Chapters 6 & 7:
Behavioral Processes in
Marketing Channels
Major Topics
Challenges of Managing Channels
Marketing Channels as a Social System
- A Conceptual Framework
Major Building Blocks of the Framework*
– Economic Structure
– Economic Process
– Political Structure
– Political Process
Challenges in exercising power and
achieving control in marketing channels
• Loose alignment between channel
members
• Central direction is lacking
• Single ownership is often missing:
intensity
• Formal authority is absent
• Reward and penalty system is not
precise
• Central planning is rare.
3
4
Marketing Channel as Social System
Social System
• Generated by any process of
interaction on sociocultural level
• Between two or more actors
• Actor is individual or collectivity
=
Interorganizational
Social
System
Individuals or collectivities
Interacting within marketing channel
Our Conceptual Framework:
Political Economy Framework
Four Elements of Political Economy
Framework*
1. Economic Structure
2. Economic Process
3. Political Structure
4. Political Process
1. Economic Structure
- What We Learned = Channel Structure
- Ex1) Vertical Marketing System
- Ex2) Market-Clan-Hierarchy Trichotomy
- Roles and Expectations
Roles in Marketing Channels
A set of prescriptions defining what the behavior
of a position member should be
• Roles change over time.
• Straying far from a role may cause conflict.
• Roles help describe & compare the expected
behavior of channel members and provides insight
into the constraints under which they operate.
• Role Stress: Role Ambiguity and Role Conflict
Roles in Marketing Channels
Questions to help the channel manager
• What role does the channel manager expect a particular
channel member to play in the channel?
• What role is this member expected to play by his or her
peers?
• Do the manager’s expectations for this member conflict
with those of the member’s peers?
• What role does this member expect the manager to
play?
2. Economic Process
- Three Dimensions of Decision Making
1) Formalization
2) Centralization
3) Participation
- Three Elements of Economic
Exchange
1) Resource Exchange
2) Information Sharing
3) Collaboration
3. Political Structure
- Power-Dependence between Firms*
1) Motivational Investment in the Partner
2) Replaceability of the Partner
- Strength of Ties
1) Intensity: Past Resource Commitment
2) Intimacy: Information Disclosure
3) Reciprocity: Mutually Agreed Conditions
4
Power in the Marketing Channel
The ability of a particular channel
member to control or influence the
behavior of another channel member
Keys to understanding Power:
• Power Bases
• Use of Power Bases
cf) Control
Bases of Power for Channel Control*
Reward Power
Coercive Power
Legitimate Power
Referent Power
Expert Power
Using Power in the Marketing Channel
1. Identify available power bases
Bases are a function of size of:
• producer or manufacturer
• organization of channel
• particular set of circumstances
2. Select and use appropriate
power bases to better or
worsen channel relationships
FIGURE 8.1: THE NATURE AND SOURCES OF
CHANNEL POWER
A’s Level of
Investment in:
Coercion
Reward
Legitimacy
Expertise
Reference
Competitive
Levels of:
Coercion
Reward
Legitimacy
Expertise
Reference
DEPENDENCE
OF B ON A
A’s Offering to B:
Coercion Reward
Legitimacy Expertise
Reference
POWER OF
A OVER B
• Countermeasures for balancing
power asymmetry*
• Develop alternative sources
• Organize a coalition with other firms
• Walk out of the relationship!
• Raise the other party’s dependence
on you
©McGraw-Hill Companies, Inc. 2002
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4. Political Process
- Communication & Use of Power
- Control = Achieved Influence
- Conflict
Interfirm Communication
- Four Dimensions of Communication
1) Content*
2) Frequency
3) Modality
4) Directionality
- Influence Strategies**
Behavioral Process in Marketing Channels IV:
Using Power to Exert Influence
• Influence Strategy
– Promise
– Threat
– Legalistic
– Request
– Information
exchange
– Recommendation
©McGraw-Hill Companies, Inc. 2002
• Power Bases
– Reward
– Coercion
– Legitimacy
– Referent, Reward
– Expertise, Reward
– Expertise, Reward
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Communication Processes
Behavioral Problems in
Channel Communications
1.
Differences in goals
between
manufacturers &
their retailers
2.
Differences in
the kinds of
language they use
to convey
information
Communication Processes (cont’d)
Behavioral Problems in
Channel Communications
3.
Perceptual
differences
among
members
4.
Secretive
behavior
5.
Inadequate
frequency
of
communication
• Major Sources of Channel Conflict*
–Competing Goals
–Different Perceptions of Reality
–Clashes over Domains: Intrachannel
competition
–Multiple channels and Gray market
–Threats by Channel Partner
©McGraw-Hill Companies, Inc. 2002
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FIGURE 7-2: NATURAL SOURCES OF CONFLICT:
INHERENT DIFFRENCES IN VIEWPOINTS OF SUPPLIERS
AND RESELLERS
Supplier Viewpoint
Financial Goals
Desired Target
Accounts
Expression of Clash
Max imize o wn profit by
Max imize o wn pro fit by
Sup plier: Yo u do n’t pu t en ough effort
- Hig her prices to reseller
- Hig her sales by reseller
- Hig her own-lev el marg ins
(low er p rices from our supp lier
an d hig her prices to our
behind my brand. Yo ur prices are too
high.
Reseller: Yo u do n’t supp ort me en ough.
- Hig her reseller expenses
- Hig her reseller inv ento ry
cu sto mer)
- Low er ex pen ses (less suppo rt)
- Faster inv ento ry turn over
With yo ur w holesale prices, we can’t make
mo ney.
- Low er allow ances to
(low er reseller stock s)
- Hig her allow an ces
reseller
from manu facturers
Focus on:
Focus on:
- Multip le segments
- Multip le markets
- Man y accounts
(raise volu me an d share)
Desired Product
And Accounts
Policy
Reseller Viewpoint
- Segment co rrespon ding
Sup plier: We n eed mo re co verage an d
to resellers’ po sitio ning
mo re effort. Our reseller d oesn’t do en ough
(e.g. d iscoun ter)
- O ur markets only
- Selected accou nts
for u s.
Reseller: Yo u do n’t respect our marketing
strategy. We n eed to make mo ney too.
(those that are pro fitable
to serve)
- Concentrate on our
- Achieve economies o f
Sup plier: Yo u carry too many lin es. Yo u
prod uct catego ry an d
scop e o ver produ ct categories
don ’t give us en ough attention . Yo u’re
- Carry our full line
(a variation for ev ery
co nceivable need, p lus our
- Serve cu sto mers by o ffering
brand asso rtment
- D o not carry inferior or
Reseller: Ou r cu sto mers come first . If we
satisfy o ur customers, you will ben efit.
By the w ay, should n’t yo u consider prun ing
effo rts to expand our lin e
outside ou r trad itional
slow-mo ving items
(ev ery supplier has so me of
you r prod uct line?
streng hts)
these)
our bran d
*Based on Mag rath and Hardy (198 9)
disloyal.
Managing Channel Conflict
Detecting
conflict
Appraising the
effect of
conflict
Managing
Conflict
Resolving
conflict
• Conflict Resolution Strategies
1. Information-intensive mechanisms:
DAC, Personnel exchange
2. Third-party mechanisms: mediation
and arbitration
3. Building Relational norms: flexibility,
solidarity
©McGraw-Hill Companies, Inc. 2002
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CONFLICT RESOLUTION STYLES
High Cooperativeness
Accommodation
Cooperativeness:
concern for the
other party’s
outcomes
Collaboration
or
Problem solving
Compromise
Low Assertiveness
High Assertiveness
Avoidance
Competition
or
Aggression
Low Cooperativeness
Based on Thomas (1976)
Assertiveness:
Concern for one’s
own outcomes
• Key Qualitative Outcomes
– Trust
– Satisfaction
– Commitment
©McGraw-Hill Companies, Inc. 2002
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FIGURE 9.1: HOW HIGH LEVELS OF CONFLICT ERODE
CHANNEL RELATIONSHIPS
CONFLICT
Level of tension, frustration,
disagreement in relationship
experienced by focal firm
_
ECONOMIC SATISFACTION
of focal firm: positive affective
response to financialrewards
derived from relationship or
economic gratification
_
_
TRUST
Focal Firm’s belief in
counterpart’s honesty and
benevolence
+
COMMITMENT
Focal Firm’s desire to continue
relationship and to sacrifice
to build and maintain it
_
NON-ECONOMIC
SATISFACTION
of focal firm: positive affective
response to psycho-social aspects of
relationship, or gratification from
non-financial sector
Based on Geyskens, Steenkamp, and Kumar (1999)