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Understanding Hybrid Channel Conflict: Toward a Conceptual Model and Research Propositions

Kevin L. Webb Drexel University Nicholas M. Didow University of North Carolina ISBM Report 134996

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Understanding Hybrid Channel Conflict: Toward a Conceptual Model and Research Propositions

ISBM Workin? Paper

Kevin L. Webb Drexel University

Nicholas M. Didow University of North Carolina

Abstract The use of several distinct channel types by suppliers to serve a given product-market is rapidly becoming the dominant design. Such increasingly complex distribution systems present unique opportunities and problems for marketers, including how to most effectively manage the intrafirm, interchannel conflict resulting from channel coalitions competing with one another for resources, both internal (expenditures, personnel) and external (customers). It is unclear whether this conflict in a hybrid distribution system is good or bad for the supplier firm. This study develops a theoretically-grounded conceptual model of the antecedents and consequences of hybrid channel conflict and offers several empircally testable research propositions. Perhaps most important in terms of contribution to the marketing literature are the conceptualization of hybrid channel conflict itself and the associated definitions which are developed in this paper.

INTRODUCTION As changes occur in buyer behavior, market segment demographics, the nature of a product or service, and the cost of distribution, more complex distribution strategies emerge. Indeed, the use of several distinct channels to serve a given product-market is rapidly becoming the dominant design (Moriarty and Moran 1990). Such arrangements present a unique set of opportunities and problems for marketing practitioners. One area of particular concern is how to effectively manage the intrafirm, interchannel conflict resulting from a firm channel coalitions s competing with one another for resources, both internal (expenditures, personnel) and external (customers). For example, a company direct sales force, distributor group, and telemarketing s arm may have conflicting interests over issues related to budget allocation, establishing sales objectives, customer assignments, and the timing and nature of advertising and promotional support. It is unclear whether this internal conflict is ultimately good or bad for the supplier, or if certain other factors must also be considered in order to make such a determination. The purpose of this paper is to develop a conceptual model and research propositions which identify the antecedents and consequences of the intrafirm, interchannel conflict described above and to specify the relationships among the constructs in an empirically-testable manner. An important contribution is the conceptualization of hybrid channel conflict itself, along with the associated definitions which are offered. For reasons of clarity, several key definitions are presented here. First, a hybrid distribution system is defined as a multichannel arrangement characterized by the sharing of distribution tasks among a combination of distinct channels, direct and/or indirect, resulting in a variety of marketing mix offerings designed to satisfy the needs of diverse target market segments. Hybrid channel conflict exists when one channel coalition perceives that another channel coalition is engaged in adversarial behavior which is 2

preventing or impeding the first from achieving its goals. This perceived behavior on the part of the latter is designed to obtain scarce resources, both internal and external, at the expense of the former. A channel coalition is a group of individuals within the supplier organization who are organized as a subunit corresponding to a particular type of distribution channel arrangement used by the firm. Coalition members share the common responsibility of supplying the products, services and resources needed to support the operations of a given channel type in the supplier s distribution system. Firms go to market using more than one type of channel system for a variety of reasons. First and foremost, customer needs differ and are continually changing. Consumer responses to the marketing mix variables are often far from homogeneous; different types of channels can help enable companies to better take advantage of related opportunities. Firms with especially broad and diverse product lines can benefit from utilizing multiple channel types because the likelihood of a single given channel type being most appropriate for all products is dubious. For companies with excess manufacturing capacity, supplemental channels may increase business in cases where existing forms of distribution are saturated with supply. Behind much of this phenomenon lies improved marketing research, which allows for more precise target market segmentation, thereby encouraging increased customization of the firm distribution strategy. s Nearly two decades ago, Weigand (1977) observed this trend toward the use of several types of alternative distribution channels by supplier firms. He argues that little attention has been given to the problems and conflicts that must be resolved when business growth brings channel diversity. Elaborating further, Weigand asserts that lower level managers often ignore the big picture, preferring instead to concentrate on issues at their own level of the organization. When channel managers are given profit responsibility for their unit, they are certain to care 3

more about the pro-fits of their unit than the overall organization. In situations where profit centers are in conflict, the right decision for one channel may spell the demise of another. In a more recent review article, Frazier, Sawhney and Shervani (1990) provide more justification for research in this important area. They argue forcefully that additional theory development is needed with respect to the proliferation of more complex channel arrangements. Such theory development is especially important because of the conflicts that often arise, chiefly due to the difficulty in keeping alternative channels independent from one another. The authors stress the importance of coordinating both intrafirm and interfirm relationships that exist in the channel. Emphasizing the need for systematic research in this area, Frazier et al. (1990) assert in their review that the issue is deserving of special mention (p.291). An illustrative example of a well-known contemporary company using multiple channel types is provided in Figure 1, which is the authors depiction of IBM distribution channels for s personal computers in 1994 (Arrows indicate product flow from IBM and other organizations to a continuum of customers). IBM went to market through a broad array of distribution channels, (Insert Figure 1 about here) including innovative retail forms not previously attempted such as the IBM PC Factory Outlet. Some are direct channels while others are indirect. Several of the channels are company-owned while others are independent. Certain channel types serve only organizational customers while others primarily serve individual consumers, and still others actively pursue business from both organizations and individual consumers. This complex distribution strategy results in a wide variety of marketing mix offerings; variation across all of the 4 Ps can be found among the channels depicted along with channel behavioral dynamics ranging from cooperation to conflict.

What are the antecedents and consequences of the intrafirm, interchannel conflict illustrated above, and under what conditions is this conflict is either functional or dysfunctional with respect to its effects on the performance of the channel system? Marketers should benefit from attention to these research questions. An improved understanding of the causes and effects of hybrid channel conflict would have implications for channel design and management. Given certain conditions, it may be optimal to aggressively add successive channels. Under different conditions, the best strategy may instead be to maintain the status quo or even to divest channels. Although marketing researchers have devoted a great deal of attention over the past twenty-five years to the study of conflict in marketing channels, the predominant perspective taken in these studies is of conflict occurring between two firms involved in a dyadic relationship within a given channel. This paper examines conflict from an entirely different point of view; one that has received very little attention in the academic literature. Conflict in this study is viewed as occurring between different channel coalitions, but within a single supplier firm. There are several benefits associated with investigating channel conflict from this new perspective. First, many theories and frameworks that have been applied to the study of dyadic channel conflict were developed for the study of relationships within an organization rather than between two organizations. While these conflict theories may perform adequately in such a modified setting, their validity should only be enhanced when using them in the domain for which they were intended. Second, managers should be able to exert much more control over hybrid channel conflict than dyadic channel conflict because they possess more power and formal authority within their own company than they do over another firm. As a result, managers actions are much more likely to have their intended impact. Third, this research focuses on the causes and effects of hybrid channel conflict, not negotiation or conflict
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resolution; doing so should encourage marketers to take a proactive rather than a reactive approach to managing conflict. While managers time is often spent resolving salient issues of conflict in the short-run, an increased awareness of the fundamental causes of conflict might improve their ability to ultimately manage the entire conflict process in the long-run. Finally, when considering intraorganizational conflict in the context of a hybrid distribution system, the complete absence of theoretical models, conceptual frameworks and empirical evidence presents an excellent research opportunity. This following section reviews the literature on complex distribution channel systems and dyadic channel conflict, other related marketing research, and research from outside of marketing dealing with organizational conflict. In the third section, operational definitions of constructs are provided to accommodate the novel perspective of channel conflict investigated in this study. A theoretically-grounded conceptual model incorporating the antecedents and consequences of hybrid channel conflict is developed, including several empirically testable propositions and a simple contingency framework for determining the functionality of hybrid channel conflict.

LITERATURE REVIEW Several distinct streams of literature are relevant to this study of hybrid channel conflict and its antecedents and consequences. The relative absence of published literature that pertains directly to hybrid distribution systems is indicative of the limited attention the topic has received thus far from the academic community. The recency and format of what has been published reflect the fact that the topic constitutes a rapidly emerging area of increasing importance which is ripe with research opportunities. Research dealing explicitly with these complex distribution systems is reviewed in the first section. The second section discusses channel conflict research 6

from the predominant paradigm, which has traditionally viewed distribution channel conflict from the perspective of occurring between two separate firms involved in a dyadic relationship. The third section examines several related studies from the marketing literature that do not focus explicitly on channel conflict or complex distribution systems. The fourth section reviews relevant research on organizational conflict and intergroup relations from outside of marketing.

Comnlex Distribution Systems The terminology which has been used to describe what is referred to in this study as a hybrid distribution system has varied considerably in the marketing literature, ranging from multimarketing (Weigand 1977), to hybrid structures (Arthur Andersen & Co. 1987), to hybrid marketing systems (Moriarty and Moran 1990), to multiple channels (Cespedes and Corey 1990), to dual distribution (Stern and El-Ansary 1992), to dual-multiple channels (Frazier et al. 1990), to multichannel marketing systems (Kotler 1994). Moreover, operational definitions have been inconsistent at best and absent altogether in several instances. Weigand (1977) observes that most suppliers sell their products through several channels and to various customer groups who may differ in type, volume purchased, location, and in other characteristics including their responses to price and promotion. Referring to this phenomenon as multimarketing, Weigand notes that such a marketing practice is sure to create problems within the company, including internal conflicts among channel managers that must be reconciled. Arthur Andersen & Co. (1987) introduced the term hybrid in the context of marketing channels in their discussion of organizational factors that will influence change in the distribution industry. The report broadly describes a hybrid structure as one that contains some elements of 7

(1) functional, (2) product line and (3) geographic structures, and is further characterized by the use of some channels where control is centralized and others where control is decentralized A fifth form of channel structure called a matrix type is also identified as one which exhibits dual authority based on (a) function and (b) product, service and location. Their data indicate that, although they were not the predominant form, hybrid structures were being used at that time by some companies and experimented with by others. Moriarty and Moran (1990) use the term hybrid marketing system to describe what results when firms add new channels and communication methods to existing ones. They assert that, despite the risks, all signs indicate hybrid marketing systems will be the dominant channel design in the 1990s. When hybrid channels are well managed, rewards in the form of increased coverage, lower costs and customized marketing approaches will outweigh risks in the form of conflict and control problems. Conflict arises in the form of channels competing for customers and revenues; control problems occur because indirect channels are less subject to management authority. The authors identify two fundamental reasons behind the move to hybrids: (1) the drive to increase market coverage and (2) the need to contain distribution costs. Using a leading supplier of accessories to computer storage media such as tape drives and diskettes as an illustrative example, Moriarty and Moran develop a map of tasks and channels called a hybrid grid to assist in understanding a hybrid marketing system. On one dimension are the different channels. The other dimension consists of the various demand-generation tasks that are required. The objective is to determine which channel type is best suited to meet the needs of each segment. The fundamental premise behind the hybrid grid concept is that marketing tasks, not marketing channels, are the proper starting point from which to design channel systems. It is also important to note that the strategic focus of Moriarty and Moran research is that different s 8

channels be used at various stages of the selling cycle, as opposed to utilizing the single best distribution channel to meet the comprehensive needs of a given target market segment. Looking at the situation from this perspective encourages managers to adopt a broad view of channel strategy. Companies typically have added channels myopically, often resulting in conflict and morale problems within the firm, together with confusion and dissatisfaction among their intermediaries and customers. Moriarty and Moran state that in order to design an effective hybrid marketing system, managers must balance the natural tension between minimizing costs and maximizing customer satisfaction. When a new channel is added to pursue a market segment, the particular scheme must clearly reflect the targeted group buying behavior, not s merely channel costs. Moriarty and Moran observe that conflict is an inevitable part of every hybrid marketing system because when a company adds a channel, existing stakeholders inevitably resist. Each coalition of stakeholders faces internal competition for ownership of customers and possible loss of revenue. The authors advocate seeking a balance where conflict is neither too little nor too much, rather than attempting to eliminate it entirely. They argue that a company with no revenue in conflict may be sacrificing coverage, failing to attract new customers because their focus is too narrow. Some conflict among channels is deemed healthy, but once it becomes too widespread it can be debilitating and potentially destructive. Establishing clear boundaries is proposed as the best mechanism for managing conflict in hybrid systems. However, specific recommendations for establishing boundaries are somewhat vague; for example, in jump ball situations, it is suggested that barriers be constructed where natural segments exist. In sum, Moriarty and Moran believe that channel strategy is a powerful strategic weapon. A properly designed and managed hybrid marketing system will satisfy customers in the most 9

cost effective manner and achieve greater coverage and control while simultaneously limiting destructive conflict inside the organization. But the task is not an easy one. Cespedes and Corey (1990) document the increasing prominence of intermediaries in channel systems and attribute the trend to a combination of four factors, two external and two related to changes in the distribution infrastructure itself. First, the rising cost of personal selling has resulted in lower productivity from the manufacturer sales force, primarily due to the large s portion of time spent on non-selling tasks. The acceptance of Just-in-Time inventory management has also affected the channel system by compressing the order cycle and raising order fill-rate expectations. Within the distribution infrastructure, computerization and increasing concentration resulting from large, multilocation firms gaining share at the expense of smaller rivals have both contributed to the growing prominence of various types of channel arrangements. According to Cespedes and Corey, channel management is supposed to be a cooperative marketing activity, but conflict often replaces cooperation because of competition among channels over business from the same customers. Using two industrial manufacturers as examples, the authors distinguish between two types of what they refer to as multichannel systems. A pluralist multichannel system seeks to focus different channel entities on different product groups, thereby minimizing conflict via the explicit separation by product. A monolithic multichannel system is organized instead by the various distribution functions required by the various customer segments. In this case, the conflict is minimized by focusing each of the channel entities on the performance of distinct channel functions. Cespedes and Corey state further that their research suggests what they call the monolithic and pluralistic approaches are the two basic paradigms. They emphasize that a multichannel system is 10

implicitly also a choice concerning the kinds of channel management issues and conflicts a manufacturer will encounter, as the crux of the problem is not how one can eliminate conflict, but how to manage it productively and profitably. Finally, Cespedes and Corey suggest that the appropriate form of multichannel structure (pluralistic or monolithic) will be influenced by five key factors: the associated marketing costs, the extent of required field coordination, the level and amount of technical services required, the relative ability to accommodate customers changing purchasing patterns and the manufacturer s ability to develop different types of selling skills. They also discuss a number of contingencies involved in the design of a multichannel system and how their two fundamental types of channel arrangements are affected. Corey, Cespedes and Rangan (1989) discuss hybrid channels in their book about distribution systems for industrial products. Their case-based study approaches channel management as a marketing system and considers it to be a key dimension of corporate strategy. They state that multichannel distribution systems are designed to reach a range of market segments in cost-effective ways. The authors contend that, ideally, the different types of channel arrangements in a multichannel distribution system complement one another, yet in reality they are often in conflict. Because it is difficult to define each channel role and product market s boundaries explicitly, both inter- and intrachannel conflict arise. They argue that the two major concerns for producers are (1) maintaining and delineating product-market boundaries and (2) resolving day-to-day conflict issues. Several forms of adversarial channel relationships are identified and described, including competition between the direct salesforce and resellers, between captive and independent distributor networks and between mass merchandisers and local full-service distributors. Corey, Cespedes and Rangan conclude that it is generally in the 11

manufacturer best interest to mitigate competitive rivalry among and within channels over s business from particular classes of customers. In his current marketing management textbook, Kotler (1994) states that a multichannel marketing system occurs when a single firm uses two or more marketing channels to reach one or more customer segments (p.546). He further elaborates that firms can gain three important benefits from using multiple channels: increased market coverage, lower channel cost and more customized selling. However, these benefits are usually accompanied by costs, in particular the conflict that results when two or more channels compete for the same customers. Kotler refers to this conflict as the downside of multichannel marketing (p.548) Multichannel conflict exists when the manufacturer has two or more channels that compete with each other in selling to the same market. Kotler observes that multichannel conflict is likely to be more pronounced when the members of one channel either get a lower price from quantity discounts or are willing to work with a lower margin. Several examples are provided of how channel conflict can arise between the field salesforce and several other groups, such as the national account managers @JAMS), telemarketers and independent dealers. Establishing clear channel boundaries is recommended as a solution when a significant portion of company revenues is in conflict. Stern and El-Ansary (1992) use the term dual distribution to describe a wide variety of channel arrangements by which a supplier reaches its target markets by employing two or more different types of distribution channels for the same basic product. The situation may arise when manufacturers market their products through both vertically integrated and independently owned channels which compete with one another, or when similar products are marketed under different brand names through different channels of distribution. Similarly, Frazier, et al. (1990) employ the term dual-multiple channels to describe such complex channel structures. Observing the 12

limited theoretical work concerning why these arrangements come to exist (cf., Aspinwall 1962; Mallen 1973), the authors stress that additional research in this area is especially important given the conflicts that frequently arise when dual-multiple channels are established. Such conflicts appear to come about primarily because of the difficultly of trying to keep multiple channels independent from one another. Intrabrand competition can become a problem for the supplier firm, both internally and in the marketplace, when products which are intended to be sold through one channel to one market end up being redirected to customers via another channel. Rangan, Menezes and Maier (1992) describe hybrid structures as those which may have the characteristics of direct as well as indirect channels, noting that the exact nature of a hybrid intermediary will vary from industry to industry. They assert that the channel design literature fails to provide the underlying rationale for the existence and emergence of hybrid structures, but that this deficiency can be overcome by focusing on channel functions instead of institutions. Taking a functional view based on extant literature (cf., Aspinwall 1962; Miracle 1965; Bucklin 1966; Williamson 1985), the authors argue that in order to avoid costly conflicts, it is important to try and evaluate channel trends in advance, such as the product life cycle stage (Lele 1986). Frazier and Antia (1995) observe that intense competition is leading many manufacturers to pursue two primary objectives, market share and cost reduction. In an effort to increase share, many manufacturers are increasingly using multiple channels for their brands and product lines. They argue that while providing enchanced market coverage, a multichannel arrangement also reduces sales through any single channel because different markets and segments usually overlap. Their focus, however, is on the detrimental effects this trend has on the supplierdistributor relationship, not the internal conflict that may develop within the supplier firm. Adopting a similar perspective, Magrath and Hardy (1988) suggest that manufacturer-reseller 13

conflict observed in a dual distribution arrangement will be even greater than in a more complex channel system due to increased overlap in the marketplace. In conclusion, there does appear to be agreement among the research reviewed here with respect to identifying the key issues associated with the use of hybrid channel systems. Conflict in hybrid channels is primarily the result of different channels competing with each other over limited external resources in the form of customers. Marketing products via hybrid systems is a complex task, but properly managed they are an excellent source of competitive advantage, which is the driving force behind their increasing prevalence. The primary reason firms enter into hybrid arrangements is to reach new target segments or increase penetration within existing ones. Still, despite these commonalities, more questions have been raised than have been answered. No consensus exists on the appropriate terminology to use to describe this channels phenomenon. Virtually all of the research emphasizes the importance of managing conflict in complex channel systems, but no study has been conducted to determine its causes and effects, or to distinguish under what conditions conflict in hybrid channels is good or bad for the company.

Dvadic Channel Conflict Behavioral relations among organizations in distribution channels have been the focus of considerable marketing research for more than two decades (Gaski 1992). A substantial amount of the research has dealt with channel conflict. Not surprisingly, present-day channels textbooks devote a great deal of emphasis to the discussion of conflict. Stern and El-Ansary (1992) define channel conflict as a situation in which one channel member perceives another channel member(s) to be engaged in behavior that is preventing it from achieving its goals (p.289). In essence, they argue, channel conflict is a state of frustration brought about by a restriction of role 14

performance; and that as interdependence increases so will channel conflict. They identify goal incompatibility, domain dissensus and differing perceptions of reality among channel members as the primary causes of channel conflict. The authors contend that while channel conflict can be functional when it motivates firms to adapt, grow and seize new opportunities, when the actions degenerate into pathological conflict it is dysfunctional for the entire channel system and should be avoided. Three review articles in the channels area either focus explicitly on conflict (Gaski 1984, Reve and Stern 1979) or devote a considerable amount of attention to the construct (Gattorna 1978). Robicheaux and El-Ansary (1976) also developed a general model for understanding channel member behavior that contains implications for the study of channel conflict. Gottoma (1978) begins his discussion of conflict with the observation that in both the marketing and organizational theory literature there is a general lack of agreement over what is meant by the term conflict. Gattoma refers to Assael (1969) early conceptualization of channel s conflict occurring between interdependent business organizations as an attempt to achieve a reallocation of system resources. Gattorna states that goal differences between channel members is accepted as one source of conflict. Other possible sources are presented as being less central to the issue. In his review, Gattoma treats cooperation as the opposite of conflict. He contends that the prevailing view appears to be that the goal of a channel system should be to minimize conflict and maximize cooperation Gattorna further observes that there is substantial disagreement in the literature whether the presence of conflict in the channel has beneficial or detrimental effects. Noting that such a judgment can depend on the situational circumstances, he summarizes that there is little doubt that the weight of opinion in the literature contains an implicit assumption that all conflict is 15

dysfunctional (pp., 499~500). Gattorna does acknowledge that many theorists do not share this view; Assael(1969) attempts to establish criteria for identifying constructive conflict, but concedes that conflict may be considered destructive if there is a lack of recognition of mutual objectives. Conversely, where there is a total absence of channel conflict, complacency may be fostered, resulting in a lack of innovation. Reve and Stern (1979) provide an example of exporting marketing knowledge to other disciplines. Their article generalizes what has been learned about interorganizational relations in channels of distribution to the fields of sociology and organizational behavior in an attempt to synthesize and improve theories in the area. They summarize and integrate empirical studies of both power and conflict in distribution channels. The authors contend that because of the inherent mutual interdependencies in marketing channels, conflict is inevitable, and a mixture of conflictual and cooperative motives will simultaneously be present. Conflict is viewed as opponent-centered behavior that can be functional as well as dysfunctional. Reve and Stern identify the primary causes of interorganizational conflict as goal incompatibility, domain dissensus and perceptual incongruities. In terms of outcomes in channel relationships, Brown (1977) observed an inverse relationship between conflict and satisfaction which supports Rosenberg and Stern (197 1) finding of a significant positive relationship between conflict and s dissatisfaction with the other channel member performance. s Gaski (1984) provides one of the most important contributions to the understanding of power and conflict in channels of distribution. His article incorporates a thorough review of the empirical studies in this area, together with unambiguous conceptual definitions and a theoretical framework with which to analyze the relationship between power and conflict in marketing channels. Following Pondy (1967), Gaski classifies conflict into five stages. Channel conflict is 16

defined as the perception on the part of a channel member that its goal attainment is being impeded by another, with stress or tension the result (p. 1 l). Gaski emphasizes his view of conflict refers only to the perception that another is being obstructive, not manifest or felt conflict. He also asserts that there is agreement among most researchers that conflict is virtually inevitable due primarily to the functional interdependence between channel members. Gaski s model identifies satisfaction and performance as the two key dependent variables of interest. Channel conflict is hypothesized to have an inverse relationship with both satisfaction and performance. Several empirical studies provide support for these two proposed relationships (Dwyer 1980, Lusch 1976, Rosenberg and Stern 1971). Interestingly, though it did not receive statistical support, Lusch suggested the possibility of a threshold effect whereby performance increases along with conflict up to a certain point, after which performance will decrease as conflict rises. This notion of a threshold effect of channel conflict on financial performance was first introduced to the marketing literature by Rosenberg and Stern (1970). Rosenbloom (1973) also envisioned a threshold effect of conflict on channel efficiency, which he defined as the degree to which the total investment in the various inputs necessary to effect a given channel decision can be optimized in terms of outputs (p.27). Robicheaux and El-Ansary (1976) developed a general model for understanding channel member behavior that contains theoretical implications for the study of channel conflict. The focal point of their model is channel performance, which is determined by channel structure and individual channel member behavior. More specifically, the authors argue that performance is the result of the effectiveness of channel control and the satisfaction or dissatisfaction of channel members with the relationship. Consistent with other theorists, the model assumes cooperation and conflict are an integral part of channel relationships due to the functional interdependence 17

among firms, and that channel conflict can be classified as either functional or dysfunctional. Robicheaux and El-Ansary note further that the potential for conflict is high in systems of selective and exclusive distribution since they are characterized by a high level of interdependence among channel members. Unlike some other theorists, however, the model does treat cooperation and conflict as distinct constructs, with the resolution of dysfunctional conflict being a necessary prerequisite to cooperation. Robicheaux and El-Ansary (1976) define channel cooperation as a state or condition characterized by memberswillingness to coordinate their activities in an effort to help all channel members achieve superordinate goals (p.22). Channel conflict is a state or situation in which one channel member perceives another as an adversary engaged in behavior designed to destroy or thwart him or gain resources at his expense (p.23). Both are modeled as continuous variables, with the former ranging from cooperative to noncooperative behavior and the latter ranging from functional to dysfunctional conflict. The authors contend that stress is a prelude to conflict and identify the four major causes of stress as differing role prescriptions, issue differences, differing perceptions of reality, and goal incongruence. The model indicates that conflict and cooperation have a feedback effect on satisfaction; performance and satisfaction are shown to have a direct impact on one another. Robicheaux and El-Ansary propose that effective and efficient economic performance creates greater satisfaction among channel members and, and greater satisfaction in turn leads to improved channel member performance Eliashberg and Michie (1984) integrate concepts and ideas from various disciplines in their empirical investigation of multiple business goals as determinants of conflict in marketing channel dyads. They argue that channel conflict is not always dysfunctional and may actually benefit overall channel performance if (1) moderate conflict is not considered a cost by the 18

stakeholders, (2) divergent views produce ideas of better quality, and (3) any aggression in the situation is not irrational or destructive (Thomas 1976). The authors adopt the extremely broad viewpoint that dyadic conflict includes perceptions, emotions, behaviors and outcomes, and state that conflict is opponent-centered, based on the incompatibility of goals or values of opposing firms, both direct and personal. Implicit in their viewpoint are two necessary conditions for conflict, specialization and interdependence. Using Thomas (1976) four stage process model of the evolution of conflict episodes, Eliashberg and Michie contend that because channel members may perceive conflict differently, a subjective, or perceptual, measure of conflict is most appropriate. One of the primary contributions of this research is in the realm of measure development, particularly with regard to perceived conflict and goal incompatibilty. Measures of perceived conflict are based on two dimensions, the frequency and intensity of disagreements. Rosenberg and Stern (1970) make an important distinction in their discussion of the three primary causes of channel conflict, which are identified as goal disparity, domain dissensus and differing perceptions of reality. Causes are described as the underlying bases of conflict that the channel members may not be aware of or care to express. Issues are described as stated positions regarding a conflict situation and may be either vague and general or explicit and precise. Thus, the point of clarification is that issues are symptoms of causes. As Rosenberg and Stem assert, although the immediate concern of management is to resolve salient issues of conflict, awareness of fundamental causes may ultimately facilitate managing the entire conflict process (p. 44). A subsequent paper by Rosenberg and Stern (1971) elaborate further on what is meant s by the term domain in the context of a channel dyad. Domain refers to a channel member claims in terms of (1) range of products, (2) population served, and (3) services rendered or functions performed. 19

Stern, Sternthal and Craig (1973) conducted one of the first laboratory experiments in the distribution channels area. Their parasimulation was designed to investigate the effectiveness of a superordinate goal and an exchange-of-persons program in managing interorganizational conflict. While the results suggest that channel conflict may be more effectively managed by employing an exchange-of-persons strategy than a superordinate goal, one of the most valuable contributions from this research is the identification of some important conceptual issues. The authors contend that marketers fundamental concern with the elements and dynamics of competition have tended to obscure the differences between competition and conflict. They define competition as behavior which is object-centered, indirect and impersonal. Conflict is defined as behavior which is direct, personal and opponent-centered. They state further that competition is independent, parallel and striving toward a goal, while conflict is behavior typified by mutual interference. In distribution channels, Stern, Sternthal and Craig assert that competition most often manifests itself between firms occupying the same horizontal level, but conflict is more likely to arise between companies occupying different horizontal levels in a particular channel. Consistent with most other research on channel conflict, this study assumes a reasonable level of conflict can be functional and focuses accordingly on the management of conflict, not its elimination. Brown and Day (198 1) conducted an empirical study using a large sample of automobile dealers for the purpose of developing improved measures of manifest conflict in distribution channels . Their results indicate that the measure combining frequency, intensity and importance of disagreements between channel members multiplicatively was superior in terms of reliability and validity. Interestingly, the authors acknowledge that the theoretical process and structural model of conflict they use (Thomas 1976) was developed for the study of intraorganizational 20

relationships as opposed to interorganizational conflict, the context in which the model has generally been applied by channels researchers. Recent empirical channels research has continued to focus on dyadic channel conflict. Morgan and Hunt (1994) refer to disagreements which prevent stagnation, stimulate interest, and provide a mechanism for resolving problems as functional conflict. Results from a sample of independent automobile tire retailers indicate increasing levels of trust have a positive impact on functional conflict. Using survey data from automobile dealers, Kumar, Scheer and Steer&amp (1995) found that conflict is greater when interdependence is lower and when asymmetry is higher. A strong negative correlation between conflict and trust and conflict and commitment was also observed. Gundlach and Cadotte (1994) report results from an experimental simulation which indicate increasing levels of interdependence are associated with lower levels of conflict. A less dependent (more powerful) party is more likely to get its way and thus be less sensitive to resultant conflict. Other recent studies of channel relationships that examined dyadic conflict have focused on negotiation (Ganesan 1993) and influence strategies (Frazier and Rody 199 1). Cronin and Baker (1993) investigated the relationships between conflict, performance and satisfaction in a dyadic channel setting using data from a mail survey of large industrial dealers, using perceived measures of all three constructs. Results indicate higher levels of conflict have a negative impact on both performance and satisfaction. Additionally, Cronin and Baker found as performance increases, so does the level of satisfaction.

Related Marketing Literature Etgar (1977) study of the relationship between the channel environment and channel s leadership merits discussion in this review despite the fact that he does not examine channel 21

conflict. This paper was perhaps the first in the literature to explicitly distinguish between two distinct types of competitive effects: intrachannel competition among channel members carrying the same brand and interchannel competition with other channels carrying similar or competing brands. Etgar argues that extensive interchannel competition usually implies that a particular channel must compete with other channels for resources and/or for customers. In order to do so, it must strive for maximum efficiency. He elaborates further that interchannel competition also may generate an awareness of common danger and a feeling of common interests among channel s members. Although the focus of Etgar research is on supplier control of intermediaries, his conceptualization has direct applicability to the intrafirm perspective taken in the context of managing conflict in hybrid channels. Etgar also offers some interesting observations with regard to the characteristics of demand for a product. Specifically, when a product moves through the various life cycle stages, the objectives of channel strategy change accordingly. Anderson and Narus (1984) took a first step toward providing the field of marketing with a comprehensive model of dyadic channel behavior with their study of distributor-manufacturer working relationships, from the perspective of the distributor. One of the focal variables in their model is conflict. The authors establish that conflict has been defined in several ways in the channels literature. Their model operationalizes conflict in its manifest form. The initial empirical test of the model was somewhat inconclusive and the authors state that validity assessments are needed because the three measured constructs, conflict, cooperation and satisfaction, were found not to be unidimensional in their analysis of the data. A subsequent study by Anderson and Narus (1990) proved to be more successful. This model included both perspectives of a working partnership between a manufacturer firm and a distributor firm. Conflict and cooperation are treated as separate constructs. Conflict is defined 22

as an overall level of disagreement in the working partnership. Cooperation is defined as similar or complementary coordinated action taken by firms in interdependent relationships to achieve mutual outcomes or singular outcomes with expected reciprocation over time. The authors hypothesize that conflict will have a negative direct impact and cooperation a positive direct impact on the focal dependent variable in the model, satisfaction, is defined as a positive affective state resulting from the appraisal of all aspects of a firm working relationship with s another firm. Results from the manufacturer perspective support the conflict-satisfaction s relationship; it is direct, negative and significant. Cooperation, however, was found to have an indirect positive effect on satisfaction, mediated by another variable, trust. Frazier (1983) adopted a very broad perspective with the framework he developed of interorganizational exchange behavior in marketing channels, arguing that prior empirical research had only examined the implementation (coordination) of ongoing channel relationships. Manifest conflict in his model is expected to lead to conflict resolution, which in turn leads to cooperation. This causal ordering is important because it implies that cooperation does not become a salient issue until conflict has manifested itself and conflict resolution has begun. The final outcome variable in the model is the channel member satisfaction or dissatisfaction with s the overall exchange relationship. Following Howard and Sheth (1969), Frazier advocates the use of a perceptual definition of satisfaction or dissatisfaction, stating that it reflects a party s cognitive state of feeling adequately or inadequately rewarded for the sacrifice undergone in facilitating that relationship (p. 74). Stern and Reve (1980) refer to conflict several times in their landmark theoretical paper that analyzes distribution channels as political economies. In particular, they argue that, while they are highly interrelated, conflict and cooperation are separate, distinguishable processes 23

(p. 57). Conflict is opponent-centered behavior characterized by mutual interference or blocking. Cooperation involves a combination of object- and collaborator-centered behavior based on goal compatibility and can be represented as two parties striving toward something of mutual benefit. Stern and Reve contend that conflict and cooperation will exist simultaneously in all channels. Several other channels papers offer conceptual support with regard to constructs included in this research project. Mohr and Nevin (1990) developed a theory of communication strategies in marketing channels that includes both satisfaction and performance. Their definition of channel satisfaction is somewhat broader than Frazier (1983), referring to both the affective and s the cognitive evaluation of the channel relationship, either being acceptable. Mohr and Nevin define channel performance as a multidimensional outcome measure assessed by considering several dimensions including effectiveness, equity, efficiency (productivity) and profitability. Recent attention to the construct of channel performance (e.g., Kumar, Stern and Achrol 1992) is noteworthy in light of the contention that little research has been conducted that investigates the impact of behavioral variables such as conflict on performance (Stern and Scheer 1992). Two marketing studies from outside the realm of distribution channels have investigated interdepartmental relations within a firm from a marketing perspective. In terms of the level of analysis, the point of view taken here may be envisioned as a layer between the dyadic channel conflict research and hybrid channels. That is, the traditional behavioral channels literature has examined relations between two firms, while the two papers discussed here examine relations between the marketing group and other functional departments in the same firm. This research on hybrid channels examines relations among channel coalitions within the marketing group.

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In the first of the two studies described, Ruekert and Walker (1987) develop a conceptual framework of marketing interaction with other functional units in the firm and also conduct an s empirical test of the model. Their model includes two psychosocialoutcomes, conflict and the perceived effectiveness of the relationship, both consequences of interactions across functional areas. The authors propose a bi-directional negative relationship between conflict and perceived effectiveness. Conflict is defined as occurring over mutual goals, the means by which those goals are to be achieved, the use of resources in the pursuit of incompatible goals, or the division of rewards generated through joint action (Dutton and Walton 1966). Ruekert and Walker contend that the amount of conflict between people in different areas is related to the intensity of the interaction that binds them. Operationally, the more resources, work or assistance that flows between marketing and another department, the greater the level of conflict. The definition given for perceived effectiveness is somewhat confounding; equity, productivity and satisfaction are all mentioned. Most research recognizes the first two as components of performance. Satisfaction is generally treated as a separate construct. Results indicate mixed support for the framework. Barclay (199 1) formulates another model of interdepartmental relations in his study of the impact of organizational characteristics on conflict between the purchasing and engineering departments associated with the organizational buying process. Barclay contends that conflict can have constructive and destructive outcomes. He argues further that the organizational buying literature has tended to focus on the resolution of conflict as opposed to its antecedents and that conflict has been cast mainly as a personal as opposed to organization-based phenomenon. The focal construct examined in the study is manifest, or behavioral conflict, which is defined as interaction such that the actions of one group tend to prevent or compel some outcome against the resistance of another group (p.l46). 25

Barclay investigates conflict from three perspectives: the organization, the department, and between departments. On the interdepartmental level, conflict is hypothesized to be greater with jurisdictional ambiguity, degree of interdependence, increased barriers to communication and greater diversity in departmental objectives. Barclay finds support for most hypotheses and his model explains 62% of the variance in manifest conflict. The dominant antecedents emerge from an organization structure, organizational processes and interdepartmental conditions. s Because constructs at the departmental level did not play a strong role in generating conflict, Barclay argues that support is provided for the claim that the organizational context is a main source of interdepartmental conflict.

Organizational Conflict and Intergroup Relations Lewicki, Weiss and Lewin (1992) identify three major approaches to conflict research derived from academic disciplines. The macro-level or sociological approach has focused on conflict between groups, departments, divisions and even entire organizations as the units of analysis. As a result, the sociological approach is the most relevant to both this study of hybrid channel conflict and also the predominant research stream dealing with dyadic channel conflict. Pondy (1967) attempted to synthesize the relationships among the variables that affect conflict by treating them as elements of a single conflict episode The model in Pondy classic . s article is regarded today as the dominant paradigm in the organizational conflict literature (Lewicki, Weiss and Lewin 1992). Pondy presented conflict as being inevitable because of the inherent differences in perceptions and goals of the organization members. He also depicted conflict as being functional, provided the very basis of the relationship was not threatened, because constructive conflict might move the organization to higher levels of creativity, 26

innovation and competitive energy. Pondy (1992) reflects that despite all the attention it has received, the model has never been rigorously tested. Moreover, Pondy observes, truly reliable and valid measures of the key constructs in his model have not even been developed. Pondy (1967) identifies five stages of a conflict episode: (1) latent conflict, or conditions; (2) perceived conflict, or cognition; (3) felt conflict, or affect; (4) manifest conflict, or behavior; and (5) conflict aftermath (new conditions). He proposes the antecedent conditions to conflict in organizations are competition over scarce resources, drives for autonomy, and divergence of s subunit goals. The causal ordering of the conflict stages in Pondy model of the dynamics of a conflict episode portrays felt conflict and perceived conflict as existing concurrently; both are consequences of latent conflict and manifest conflict is an antecedent of both. Additionally, felt conflict and perceived conflict are shown to influence one another. Finally, Pondy contends that conflict is of concern to the organization only in so far as it has implications for performance. Only a very abstract model is likely to be applicable to the study of all organizational conflict phenomena and, because of the associated breadth required, it would likely not be useful in the analysis of real situations. Addressing this need, Pondy presents three conceptual models of organizational conflict that serve as the basis for his general theory described just above. First is the bargaining model, which was designed to deal with competition among a set of interest groups in competition for scarce resources. Pondy captures this potential conflict as the discrepancy between aggregated demands of the competing parties and the available resources, citing as an example departments competing for investment funds as part of the capital budgeting process. The bureaucratic model is concerned with conflicts along the vertical dimensions of a hierarchy, such as those that occur between superior and subordinate. The systems model is directed at lateral conflict among parties to a functional relationship. Pondy states that the 27

systems model is about problems of coordination, the bureaucratic model deals with problems of control, and the bargaining model is aimed at problems of competition. Both the systems model and the bargaining model have direct applicability to the realm of hybrid channel conflict. Elaborating on the systems model, Pondy observes that subunits in a goal-oriented system will for various reasons, have different sets of goals or different preference orderings for the same set of goals. When two subunits having different goals are functionally interdependent, then conditions are ripe for conflict. Two methods for reducing conflict in lateral relationships are identified. The first is to reduce goal differentiation by modifying incentive systems. The second is to reduce functional interdependence by decreasing dependence on common resources. Using a political metaphor, Morgan (1986) describes organizations as coalitions made up of coalitions, which arise when groups of individuals get together to cooperate in relation to specific issues, events, or decisions, or to advance specific values and ideologies (p. 154). This perspective is germane to looking at hybrid channel arrangements; each channel type represents a coalition, and the marketing department itself is another organizational coalition. Morgan states that conflict arises whenever interests collide. It may be personal, interpersonal, or between rival groups or coalitions. Conflict may be explicit or covert, but its source always rests in some real or perceived divergence of interests Research on intergroup relations in organizations can also offer insight to the study of hybrid channel arrangements. Brett and Rognes (1986) observed the increasing prevalence of more specialized groups in organizations, stemming from growth and greater complexity in the environment and in technology. This increased specialization results in the inability to assemble tasks that require extensive coordination into a single functional unit. The authors assert that lateral relations are increasing in importance, both between and within organizations. When 28

groups have to engage in continuing lateral relations, conflict management becomes problematic. Moreover, unlike hierarchical relations and competitive markets, there are often no established norms when it comes to conflict among lateral groups. According to Brett and Rognes, probably the most important contributing factor to lateral group conflict is that managers are not rewarded for the development and maintenance of cooperative relations. Brett and Rognes define an organizational group as a set of individuals who perceive themselves and whom nonmembers perceive as constituting an identifiable social aggregate within the organization (p.204). An intergroup relationship is defined as a coordinated link or bridge between two organizational groups (p.205) The authors contend that intergroup conflict occurs because interdependent groups have differentiated interests that are stable only so long as each group environment is stable. In addition, they argue, scarce resources exacerbate conflict s among groups. Wall, Galanes and Love (1987) conducted an interesting empirical study of conflict among small, task oriented groups. They note that one of the problems encountered when attempting to compare research results is the inconsistent definition and conceptualization of conflict. The authors use the term conflict to describe extended disagreements typically found in small groups trying to reach consensus. They state that when conflict expands the available pool of ideas, opens up an issue, helps to clarify it, alerts the system that corrective action needs to be taken, prevents a group from arriving at premature consensus, or increases the individual s involvement in the decision-making process (p.33), it can be helpful. That is, conflict is productive when it increases the motivational and involvement level and expands the options available to a group.

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In their study, Wall, Galanes and Love expect that the greater the number of disagreement episodes, the less satisfaction will be reported, because conflicts require time and effort from the parties involved. In a culture where time is money, the authors argue that the required energy and time mitigate against a prompt resolution and reduce satisfaction accordingly. Measures of conflict, perceived conflict and satisfaction were taken and found to be sufficiently reliable. The results indicate satisfaction is negatively related to conflict. Perceived conflict was found to be significantly correlated with the number of conflict episodes, which lends some credence to its construct validity. Wall, Galanes and Love also discover a curvilinear relationship between the quality of outcomes and the number of conflict episodes, with quality of outcomes reaching a peak after two episodes before declining. However, the analogy between their operationalization of outcome quality and satisfaction in a hybrid distribution system is weak at best, as the authors outcome quality perspective is within a group rather than among groups, and uses criteria such as workability, usefulness, creativity and attention to detail to assess the quality of outcomes.

Summary This section has reviewed literature from several areas: complex distribution systems, dyadic channel conflict, related marketing research, and organizational conflict and intergroup relations. There appears to be general agreement across these studies on several points. The primary causes of conflict are goal incompatibility and domain dissensus. Satisfaction and performance are regarded as the most important outcome variables. Conflict is a dynamic process, consisting of various types or stages, and it can be functional or dysfunctional. There is, however, a significant lack of consensus on some other key points. Definitions of conflict, satisfaction and performance are very inconsistent, and disagreement exists over what constitutes 30

the most appropriate way to operationalize and measure conflict. Differing perspectives and levels of analysis present problems at times. Lastly, when considering conflict in the context of hybrid channels, there is a complete absence of theoretical models, conceptual frameworks and empirical evidence.

CONCEPTUAL MODEL AND RESEARCH PROPOSITIONS This section presents an integrative conceptual model of hybrid channel conflict together with its antecendents and consequences. Examining conflict within a hybrid distribution system requires that one view the phenomenon from a different perspective than what has previously been studied in the academic channels literature. Figure 2 depicts four distinct perspectives that can be taken when investigating channel conflict. The traditional view of conflict occurring (Insert Figure 2 about here) between two firms within a given channel falls in Cell 1. As indicated in the literature review, a tremendous amount of research has been conducted in the area described as dyadic channel conflict, including several comprehensive models (e.g., Gaski 1984, Reve and Stern 1979, Robicheaux and El-Ansary 1976). Cell 2 describes conflict occurring between two firms that are in different channels. This scenario can be labeled horizontal competition. The bulk of channels research in this context comes from the economic paradigm (e.g., Moorthy 1988, Shugan and Jeuland 1988), although recently a behavioral study has investigated similar issues (Ramaswamy, Gatignon, and Reibstein 1994). Cell 3 presents a rather unusual point of view; conflict that occurs within the same firm and within the same channel. This can be thought of as a vertically integrated firm that operates using divisional objectives. One real-world example of this is Ford Motor Company acquisition of Hertz Rent-A-Car. The pioneering, yet limited, academic s 31

research that has taken place in this setting is from the analytical modeling, or economic paradigm (McGuire and Staelin 1986). Conflict that occurs between different channels but within the same firm, located in Cell 4, is called hybrid channel conflict. While it has been argued that lessons learned from particular models of conflict can be generalized across various actors, issues and settings (Lewicki, Weiss and Lewin 1992), there are a couple of important advantages to studying hybrid channel conflict relative to dyadic channel conflict. First, the theories and frameworks that have been applied to the study of conflict between two firms in a channel dyad (e.g., Pondy 1967, Thomas 1976) were developed for the study of relationships among groups within a firm (i.e., intraorganizational) as opposed to between firms (i.e., interorganizational). These conflict theories may perform quite well in such a modified setting, but validity should be further enhanced when they are used in the domain for which they were intended. Second, managers should be able to exert much more control over hybrid channel conflict than dyadic channel conflict, as they possess more power and formal authority within their company than they do over another firm. Managers actions are much more likely to have their intended impact in the context of channel conflict examined by this research than across channel dyads, even in situations where the supplier firm enjoys a position of superior relative power over the channel intermediary. Several conceptual definitions are in order at this point. The position taken here is that the multitude of existing terminology which has been observed in the literature, such as multiple channels (Cespedes and Corey 1990), dual distribution (Stern and El-Ansary 1992) and hybrid marketing systems (Moriarty and Moran 1990), needs to be refined and clarified at this juncture. For example, we believe the term dual distribution is insufficiently narrow to adequately describe the complexity of many contemporary distribution systems. While the term multiple channels 32

suggests a number of channels, it falls short of specifying whether or not the various channels differ substantively. We believe the term hybrid, defined by Webster (1988) as something s heterogeneous in origin or composition (p.589), in the context of the overall distribution system is the most appropriate descriptor of the channels phenomenon that is the focus of this research. Still, we must distinguish our application of the term hybrid from those previously offered by others. We refer to hybrid not from the perspective of using different channels through the stages of the selling cycle (Moriarty and Moran 1990), or over the course of the product life cycle (Lele 1986), but rather with respect to a number of channels, fundamentally different in nature, which vary in both the type and level of functions provided by the supplier firm (Rangan et al. 1992). In this sense, we focus our attention on the relational dynamics among all channels used by the supplier firm at any given point in time. In this study, a HYBRID DISTRIBUTION SYSTEM(HDS) is defined as a multichannel arrangement characterized by the execution of distribution tasks among a combination of distinct channels, direct and/or indirect, resulting in a variety of marketing mix offerings designed to satisfy the needs of diverse target market segments. HYBRID CHANNEL CONFLICT (HCC) exists when one channel coalition perceives that another channel coalition is engaged in adversarial behavior which is preventing or impeding the first from achieving its goals. This perceived behavior on the part of the latter is designed to obtain scarce resources, both internal and external, at the expense of the former. A CHANNEL COALITION is a group of individuals within the supplier firm who are organized as a subunit that corresponds to a particular type of distribution channel arrangement used by the firm. Coalition members share the common responsibility of supplying the products, services and resources needed to support the operations of a given channel type in the firm HDS. Accordingly, a hybrid distribution system consists of s 33

the collective group of channel coalitions to which a comprehensive set of distribution tasks has been allocated. Examples of channel coalitions include: a direct sales force, a distributor group, a telemarketing group, a mail-order catalog operation, a company-owned retail outlet and any other distinct classes of resellers used by the firm. The use of perceptual definitions and measures of conflict is widespread (Gaski 1984, Lusch 1976). Eliashberg and Michie (1984) argue that subjective, or perceptual measures of conflict are the most appropriate. Wall, Galanes and Love (1987) found perceived conflict to be significantly correlated with the number of conflict episodes, further lending credence to its construct validity. Following others (e.g., Eliashberg and Michie 1984, Lusch 1976), hybrid channel conflict is operationally defined in this study as the perceived frequency and intensity of disagreements among channel coalitions, weighted by the importance of the issues. Brown and Day (198 1) found that a measure of conflict combining the frequency, intensity and importance of disagreements multiplicatively was superior in terms of reliability and validity.

Antecendents of Hybrid Channel Conflict Previous research has identified three primary causes of conflict: goal incompatibility, domain similarity and perceptual differences (Stern and El-Ansary 1992, Reve and Stern 1979). Pondy (1967) observes that when two subunits having differentiated goals are functionally interdependent, the conditions for conflict are ripe. Because of novel perspective taken in this research, differing perceptions of reality are not included in the conceptual model. Managers of channel coalitions in the same supplier firm are much more likely to have access to the same information than their counterparts in another organization, as is the case in a dyadic setting. Moreover, identification with the various channel coalitions need not be mutually exclusive. 34

Indeed, one individual may have responsibility for more than one channel coalition in the firm. These confounding factors, together with the reality that each firm hybrid distribution system is s somewhat unique, would very likely create enormous categorization and measurement obstacles. As a result, the conceptual model presented below incorporates goal incompatibility and domain similarity as the two antecedent constructs to hybrid channel conflict. DOMAIN SIMILARITY among channels exists when coalitions must draw from the same base of limited resources, external and/or internal, in order to accomplish their tasks and achieve their objectives. The greater the overlap in resource requirements among channel coalitions and/or the more limited the resource base, the greater the domain similarity. External sources of domain similarity include the population of customers served, the range of products offered, and the services rendered or functions performed. Internal sources of domain similarity include funding allocation, employee skills, and reliance on common manufacturing units for products. GOAL INCOMPATIBILITY among channels exists when it is perceived that the objectives of all channel coalitions cannot be achieved concurrently. That is, when a given channel coalition succeeds in meeting its goals it will be at the expense of at least one other channel coalition in the firm. In the total absence of superordinate goals, goal incompatibility tends to be magnified. Goal incompatibility can take the form of conflicting objectives among channel coalitions related to growth rates, revenues, profits and/or market share.

Conseauences of Hybrid Channel Conflict Performance and satisfaction are widely regarded in the dyadic channel conflict literature as the two most important outcome variables (c.f., Cronin and Baker 1993; Gaski and Nevin 1985; Frazier 1983). Pondy (1967) asserts that conflict is of concern to the organization only in 35

so far as it has implications for performance. Marketing practitioners also consider performance and satisfaction to be of paramount importance. For example, IBM list of core principles states s (Wall Street Journal, 5/l 3/94), Our primary measures of success are customer satisfaction and shareholder value, the latter of which is often treated as a proxy for performance. In this study, performance and satisfaction are modeled as the two consequences of hybrid channel conflict. PERFORMANCE of the hybrid distribution system can be assessed using both objective and subjective measures of several dimensions including the system effectiveness, productivity s or efficiency, profitability, growth and equity. Traditionally, organizational effectiveness has been thought to be synonymous with goal attainment and has been operationalized as efficiency, productivity, or net profits (Stern and El-Ansary 1992). Kumar, Stern and Achrol(l992) have argued that the focus on such convenient measures can distort what companies should really be trying to accomplish. Using a social systems view, the authors develop reliable and valid scales for assessing reseller performance from the perspective of the supplier, including a five-item global scale with desirable measurement properties. Because of the relatively abstract nature of the items, the global scale is well suited for generalizing across organizational settings with only minor changes to the wording. This study advocates adapting the five questions from this global scale to the context of a hybrid distribution system in addition to including several of the more traditional measures. Ideally, respondents should include multiple informants at both the organizational level and for all of the individual channel coalitions. SATISFACTION within the hybrid distribution system is defined as an overall positive affective or cognitive state resulting from a comprehensive appraisal of the characteristics of each channel coalition working relationships with all other channel coalitions. This definition s was adapted from those offered by Mohr and Nevin (1990) and Anderson and Narus (1984). An 36

intercoalition working relationship within a channel system stems from a coordinated link or bridge between two distinct coalitions. The link or bridge is necessary because each group needs resources from the other group in order to complete its own tasks (Brett and Rognes 1986).

Conceptual Model and Research Propositions The hypothesized relationships among the antecedents and consequences of hybrid channel conflict are depicted in Figure 3. Considerable theoretical and empirical evidence exists to support three of the hypothesized relationships. Domain similarity and goal incompatibility (Insert Figure 3 about here) are each expected to have a positive effect on hybrid channel conflict (Stern and El-Ansary 1992, Gattorna 1978, Rosenberg and Stern 1970). The proposed negative effect of hybrid channel conflict on satisfaction within the channel system also is well documented (c.f., Anderson and Narus 1990, Gaski 1984, Dwyer 1980, Brown 1977). The first three propositions are:

Pl: The greater the domain similarity among channel coalitions, the greater the level of hybrid channel conflict.

P2: The greater the goal incompatibility among channel coalitions, the greater the level of hybrid channel conflict.

P3: The greater the level of hybrid channel conflict, the lower the level of satisfaction within the channel system.

Ansoff (1984) identified five stages of the demand life cycle: emergence, accelerating growth, decelerating growth, maturity, and decline. The analysis presented here collapses the live stages into three (emergence, growth, and maturity-decline) in order to make the framework

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more parsimonious. Hybrid distribution arrangements are seldom observed in the brief and hardto-define emergence stage; firms typically enter into new markets using a single type of channel. As a result, the concept of hybrid channel conflict is really not applicable to the emergence stage. It is proposed here that hybrid channel conflict in the growth stages will be functional in that it will have a positive impact on the overall performance of the channel system. The crux of this argument is that the benefits of experimentation with many types of distribution channels will outweigh any drawbacks associated with conflict among the channels. Because of continuing growth in revenues and profits, individual channels can prosper without doing so at the expense of other channels in the hybrid system. Channel conflict is functional when it motivates firms to adapt, grow and seize new opportunities (Stem and El-Ansary 1992). Workman (1993) notes that in the growth stage the most appropriate organizational design is one that emphasizes innovation and creativity. Pondy (1967) refers to this as constructive conflict. Eliashberg and Michie (1984) state that conflict will benefit channel performance in cases where divergent views in channel systems have been found to produce ideas of better quality. Etgar s (1977) contention that growth suppliers may concentrate on opening up distribution, and Porter s (1980) description of channel strategy in the growth stage as a scramble for distribution, lend additional support. Upon entering into the maturity stage, however, the drawbacks associated with hybrid channel conflict begin to dominate the benefits of creativity and innovation associated with the continuing addition of new channels. In the absence of growth, individual channels can no longer improve their performance unless it is at the expense of other channels in the distribution system. Goals of growth in revenues, profits and market share across channels are no longer compatible. Standardized organizational designs are established (Workman 1993), efficiency is 38

paramount, and more coordination across functions must occur for the firm to be cost competitive. As Corey, Cespedes and Rangan (1989) assert in their discussion of marketing mature industrial products, it is generally in the manufacturer best interest to mitigate s competitive rivalry among its channels. The negative effects of conflict on performance are even more pronounced in the decline stage. This study proposes a simple contingency framework for determining the functionality of hybrid channel conflict. For products in the growth stages of the demand life cycle, the presence of hybrid channel conflict is expected to enhance performance of the hybrid distribution system. In this case, the ? in Figure 3 on the path from conflict to performance is replaced by a +. For products in the maturity or decline stages of the demand life cycle, the presence of hybrid channel conflict is expected to be detrimental to the performance of the hybrid distribution system. In this situation, the in the Figure is replaced by a -J All other hypothesized I? . relationships among the constructs (including the path running between performance and satisfaction - yet to be discussed) remain the same across the two contingency models proposed here. It is important to emphasize that two distinct models are salient - one for Growth companies and a second for firms in the Maturity-Decline stages. The next two propositions follow from this framework.

P4: For products or services in the growth stages of the demand life cycle, higher levels of hybrid channel conflict will increase performance of the channel system.

P5: For products or services in the maturity/decline stages of the life cycle, higher levels of hybrid channel conflict will decrease performance of the channel system.

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The cause and effect relationship between performance and satisfaction is unclear. Some channels researchers argue the two constructs are not causally related at all (Gaski 1984); others contend that both variables have a simultaneous positive causal impact on each other (Robicheaux and El-Ansary 1976). Results from the sales force literature are equally ambiguous. Bagozzi (1980) used a structural equation modeling methodology to test for a simultaneous relationship and found that performance had a significant positive causal effect on satisfaction, but satisfaction had no effect on performance. Others in the sales force literature argue any significant correlation between the two constructs is spurious, not causal (Brown and Peterson 1993; Behrman and Perreault 1984). Research in the organizational behavior literature has found that performance influences satisfaction, but not vice-versa (Bagozzi 1986). The position taken here is that there is a much stronger argument for performance of the hybrid distribution system having a positive causal impact on satisfaction with the channel system than the other way around. A channel coalition first obtains outcome measures of channel system performance. Next, the coalition makes an assessment of the discrepancy between expected and actual outcomes. The difference will effect their level of satisfaction within the channel system in either a positive or negative manner, depending on whether outcomes exceeded expectations or expectations exceeded outcomes. Two steps are involved; first a cognitive assessment, then an emotional reaction. The sequence from satisfaction to performance is more difficult to justify. Coalition members must not only be aware of their feelings; they must also attribute those feelings to specific aspects of their working relationships with other coalitions and subsequently decide to act accordingly. Because a given coalition s satisfaction with its internal working relationships is typically the result of many forces 40

(including the level of hybrid channel conflict), any association between current satisfaction with the internal working relationships and subsequent performance is not expected to be strong. Hence, satisfaction within the channel system is not predicted to be a cause of performance of the channel system. This leads to the final research proposition:

P6: The greater the performance of the channel system, the higher the level of satisfaction within the system.

SUGGESTED METHODOLOGY Because of the nature and newness of hybrid distribution systems and hybrid channel conflict as research areas, we believe that initial empirical efforts should include a qualitative component. As noted by Rangan et al. (1992), the nature of hybrid channel structures will vary from industry to industry, and from company to company. Cespedes (1992) argues that channels studies need to incorporate a wider context which is difficult to achieve through more traditional methodologies. Frazier and Antia (1995) go even further, asserting that qualitative research is urgently needed to sort out theoretical difficulties in the channels area (p. 321). Additionally, qualitative methods can be used to understand what drives any phenomenon about which little is known and to provide intricate details that are difficult to convey with quantitative methods (Strauss and Corbin 1990). The case study method may be particularly useful in this emerging research area. The approach is especially appropriate for new topics, and the resultant theory is often novel, testable, and empircally valid (Eisenhardt 1989). Per Bonoma (1985), in a word, the goal of case research is understanding. Specific objectives of the case method include description and classification of phenomena, theory development, and limited theory testing. We suggest that prospective hybrid

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channels researchers make use of established tactics throughout the research process for dealing with design tests such as those advocated by Yin (1989) in order to enhance construct validity, internal and external validity, and reliability. Simultaneously gathering quantitative data to partially validate one qualitative analysis is also encouraged. Doing so may serve the useful s purpose of pretesting a preliminary questionnaire, which may be subsequently refined and used to conduct a broad-scale survey, thereby enhancing generalizability and allowing for statistical testing of the conceptual model.

SUMMARY The study of hybrid channels merits increased research attention from both a conceptual and empirical standpoint (Weigand 1977; Frazier et al. 1990). Examining conflict in a hybrid distribution system requires viewing the phenomenon from a different perspective than what has been observed in the existing behavioral channels literature. The conflict literature reviewed in this paper provides a foundation targeted toward a better understanding of hybrid channels. From this foundation, a conceptualization of hybrid channel conflict, its antecendents and consequences, and the necessary operational definitions were developed. The theoreticallygrounded conceptual model and propositions for research presented in this study provide an integrative starting point from which to investigate these issues. Subsequent empirical testing and refinement of the model would further enhance our knowledge in this important area. The resulting implications are certain to influence distribution channel strategy, thereby providing valuable insight to both marketing management and marketing theory.

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Figure 1 - IBM PC Channels

IBM j Sales Force 1 Educational


I

1 \

I
\

Discount Retailers
r

_ Computer Retailers \ /

NAMs : VARs li

General Retailers I ,

=-I

Individuals <====== END CUSTOMERS ======> Organizations

Figure 2 - Channel Conflict Perspectives

Channel 11
~

/I

Classification Cell 1 - dyadic channel conflict

Inter El Firm

Cell 2 - horizontal competition Cell 3 - vertically integrated, divisional objectives Cell 4 - hybrid channel conflict

Figure 3 - Conceptual Model


Antecedents and Consequences of Hybrid Channel Conflict
f \

f \ f \

\ Domain Similarity Among Channels / \ Goal Incompatibility Among Channels / +

Performance of Channel System +

Satisfaction Within Channel System

\ /

Direction of sign from Conflict to Performance is mediated by the Life-Cycle stage. In the growth stages of the Life-Cycle, the ? is replaced by a +. In the maturity and decline stages, the ? is replaced by a -.

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