[MUSIC] Next, let's move on to channel management. Why do I need to think of channel management? Fundamentally because conflict, no matter how good you are at your design, it's bound to exist. What do you mean conflict will exist if I have been so good at designing the channels and aligning them with my customers needs? Well, here I'm going to give you a list of examples of the kind of conflicts that often times occur between manufacturers or producers and distributors. Do you think that I'm exaggerating in this list? No, these are a dime a dozen, they occur almost everyday. Why are these conflicts so common? It's very, very simple. You, the manufacturer or producer, have your own income statement and the channel or the distribution has its own income statement and, hence, interests. Seldom does it happen that both the income statements of the channel and the producer are perfectly overlapped. Most likely there is partial overlap and that's fundamentally the reason as to why these different conflicts that I have listed here for you are bound to exist. So, are this the only kind of conflicts that arise after you have designed your channel? Obviously not. There are other kinds of conflicts and those are conflicts between channel partners. Why do conflicts between channel partners exist? It's very, very simple. Let's imagine the case for cell phones, now smartphones. Let's take the example of the company Movistar. Remember those kind of cell phones? Have you ever seen them? Those were some of the first cell phones that came into the market in the mid-80s, okay? Originally these phones were so expensive that Telefonica had its own direct sales force visiting companies, trying to place some of these units. But eventually through the 90s, they opened up a retail network of specialists, that they only work with Telefonica or Movistar, with Movistar subscriptions. And the phones got simpler, they also got cheaper, and so it was simpler to be able to sell these phones at specialized retailers, which in addition to chargers, complementary products, subscriptions services, and plans, and so forth and so on, educated you as to the use of different features of the phone. However, through the last decade, almost anybody has a phone and, eventually, a smartphone. So, as you can imagine, Movistar or any other telco operator decided to diversify and increase their penetration in market, for example, by selling in supermarkets and hypermarkets and many, many other types of outlets such as fnac and Media Markt and so forth and so on. Eventually, after smart phones have come up, this has extended even further, all the way to simply just picking up the phone from Amazon and eventually connecting yourself to the service over the internet. You don't even need to show up at a retail store if you know what model you're looking for and most of the education can happen by self teaching yourself or simply looking it up after the internet by observing reviews and so forth and so on. So, can you imagine the kind of conflicts that will happen? Do you think that everyone of these retailers only respects the boundaries in which you are supposed to sell? Will you be tempted if you were one of the specially retailers from Telefonica to go and try to target small and medium enterprises around where you have your store? Certainly right? Similarly, you would be very upset when they started selling at Carrefour. It's not optimal for you, because before you used to draw most of the traffic into your stores, but when Carrefour opens up it becomes a real hassle for you. Similar for Carrefour and Amazon. So you can see the kind of conflicts that begin to happen between channel partners. So it is the responsibility of Telefonica to try to rule over these different channel partners as best as they possibly can by writing appropriate contracts, all right. Now, writing appropriate contracts will help you in the regulation, but this does not mean that the conflict will not arise, nevertheless. Amongst other things, it's because, as we've stated before when we describe products, products do have a lifecycle. Introductory, growth, maturity, and decline, which we have already seen. It turns out that because of this product lifecycle, products also have cycles of adoption, right? Not everybody adopts the product at the same time. Specifically in technology adoption lifecycles, the patterns of adoption follow like a bell-shaped curve where, first, there are very few innovators that find out about the products or service. In fact, they may even find out about the product or service before anybody has ever marketed these products or services because they are looking out for some of these innovations. Then there are early adopters that account for still a small percentage of the entire market. Then the early majority come in, late majority and eventually the laggards. This has been proven a reliable pattern of adoption for most technology products. Now, as more people are coming in to the adoption lifecycle, the complexity of the products needs to be reduced, right? So you shouldn't need as much service or education in order to sell it. So, as the complexity gets reduced, more and more channels are able to distribute your product or service. And, because of that, conflict is bound to happen between the different channel partners. So what does it mean for managing channels? Well, first of all, recognize that you can not eliminate conflict. In fact, if you have this problem of conflict between channels, be happy and embrace it. It means that your product has gained a lot of widespread distribution. But normally when manufacturers and producers are always doing is evaluating each other's bargaining power. How can you change the bargaining power in a relationship? There are many, many, many ways. For example, producers and manufactures will vertically integrate and sometimes even acquire the channel of distribution. What can distributors do in order to gain more bargaining power for themselves and have a bigger say in those relationships? Often times, they launch their products or services with their own brands. Or they decide to carry only a limited selection of your entire product portfolio, so that they don't become too dependent on one particular supplier. So, evaluating the bargaining power and how you might go about changing the bargaining power in a relationship Is an important first step. Next is you have to be able to write good contracts. You need to have sufficient foresight to imagine some of the problems that are going to come around. For example, in the specific cases as I said, when you need to regulate or the price of the item to be the same throughout the entire distribution network. Then, in order to have a better control over the channel, sometimes manufacturers invest in issues such as even placing their own employees working at the channel partner in order to facilitate communication and smooth out their relationship or minimize conflict problems. And, as I said before, even after you've done all this stuff, conflict is not avoidable. Sometimes you just simply have to manage it. [MUSIC]
