competitiveadvantages in relation to its competitors, generating performance improvements and mutualbenefits. Inter-channels conflicts can be grouped, in essence, in seven possible causes, whichare: (i) role incongruence; (ii) lack of resources; (iii) differences in perception; (iv)differences in expectation; (v) disagreement in the decision process; (vi) incompatibility ofobjectives; and (vii) difficulties of communication (Rosenbloom, 2003). The incongruenceof roles refers to the inadequate performance of the aspects defining how should be thestakeholders behavior in a channel. If a member does not act as prescribed by thedetermined functions and expectations of the channel, or in the case where there would notbe a clear definition of the roles or of the understanding on how it should be defined, asituation of conflict may arise. Various authors recognize that the incongruence of roles isone 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 anydiscord that may occur between the members of a channel, in reference to the allocation ofthe necessary resources to achieve its goal. The term “resource” does not restrict itself onlyto financial matters, but it refers to any internal resources of the proper channel. Suchsituation 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 realityperception refer to the interpretation of the stimulus from the environment. Such stimuluscan be perceived in various ways by the channel stakeholders. Firstly, dealerships tend tosee the competition only in a local perspective, giving little importance to the marketswhere they do not operate. Secondly, manufacturers tend to see the competition under amore broaden perspective, considering the macro-implications of the competition anddemand (Etgar, 1979). Various authors perceive perception differences as an intra-channelpotential source of conflicts (Rosenberg; Stern, 1971; Etgar, 1979; Neves, 1999;Rosenbloom; 2003; Coughlan et al., 2006; Kotler; Keller, 2009). Furthermore, expectationdifferences refer to the expectative that the members have about their behaviour and theattitudes of other members of the channel, considering that they take decisions and basetheir actions on their proper expectations. A conflict can appear in a case where an expectedbehavior 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 channelconsider, explicitly or implicitly, to be of its own reach. In other terms, it is a dispute
  • 6. 5between autonomy and control, where from one side, a member tries to acquire control, andof 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). Theincompatibility of objectives and goals is based on the individual objectives of theparticipants of a channel which are divergent, incompatible, competing or mutuallyexculpatory between them, considering that the organizations base their decision process onthose criteria. It is demonstrated in the literature, from a point of view of intra-channelconflict, that when the parties are forced to cooperate, they do not achieve consensus or andwill 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 communicationdifficulties. As communication is considered as the vehicle for inter-channel interactions(Mohr; Nevin, 1990), such process inefficacy can create confusion, incorrect disagreementsand frustration. Any positional differences can reflect in losses of communication anddifferences of availability, method and capacity of processing the information. Thosesituations may appear from a constant exchange of information between the members of achannel, considering that information exchange remain essential in a decision makingprocess 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 theliterature. Rosenberg and Stern (1970; 1971) and Brown and Day (1981) refer to a positivecorrelation between the conflict and the dissatisfaction of a member of a channel with theperformance of another member. The level of satisfaction of an intermediate stakeholder ofa distribution channel varies with the level of existing conflict, concluding that without aconflict incidence, the satisfaction level is low; with a level of natural conflict, thesatisfaction level is higher than from its absence; and also that when a conflict level isperceivable 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 involvesdisputes on subjects, considered important for its members, such as the maintenance oflevels 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 distributormay 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 occurin a conceptual level for organizations’ managers (Rosenbloom, 2003). Although, it isencountered a reasonable quantity of studies on channel conflict and its relation withefficiency 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 commonobjectives or create a closed coercive system (Assael, 1969). For example, theincompatibility of objectives and goals and the dispute for resources can lead the
  • 7. 6stakeholders to engage in behaviors focused on the others, causing confusion andfrustration with the final consumers (Webb; Hogan, 2002). Although conflicts may have destructive consequences, its complete absence wouldbe dysfunctional, or else, a sensible or “adjusted” level of conflict that can be consideredfunctional (Rosenberg; Stern, 1970; Stern; Sternthal; Craig, 1973; Singh, 2006; Kotler;Armstrong, 2007). Consequently, the literature recognizes that any excess or absence ofconflicts can obstruct the effectiveness of a channel (Dommermuth, 1976) and its effect canbe either functional or dysfunctional (Lusch, 1976a and b; Anderson; Narus, 1990; Brown;Day, 1981; Hunt, 1995). Functional conflicts occur when their consequences give origin tolong term benefits for the stakeholders of the channel; generating new solutions andresolving divergences in a friendly manner or stimulating creativity and innovation(Anderson; Narus, 1990; Morgan; Hunt, 1994; Hunt, 1995). Then, the consequences of aconflict 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 anincrement in channel performance. Rosenberg and Stern (1971) point out that a functionalconflict can produce a sense of unity in a channel, while Rosenbloom (1973) comments thatit 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 wouldbe to understand its process which could be managed to increase the unity and theeffectiveness of the channel as a whole. Such management implies a close coordinationbetween the members of the channel (Rosenberg; Stern, 1970) and requires the ability tounderstand 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 decisionprocess, considering that both positions have its inherent cost and implication. For Deutsch, in Frazier and Rody (1991), an open sharing informative contextwould allow each party to better perceive what the conflict issues are, and to have a moreunderstandable and detailed look at the problem; defining and evaluating it more precisely.In that sense, Etgar (1979) affirms that conflict resolution mechanisms, based on theelimination of perception bias and communication inconsistencies, are most importantbecause they can reduce problems’ causes, level and intensity before spending moreresources to resolve structural differences between the members of the channel. In an organizational context, the implementation of communication programs aim atthe supply of additional and clearer information for the stakeholders of the channel, such asrole expectations, objectives and future projections; which can substantially reduce channelconflicts, considering that the differences can arise from a lack of or a bad communicationand differences in their capacity to process information. This can generate divergence in theexpectations of the members’ roles and their perceptions (Etgar, 1979). However, if the realpositions of each party should be opposed, an opening in the communication process wouldconsequently exacerbate the existing conflict (Pondy, 1967). Schul and Babakus (1988)detach that the development and the implementation of participative decision programs forthe leader and member organizations of the channel can reduce conflict possibilities; can
  • 8. 7increase the acceptance of its policies and programs, cooperation and commitment betweenthe parties in relation to the objectives of the system. In general terms, there are two conflict resolution method basic categories. The firstone consists in institutionalized mechanisms, representing systematically implementedpolicies for channel leaders. The second one consists in underlying activities that appear inthe absence of institutionalized mechanisms (Dant; Schul, 1992). Coughlan et al. (2006)also detach two ways from which the organizations can face channel conflicts. Either withinstitutionalized mechanisms, which treat channel conflict in its initial period; or before theproper conflict appear, by giving distribution advice, staff interchange programs andintensive information mechanisms; or also through the implementation of behaviorstandards that cannot simply be created by anyone, considering that they must includeflexibility, exchange of information and solidarity. Furthermore, March and Simon, in Dant and Schul (1992), claim that organizationalreactions 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 objectiveinvolve themselves in a high risk integrated process to identify solutions that may satisfyboth. 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 triesto modify the perspective or the decision criteria of the other party in relation to a specificsubject. The intention is to reduce the differences between the secondary objectivesstipulated by the common goals. It differs from a problem resolution approach of theexistence of previous persuasive intentions, even though both parties have a coordinatedorientation, 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 generallyincludes low risk, high inflexibility, no concession, threats, promises and games; eventhough, this includes a call for justice and shared values. As in the persuasion strategy, itdiffers clearly from the other because of its zero-added orientation. Finally, in regard topolicy definition, there is an assumption of disagreement on the objectives and goals and azero-added orientation, even though every party shows a low level of negotiationbehavioral aptitudes. In this approach, the parties extend the negotiation enclosure to thirdparties. This strategy presents signals of weakness from the parties in reaching anacceptable solution through interpersonal scheme. Thus, the search for arbitration ormediation demonstrates non integrated and low risk behavior (Rubin; Webb in Dant; Schul,1992). In a different approach, when evaluating the effectiveness of two conflictmanagement processes in distribution channels, Stern, Sternthal and Craig (1973) haveconcluded 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 acommon intention, much desired by the members involved in the dispute, demandingparticipation and equitable contribution between the parties. Chopra and Meindl (2001) believe that existing conflict management must enhancecommunication and the overcoming of the differences between the parties, creating moreconfidence between them. A formal specification of the roles and directives would help to
  • 9. 8establish confidence since it would facilitate the exchange of information. In a long termperiod, it would help to transform the relations based on restrictions (contracts) and totransform them into relations based on processes, where the interactions throughout timefortify confidence and cooperation, and where conflicts are more easily managed. Therealization of frequent and periodic meetings between the parties facilitates communication,the reach for high level solutions, propitiating involvement and questioning before major aconflict occur. In a more practical perspective, the model of food distribution planningproposed by Neves (1999) possibly can be adapted to other contexts. According to theauthor, 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 ofrelation marketing practical; (iii) joint establishment of objectives and goals, where all themembers of the channel are involved; (iv) implantation of the channel committee, whereperiodic meetings for problem questioning and decisions monitoring and; (v) conciliation,through the intervention of an ombudsman. As a possible alternative, the presence of anombudsman 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 withindependence and authority to resolve the conflicting matters, the ombudsman acts as afacilitator in an approximation process between the parties and for the creation of anorganizational culture focused on quality, watching over the rights and the expectations ofthe 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 ishappening in the productive and business markets. The main objective of such activity is toobtain a better reading on a specific business situation, either for competitive or strategicreasons. Such activity may be realized on a regional, national or international scale. XeroxCorporation is one of the pioneers to practice benchmark activities among Americancompanies. Robert Camp, the logistics engineer who initiated Xerox’s benchmarkingprogram and who is generally regarded as the pioneer of the benchmarking practice, offersa clear definition, “Benchmarking is the search for industry best practices that lead tosuperior performance” (CAMP, 1989). It is a management tool that integer researchsystematic processes relating to operation procedures, innovation and best practicesenhances business strategies oriented toward better performance (BOGAN andCALLAHAN, 2001). Steudler and Williamson (2001) base their thoughts on a World BankReport which presents some principles that lead to organizational performance, such as (i)clear objectives; (ii) clear strategy; and (iii) monitoring indicators; and iv) resultsevaluation. Furthermore, the European Benchmarking Co-operation (EBC) (2010),considers that a benchmarking strategy aims at improving business processes, a search ofprocesses that never ends. Benchmarking is not a single action, but a continuous, cyclicalprocess. Saunders; Mann; Smith (2007) believe that benchmarking practices enhanced forquality improvement within a networking environment is a recent phenomenon. However,Simatupang and Sridharan (2004) had mentioned, through their literature review, that in abenchmarking activity case involving supply chain schemes, little attention was being paidabout the design of a benchmarking scheme based on network collaboration, where the
  • 10. 9joint activities of the chain members enable the network to be more responsive tocustomers’ demands. One of the reasons is the lack of reliable method and performancemeasurement system (Choy; Chow; Lee, 2007). Despite the clear indications on theefficiency of such practice, single companies cases show a lack of efficient tools, usingendogenous methods, usually unstructured, to compare their business practices with othercompetitors (BJORKLUND;2010). Consequently, considering that benchmarking practices do measure company’sproducts 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 benchmarkactivity. In this context, a distribution channel conflict case study constitutes an importantempirical source of data for a benchmark strategy, not only for its business value, but alsofor its exploratory relevance. The study of a national Brazilian case constitutes key data forthe positioning of an international manufacturer, taking into consideration the importanceof the national reality into an international perspective.3. Method The research is about an assembly plant of the automotive sector, which acts invarious segments of the metal-mechanic industry, with dealerships located over all theBrazilian national territory. The distribution channel in study can be classified as a verticalsystem 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 eachdealership with a contract (Kotler; Armstrong, 2007; Kotler; Keller, 2009). In relation to its structure, the channel has three levels: (i) the manufacturer andleader of the channel; (ii) the intermediate, which are the dealerships and who compose thenetwork of dealers; and (iii) the final consumers. In relation to its intensity, the channel canbe considered as an exclusive distribution process, with various dealerships in eachBrazilian State. Although it deals with a generalization scheme, each dealership has aspecific and differentiated posture, which is relevant in this context of analysis. It is worthmentioning that the distribution network of automotive vehicles in Brazil is stronglyregulated by laws, contracts and conventions1, demonstrating that this type of products canonly be distributed by means of commercial concession. The main objective of this research is to identify the actions or mechanisms thatcould be adopted by the leader company of the distribution channel in study, to manageconflicts that impact negatively on its performance, with a focus on its causes. In thiscontext, were established three specific research objectives: (i) to detect the main themes onexisting conflicts between the channel partners; (ii) to evaluate the relevance and the effectof those conflicts on the performance of the channel; and (iii) to consider actions ormechanisms 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.
  • 11. 10 – 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 asan 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 aqualitative approach is superior to a quantitative approach in the way to access the nonlinear aspects of phenomena, accepting their complexity, context and the effect ofbehavioral characteristics of the participants through a holistic vision. Consequently, thisapproach is considered adequate for the study of the relationship management between themanufacturers and its dealerships in a context of distribution channels (Bonoma, 1985;Eisenhardt, 1989). In total, eight people were interviewed, four participants from thedealerships and four participants from the manufacturing company. The participants werechosen by criterion of judgment or intentional (Gaski; Ray, 2004). The selection criteria forthe participants of the manufacturer were: (i) to act in departments that interact constantlywith the dealerships; (ii) to have a constant relationship with the dealerships; (iii) to haveknowledge of possible existing disagreements in the channel; (iv) to personally know mostof the executives of the dealerships; (v) to have a broaden knowledge of the distributionfunctions in study; (vi) to be in an executive position that conferred the representation ofthe interests of the manufacturer and of the dealerships; (vii) to have at least three years ofpermanency at the manufacturer; and (viii) to have personal characteristics that enhance atendency to speak out about the channel’s problem. In relation to the selection of the participants from the dealerships, three participantswere from the dealerships and one from the trademark class type association. The selectioncriteria were: (i) the market where the dealership is has to be significant, meaning that theparticipant have to be in one of the ten most important places in Brazil in terms of salesvolume; (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 akey position and have knowledge of the channels activities and problems; (v) theparticipants should occupy an executive position at the dealership and have a decisionauthority on the issues of disagreement with the manufacturer; and finally (vi) theparticipants should have personal characteristics that enhance a tendency to speak out aboutthe channel’s problem.4. Analysis and Results In this research, were realized in-depth individual interviews followed by contentanalysis techniques, as proposed by Bardin (2004) and Flick (2008), giving exhaustiveness,representation, homogeneity and relevancy in the research process. The conflicts brought toevidence, from both the manufacturing company and the dealerships were identified in 23concepts of conflict, linked to their potential source, as introduced in Table 2.
  • 12. 11Table 2: Channel main conflicts encountered Conflict themes under the Encountered possible Conflict themes under the angle of the manufacturer conflict sources angle of the dealerships1. Fulfillments of the vehicle 1. Manufacturer’s propaganda and promotion sales goals Role incongruousness 2. Manufacturer’s vehicles in2. Dealerships’ propaganda stock3. Dealerships vehicles in stock Goals incompatibility or impediment 3. Manufacturer’s guarantee4. Mechanics’ qualification 4. Price of vehicles5. Installations: identification 5. Intolerance of and adequation Lack of resources manufacturer’s accounts6. Dealerships’ parts in stock receivable7. Dealerships’ other businesses 6. Price of parts8. Support to consortia Disagreement on decision domain 7. Manufacturer’s after-sales9. New segments: lack of service support and investment 8. Manufacturer’s training10. Equipments and tools Difficulties in the communication process 9. Vehicles market positioning 10. New products development 11. Dealerships identification Differences in perception 12. Manufacturer’s direct contacts with clients 13. Focus on market niche Dissatisfaction between partnersSource: Elaborated by the authors based on research data. In the perspective of the participants pertaining to the manufacturer, the mainconflicts within the network of dealerships are about: (i) the achievement of the salesobjectives for the trucks, in the sense that the dealership network is not committed to reachthose goals; (ii) the marketing strategy, in the sense of passing this responsibility to thedealerships network, considering that the manufacturer acts strongly with cooperative andregional strategies and, considering it acts in specific market niches; it would not becompatible to have a massive and general marketing strategy; (iii) the acquisition ofequipment and tools to allow an adequate technical and assistance service, considering thatthe dealerships network do not want to invest in such equipments; (iv) the supply of trucksat the dealerships, even though the manufacturer recognizes the inherent difficulties relatedto the high costs of stocks; (v) the training of the mechanics, in the sense that themanufacturer 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, presentationand identification as representatives of the Brazilian manufacturing trademark; (vii) thesupply 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 thetrucks; (ix) lack of support of the dealership in their participation in the Manufacturingfinancing Company; and (x) the lack of support and investment from the dealerships in newproduct segments. On the other hand, in the perspective of the participants pertaining to thedealerships, the main conflicts within the network of dealerships are about: (i) the sale
  • 13. 12prices of the vehicles fixed by the manufacturer, considering that the price of the trucksshould be lesser than the current one, in virtue of the trademark perception differences inthe market; (ii) the lack of marketing strategies and promotions from the manufacturer,considering that the manufacturer, contrary to the competition, did not develop objectivesthat regard to the promotion of its products for the market, and nor does internal promotionsfor 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 isbelow the average amount paid by the competitors. The revelation of those subjects of conflict confirms that it is possible for conflictsto exist, latently or manifestly, in a distribution channel, ratifying a widely acceptedtheoretical proposal that conflict is inherent to the relationships existing in the distributionchannels (Pondy, 1967; Rosenberg; Stern, 1970; 1971; Stern; Sternthal; Craig, 1973; Etgar,1979; Gaski, 1984; Skinner; Gassenheimer; Kelley, 1992; Rosenbloom, 2003; Coughlan etal., 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 notpossible to determine with precision until what point a conflict source is a cause ofdisagreements and from what point it is caused by another source of conflict. Also, it ispossible to understand that one determined source of intra-channel conflict is, at the sametime, its proper cause and consequence. In fact, up to what point the incongruence of roles is a cause of conflict, or is aconsequence of the differences of the participants’ perception of the reality, or else, is aconsequence of decision domain disagreements? In response, a conflict can be caused byincongruence of roles, which can be originated by other source(s) of conflict, such as thedifficulty in the communication process and so on. The use of the typology developed byBrashear et al. (2007) on performance evaluation of distribution channels helps to identifythe 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 thechannel, on its trademark image, on customers’ satisfaction, on the assistance between thecompanies, on the business ability of the dealerships, on the channel stakeholderssatisfaction, on the coordination, on the volume of sales, on the economic performance andon the demand generation of the manufacturer. It is observed that the use of diverse approaches of evaluation on channelperformance 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 proposedby Brashear et al. (2007). They can be classified in other dimensions such as theoperational one, where it involves guarantees refund request processes. Also, they can beclassified as relational, where it may affect coordination, loyalty, satisfaction andcommitment. Moreover, they can be classified as strategic, where the organizationalpositioning established for service differentiation can have an impact on customer’ssatisfaction 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 ofdistinct dimensions, including effectiveness, efficiency, productivity and profitability of thechannel (AMA, 2007) and strategic categories, such as client-buyer, operational, relationand economic (Brashear et al., 2007). Consequently, the effects of a conflict are not the
  • 14. 13same in all the dimensions of a channel performance at the same time. It is possible that theeffects of a conflict on channel efficiency are different depending on the dimension orcategory of performance that is being evaluated. In reference to the confirmation state of the assumptions of research, it waspreviously recognized that all four assumptions were confirmed. This way, the firstassumption (A1) suggests that it is probable that conflicts exist, latent or active, within thedistribution channel. This assumption was confirmed that there are conflicts between themanufacturer and the dealerships for the distribution of trucks on the national market. Theanalysis and the interpretation of the empirical evidences have disclosed the existence oftwenty three conflict issues, including ten from the perspective of the manufacturer andthirteen under the angle of the dealerships, ratifying then the widely accepted theoreticalproposal 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 partnersof the channel, which is generated by conflicts. An important theoretical considerationabout the sources of conflict in distribution channel is widely recognized in the literatureabout 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 causeof those disagreements and up to what point those disagreements are caused by (an)othersource(s) of conflict. Also, it is possible that one determined conflict source is, at the sametime, the consequence of an inter-channel conflict. Finally, conflicts can to be caused byrole incongruence, which can be originated from perception differences, or from any othercommunication matters, such as the difficulty in the communication processes and so on. The third assumption (A3) considers that distribution channel conflicts may have anegative impact on distribution channel performance. Although not all conflict matterswere identified, nor studied, this assumption also was confirmed. Generally, all theparticipants agree that the conflicts elements between the distribution channel membershave a negative impact on the channel’s performance. It is important to mention thatperformance evaluation tools for distribution channels have still not been studied in detail(Singh, 2006) and there are increasing theoretical and empirical affirmations about the useof non-financial performance indicators to complement the financial measures ofperformance (Brashear et al., 2007). However, such classification is valid when it allows ananticipated analysis of how the channel is pretended to be evaluated, either in theory or inpractice. Moreover, this classification allows raising questions referring to possible effectson channel performance. The conceptual model of Rosenbloom (1973), which wasextended by Singh (2006), indicates that channel conflicts can have three types of effect onthe proper efficiency of the channel: negative, null or positive. Already the performance ofthe channel is an evaluation of its result, considering that it can be evaluated throughperformance dimensions, such as: the effectiveness, the efficiency, the productivity and theprofitability 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 ormechanisms that can be used to manage conflicts, leading to enhance the efficiency of the
  • 15. 14channel. The confirmation of this assumption is the essence of the response to the researchproblem. It is considered that this assumption was also confirmed, in concordance withwhat is argued in the next section, the managerial implications.5. Managerial Implications Considering that the manufacturer acts in a highly competitive market, whosenational competition includes the greatest players world-wide and, considering that thedistribution of its products and services can only be made by means of its truck dealershipsnetwork, the conflict management in such network assumes a vital importance for themaintenance and the raise in competitiveness of the channel as a whole. Although the results coming from this research cannot be generalized, they canserve as indicators for the managers of a company to invest time and the necessaryresources for the maintenance and the consolidation of the relationships with itsdealerships, acting in a conflict management perspective that includes the manufacturer andthe 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 yetoffer enough significant principles, directives and empirical evidences to guide the decisionmakers in an attempt to manage distribution channel conflicts, being limited at suggestingsome approaches and recommendations. Today, the evaluation of channel conflicts in theorganizations still occurs at a subjective level of channel control (Rosenbloom, 2003). The conflict management proposals explored in this study are based on the genericmodels of the literature and do not distinguish their use in a specific and determinedconflict. In that sense, the approach proposed in this research prioritizes the performance ofchannel conflict management from its sources. This study identified the existence of aspecific Trademark Agreement, which has the responsibility to determine and communicatethe functions, rights and obligations of the stakeholders of the channel. However, it alsodisclosed the existence of a certain obsolescence and recognition that many roles anddefinitions of this Agreement are not being fulfilled, by both parties. Possibly, thedynamics of the market may have imposed important changes in the relations, which werenot yet transferred to the agreements; generating a hiatus, which could to be filled by theperceptions 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 establishedtogether with more precision and clearly displaying the market information and thetechniques used for their achievement. The creation of a systemic of attribution of goals, clear and transparent, whichdiscloses important information on the individual market of each dealership, and allows toanalyze its viability, as well as what are the conditions and necessary actions to make itreachable and fundamental for the maintenance of commitment.5.2. Stock financing adoption programs
  • 16. 15 Stock financing adoption programs represent the most difficult source of potentialconflicts to be managed, considering that it involves investments, generally expressive. Inthis context, the adoption of a capitalization network plan, where an invoicing percentage isreserved to the constitution of a fund destined for the acquisition of a supply of vehicles forthe dealerships and, the establishment of a partnership with a banking institution for themanagement of a recurrent credit for supply are practical examples of the most commonstrategies 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 asmarket positioning and in investment decisions. A closer involvement of the participants ofthe channel is suggested, where the focus should be on relationship, team work, and realopenness on communication. Initially, this performance strategy shows a problemresolution 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 regrouprepresentatives of the manufacturer and the dealerships, aiming to discuss and resolvecurrent channel problems. The management of the sources of conflicts, with the adoption ofsuch strategy could have and positive impact on the solution of the themes of conflictlinked to any disagreement about the decision domain5.4. Establishment of a distributors committee for product development In reference to product development, the study shows that the dealerships haveexpressed complaints that the manufacturer does not invite them to do research anddevelopment (R&D) as a joint process and, frequently have to resolve product problemswith clients. In this context, the idea of establishing a channel committee, involving thedealerships in the decision taking on new products would increase the acceptance of thepolicies and the programs of the company, increasing cooperation and commitment inrelation 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 resolutionpolicy strategy and involving the participation of external participants, the mediation wouldbe promoted internally, with the proper leader of the channel, without reducing any mutualrelationship confidence. The adoption of this mechanism, as well as the establishment of arepresentative committee of the channel would possibly lead to an effective management ofthe 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 thoughwere presented constructs from the literature about channels, and considering that many ofthe findings are consonants with the theoretical references, the conclusions do not allowany generalization. Furthermore, it was not possible to verify the effects of conflictmanagement proposals on the performance of a distribution channel through time.
  • 17. 16 For the distribution of trucks in Brazil, the creation of rules, impositions, rights andobligations are mainly made through national legislation, leaving the conventions oftrademark and the internal rules to the proper distribution channel management processesand strategies. Understanding that a trademark agreement does not represent a formal andcomplete agreement between the manufacturer and the dealerships in a channel distributionchannel, the manufacturer still has to manage the business relationships between all partiesto guarantee an expected behavior. In this case, all parties have demonstrated somedissatisfaction, but still believe that the relationship is beneficial and therefore they remainas a channel stakeholder, considering and understanding that the details specified in theirconvention 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 forthe use of a specific strategy. On one end, it corroborates with the recognition of thedealerships participants who recognize the rights of the manufacturer to establish salesquotas, general standards, the organization and the levels of services of the channelstructure for the dealerships and to request its fulfillment. On the other end, however, itshows a lack of follow-up and monitoring from the manufacturer to achieve the prescribedsales objectives and standards. It is important to mention there are a few cases of distribution channel which showan integer management strategy, more specifically based on mutual perceptions. Theexisting studies are elaborated either under a manufacturer’s perspective or from the viewof the other actors of the distribution channel; but none include all parties of a distributionchannel. Furthermore, the subject, given its complex and controversial nature, is moresusceptible to be studied in a qualitative perspective, as suggests Gummesson (2001). Inthat sense, the use of a qualitative methodology showed an adequate strategy, with a morein-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 infunction of the inherent interests of the researcher, and therefore, it cannot be considered asrepresentative. In reference to the data collection process with the dealershipsrepresentatives, more specifically on their perceptions about the manufacturer, it was to acertain point, reliable because it referred to one and only entity. However, the interviewprocess 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, consideringthat the proper distribution channel, composed of various dealerships, does not constituteone concrete entity. In this context, it must be recognized the difficulty of getting answersthat make justice to a collective character. Another important limitation of the study refersto a possible inertia of the participants to participate, considering the requests ofconfidentiality, which has created a distance of the participants in the research itself. Furthermore, the evaluation of the effects and the relevance of the conflicts themesencountered in the channel have been carried through on the basis of the main perception ofthe participants. The results demonstrate that was not clearly or directly established arelation between the potential sources of conflict, the conflict themes and their impacts inthe performance of the channel. Consequently, new studies could establish a focus on thesearch of existing associations between the potential sources of conflict and the evidencedissues of conflict; establishing what are the sources that are at the origin of the conflict
  • 18. 17issues and the magnitude of their impact. The adoption of a quantitative approach, with theuse of causal relation models, could be an interesting method option. In the same sense, itcould be established a relation between the identified conflict themes and its effects on thechannel efficiency. Finally, it is necessary to advance in the construction of models with a focus oninter-channel conflict resolution. That is why future exploratory research works in differentlevels of the supply chain, or in different countries of the world, where the business activityis clearly intense and focused, would contribute to validate and to understand the necessityof doing case study as a benchmark strategy in a systematic way. The existing theoryfindings are still general and with few practical applicability. This way, the creation ofmore 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 suchresearch process.
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