8th Global Conference on Business & Economics
ISBN : 978-0-9742114-5-9
MANAGING RELATIONSHIP IN DISTRIBUTION NETWORKS:
EVIDENCE FROM THE AUTOMOTIVE MARKET
Information on the author:
Giancarlo Nadin
Università Cattolica del Sacro Cuore
Centrimark
Via Necchi, 7 I 20123 MILANO
Phone: +39 02 72342426 fax: +39 02 72342771
Email: giancarlo.nadin@unicatt.it
Keywords :
Trust, Relationship Management, Car distribution, Automotive
Abstract
This paper is concerned on the relationship among a car manufacturer and its dealers, focusing,
especially, on the trust determinants. The nature of the rapport is controversial since
asymmetrical power but at the same time, strong exclusive bonds influence the perception and
the decisions of the parties. In addition, a recent evolution in the European retailing contract
regulation has given new rooms for improvement for the dyad but has also left dark areas as
regards potential opportunistic initiative.
Based on the emerging theories on trust and the construct in relationship, this paper wants to
explore the deep nature of relationship and trust in order to understand and reinforce the dyad
bonds in the renovated competitive and open arena wanted by the EU regulation.
A field research, run in the Italian domain (Nadin 2008), has demonstrated the coexistence of
power and trust determinants as drivers of the relationship between the automaker and the dealer.
It has suggested, further more, that automaker can influence, by a cause-effect chain approach,
the feeling of dealer toward the relationship and consequently can bust the dealer collaboration
on an affective commitment base.
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Accordingly with the results of the Lado, Dant and Tekleab (2007) study our research has
remarked too the importance of the competitive tenure in the relationship as determinant of the
innovation in the relationship and widely in the distributive network.
Notwithstanding automakers follow a standardised dealer relationship strategy according to the
application of retail standards postulated by selective distribution contract, we posit the
importance of a one-to-one relationship approach in order to improve the relationship results and
benefits by optimizing the mix of trust relationship base and the coercive and competitive
approach typically related to the power-dependence theory.
This paper therefore shows the existence of three different clusters of dealers as regard the
approach to the relationship and specifically their collaboration attitude. The “disappointed”, the
“hopefuls” and the “fulfilled” represent major categories of behaviour toward the relationship
that will be deeply depicted in this paper. The automaker approach toward these three groups
should be differentiated as regard the mix of coerce and concede strategy, the influence over
decisions, the trust supporting evidence and the pressure sustained by an intrusive conduct (i.e.
fear and retaliation).
Introduction
Automotive distribution relationships have been stable for many decades. In stable markets, such
as singles European countries till ’80, automakers selected their exclusive dealers who became
their operative harm for local commercial protection. Traditionally they have settled
relationships with the distribution networks following a top-down approach which has created a
power-dependence relationship (Frazier and Summers 1984, 1986). In strict adherence to the
“role theory” (Solomon, Surprenant, Czepiel and Gutman 1985, Biddle 1979), suppliers have
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always set strategy and defined processes for the dealers who had to compliance with principal’s
framework as main duty.
The subsequent entrance of the final market in a saturation phase, the rising up in the market by
far-east brands and finally the deployment of the project aimed to unify commercially each
European member state have pushed stronger competition in EU.
Nowadays competition in the automotive market is so strong that it is played often not at a brand
level only but more sophisticatedly at the final and local market level by dealers. In this
circumstances dealers make the differences as regards selling and after-sales services by the
resources and competencies they put in the retail business. As a consequence the strong pillar on
which was established the basic of the relationship, the aforementioned “role theory”, has shown
many signs of fracture. Many instances confirms this opinion. Automakers have decided to
reduce the numbers of operators in order to manage the increasing need of control in presence of
final market complexity. Retailing evolution has shown opportunity for operators concentration
and the consequent birth of multi-brand and multi-site dealer groups. Dealers margins has
reduced significantly while the cost of franchise has increased with a total effect of revenue
decrease.
This emerging picture needs new ways to conceive the relationship between automakers (in
wider term suppliers) and dealers (generally speaking retailers).
The roots of relationship
Distribution relationships are therefore unstable and as a consequence it should be crucial to
understand the nature of them in order to foresee potential trajectories of evolution.
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Many researchers and academics have devoted time and resources to investigate the nature of the
relationship between suppliers and their retailers or distributors. Here we refer to a research ran
in the Italian market that has involved 245 of the 4.000 authorized car dealer operating in the
country (Nadin 2008).
Starting from Structure Equation Modeling method (Corbetta 2001, Bollen 2000) the research
has formulated cause-effect nexus among many latent constructs as reported in figure 1.
Coercive
Influences
0,90
0,48
Conflict
-0,54
Economic
Satisfaction
0,42
Calculative
Commitment
- 0,47
Compliance
0,08
- 0,20
0,28
-0,12
Loyalty
0,99
0,38
0,28
Affective
Commitment
Trust
Non Coercive
Influences
0,67
Collaboration
0,77
0,89
Statistically Significant Regression
Not Statistically Significant Regression
Figure 1 – The cause-effect nexus among the constructs of the relationship (source: Nadin 2008)
Figure 1 synthesizes the main results which have found statistically significant regressions and
non statistically significant regressions (see the dotted line in figure 1). Without any aim to
analyze deeply the emerging results for which we refer to the author’s publication, we try to sum
up the main features which enable to understand of the roots of the distribution relationships.
The research has outlined the existence of the dualities of power and trust approaches in
automotive distribution network management. Since the commercialization of cars has always
seen the supremacy of automakers on the dealers, the typical relationship structure has been
settled on power-dependence basis (coercive influences, conflict, calculative commitment and
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compliance behavior of dealers) (Kumar, Scheer and Steenkamp 1995a, 1999b, Lusch, 1976a,
1976b).
This approach, as we can see in figure 1, brings to a compliance response of the dealer, who is
committed to the success of the make unless he recognizes a substantial economic return which
compensates adequately the loss of autonomy and independency.
The aforementioned saturation of final car markets has pushed channel operators to adopt more
targeted and personalized local marketing activities which, being basically based on below the
line communication, ask the complicity and strong collaboration
of
dealers (Ogenyi and
Blankson, 2000).
As a natural consequence the model of power-dependence has entered in a crisis phase.
Since remuneration is not anymore the driver of the rapport (Volpato and Buzzavo 2003,
Volpato 1999) and kept in mind the high regression weigh that it exercises positively to trust and
especially negatively as conflict attenuator (see figure 1), many dealers support their presence in
the market till it is not needed new fresh investment and do not collaborate actively in local
marketing since they are principally committed by calculative reason (remuneration of equity
with the less resources spending).
The bottom part of figure 1 shows the existence of a parallel flow which is ordered to sustain
actively the relationship. It starts from the behavior (loyal and non coercive) of the supplier and
by trust-based resources it determines the affective commitment of dealer toward business and
relationship. Affected commitment encourage finally full collaboration of the dealer to the
supplier’s initiatives.
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Although interdependence of the parties can’t be eliminated, (as for the intrinsic nature of the
relationship), asymmetry in the power should be managed in order to increase dealer’s trust in
and commitment and to reduce interfirm conflict (Kumar, Scheer and Steenkamp 1995a).
This in turn transforms the calculus based commitment toward affective commitment in a
sequential iteration (Lewicki and Bunker 1996).
Since the rationale behind this construct is that the perceived coercive approach of the supplier
impedes the extending of the affective commitment by the dealer (Lusch, O’Brien, Sindhav,
2003), automakers must rely on fairness approach in order to get cooperation by dealers.
Trust, which can be seen as the lymph of collaboration, is therefore nurtured by a new approach
of the carmakers. The Italian survey, confirming previous international research conclusions
about distribution relationships, shows and confirms therefore the coexistence of power and trust
flows as determinants of relationship status.
Toward a segmentation of the dealer-net base
Since it coexists in the same relationship power and trust flows consequently the marketing
channel manager should be oriented to balance the opportunism initiatives and on the contrary
the consolidation of trust among members. Trust-based relationship creates open collaboration
and integration among the involved parties but on the other hand, in the long run, can create too
much satisfaction, fulfillment and stability which neglects competition in an open market
context. Notwithstanding the presence of opportunism increases transaction costs, it can be seen
helpful in order to revitalize a relationship which has got a stable position in a moving and
restless market.
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Therefore Lado, Dant and Tekleab (2007) identify in the balance of the trust-opportunism
paradox a way to manage efficacy distribution relationships in presence of turbulent market.
Since we have demonstrated in the previous section the coexistence of the two approaches in the
management of the automotive distribution networks (the power dependence approach and the
trust-base approach), here we want to investigate how this mixture approach can influence each
dealer and recognize in it specific pattern of response which can be taken in charge by the
automaker in a principal-agent theory view (Jensen and Meckling 1976).
To accomplish this goal a cluster analysis on the respondents of the Italian research has been
processed.
The questions kept in account to create clusters are the ones related to dealer commitment
(affective and calculative) and dealer behavior (compliance and collaboration).
Figure 2 shows the questions included in the cluster analysis.
Group
codex
Question
D3
Importance of brand dedicated investments
D24
Importance of sunk costs
D26
Difficult to change partner (automaker)
Affective
commitment
D38
Willingness to belong to the distribution network for trust reason
D36
Willingness to invest in the business as requested by the partner
Compliance
behavior
D4
Negative spiral triggered by communication with the partner as regard problem solution
D2
Attitude to invest in the business and for brand notwithstanding low return perspective
Collaborative
behavior
D1
Willingness to accept sacrifices to be solidarity with the supplier
D35
Openness to give commercial information about the deals to the supplier
Calculative
commitment
Figure 2 – the questions (observed variables) included in the cluster analysis.
As all of the observed variables were numerical and scale based, the K-Means Cluster Analysis
procedure (Aldenderfer and Blashfield 1984) was used. The solutions with 2 to 5 clusters were
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tested with 25 iterations, and the 3-cluster solution proved more efficient and yielded the best
balanced output.
The three clusters were composed of 97, 67 and 81 dealers respectively. The Euclidean distances
among them (1 vs. 2 = 2,96; 1 vs. 3 = 3,26 and 2 vs. 3 =3,12) were relatively large enough to
grant a satisfactory separation between each group and each of the others.
The ANOVA showed that some of the variables gave negligible contributions to the solution of
the analysis, as they provided almost no separation among the clusters.
The less fruitful
variables for clustering were D4 and D2 (together related to the dealer’s compliance approach),
D3 (the feeling of dedicated investment to the relations) and finally D35 (attitude of the dealer to
supply information about the business).
Figure 3 depicts the dispersion of the three clusters on a surface represented by two vectors:
dealer’s behavior toward cooperation and dealer’s behavior toward compliance with the
automaker requests.
Clusters distances and overlapping
6
5
Cluster 3
Cluster 1
4
compliance
C CL 1
3
C CL2
C CL3
2
Cluster 2
1
0
0
1
2
3
4
cooperation
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Figure 3 – clusters mapping on compliance and cooperation approach
Euclidian distances from the centre of each clusters (represented by the black square, triangle
and rhomboid) and each cluster items, ideally laid down in the dotted boundaries of each
clusters, are in average respectively 2,59 for cluster 1, 3,01 for cluster 2 and finally 3,35 for
cluster 3, that is therefore the most widespread of the thee clusters.
Cluster One spreads over an area characterized by high level of compliance (> average 3
threshold) and medium or low intensity of cooperation.
On the opposite, Cluster Two is formed mainly by dealers who have a behavior more inclined to
cooperation.
Cluster Three is composed by dealers who feel high level of cooperation and compliance.
Each cluster shares a conjoint area in the centre of the surface. This overlapping area represents
one third of each cluster.
Overlapping of couple of clusters are reported in figure 4. It shows that at least one third of each
cluster has no overlapping with the others.
cl 3
cl 3
cl 2
cl 1
tot
30
16
35
81
16
20% 23
43% 28
100% 67
37%
cl 2
cl 1
35
34% 28
42% 34
100% 97
24%
tot
81 33%
29% 67
27%
35% 97
40%
100% 245 100%
36%
Figure 4 – overlapping of clusters
This means that the three clusters have many common areas as analyzed from the point of view
of the dealer’s behavior toward cooperation and compliance, that are the most important and
influent vectors used in clusters analysis.
As regards business profile of the clusters, figure 5 shows the main differences.
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Brands
Cluster 1
Cluster 2
Cluster 3
Average
1,95
2,18
1,85
1,98
ISBN : 978-0-9742114-5-9
Automaker
Cars sold
Groups
1,51
650
1,76
800
1,28
600
1,50
650
Figure 5 - the profile of each cluster.
Cluster 1 and 3 share the same profile as regards number of car brands franchised, number of
suppliers (one supplier can have more brands; i.e. Wolksvagen owns Audi, Skoda, Seat and Wv
car and LCV - Light Commercial Vehicles) and finally amount of total car sold per year.
Cluster 2 has a different profile since the dealers belonging to this cluster seem to be bigger than
the others. In terms of brands they franchise two or more brands and they deal with near to
manufacturer groups. As a result the number of cars sold is 25% higher than the average of the
interviewed sample.
Since they are more inclined to manage their business as multi-franchise they interpret the
relationship with the supplier in a open way. Their behavior is based on collaboration schemes
and the compliance approach, naturally intrinsic in a mono-franchise dealer, is less relevant.
On the opposite Cluster 3, which is formed by dealer’s who act substantially with one carmaker
group (average index is 1,28 as in figure 5), lives the relationship in dependence status from the
supplier and therefore it finally acts as complier of the supplier requests.
In order to understand better these differences we will try to outline the behavior profile of each
cluster starting from the information gathered in the wider research before reported (Nadin
2008).
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The aforementioned research has shown that there is a cause-effect nexus among different
constructs such as supplier behavior, conflict-trust perception, dealer commitment and finally
dealer behavior. Figure 6 shows the result for the entire sample of interviewed dealers.
Total Sample
5
4
3
3
4
5
Coercive
Supplier's behavior
Loyal
Conflict
dealer's relationship
perception
Trust
Calculative
Dealer's
Commitment
Compliance
Dealer's behavior
Affective
Cooperation
Figure 6 – The relationship seen as a cause-effect chain
As you can see the central part of the figure represents the cause-effect chain and the extreme left
and right show the intensity respectively of the “dependence” flow and the “trust” one.
The outcomes of the entire sample of interviewed dealers (245 respondents) help us to
understand how is the equilibrium between the power-dependence governance approach and the
trust-based view.
Many years of pressure in the distribution network management have instilled the feeling of
exercise by the supplier of asymmetrical power and therefore the fear of retaliation, punishment
and at least of alienation (Gaski and Ray 2001).
Notwithstanding this interpretation, a positive perspective that is represented by the trust nature
of the relationship (right side of figure 6) can be envisaged. On a five point scale, respondents
declared an attitude of 3,2 toward cooperation. This is the minimal threshold, the neutral
declaration from 1 to 5, but it can be seen as the desire to reconvert the relationship toward a
more interactive approach in the light of a stronger competition environment. Since automotive
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final market is more and more sophisticated and brand competition is increasing, the operators
understand the limit of
a relationship based on the role-theory assumption and ask more
opportunity to be flexible as regards local marketing and selling policies.
Under this perspective we have decided to deepen the understanding of the feeling of dealers
toward the relationship. In this light we propose therefore to analyze the cause-effect nexus not
only for the whole sample but for each of the three clusters in order to evaluate potential area of
customization of supplier’s behavior in the light of reinforcing distribution relationships.
Cluster 3 – the Disappointed
This cluster has stressed the characteristics before described as are presented in figure 7.
Cluster 3 - The Disappointed
5
4
3
3
4
5
Coercive
Supplier's behavior
Loyal
Conflict
dealer's relationship
perception
Trust
Calculative
Dealer's
Commitment
Compliance
Dealer's behavior
Affective
Cooperation
Figure 7 – The cause-effect chain for the Cluster 3 – The Disappointed
The tensions between car manufacturers and dealers are clearly represented in the declarations of
the respondents.
The dealer’s perception of lacking of loyalty approach by supplier induces a mistrust in the
principal and consequently it can be envisaged low levels of affective commitment. Affective
commitment is a key driver for cooperation. In this cluster, starting from the aforementioned
consideration, is quite simple to understand the reasons why dealers do not evoke strongly
cooperation as one of the most important driver in their behavior.
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On the other hand the perception of these dealers about the effect of the dependence and the
coercive approach of the supplier is less strong that the average (see the arrow on the left side of
the figure 7 and the vertical bar line depicting the declarations of the average sample). This
means that cluster 3 nurtures a form of apathy versus the relationship with the supplier. We
stigmatize this status with the term “Disappointed”.
They don’t believe in the trustworthy of the counterpart and consequently they do not act in an
open collaboration standpoint. Further more they have remitted any grievance and hostility for
the coercive approach of the principal and have transformed it in a passive adherence to its
requests. This is clearly confirmed by the high level of compliance statement according to the
declaration of conflict and perception of coercive measures of the supplier. These dealers
therefore are disappointed by the status of the relationship. This feeling is probably getting worse
since the remuneration and return on investment has been reducing in the last decades. As stated
by Volpato (1999) dealers have intentionally wiped out their entrepreneurship freedom versus
the dependence from automakers who have granted them in return a significant reward. Since
remuneration is decreasing, due to market pressure, resentment and disappointment for
dependence is becoming more and more evident and expressed such as in this case.
Cluster 1 – the Hopefuls
This cluster is composed by dealers who feel the need to be more involved with their suppliers.
As shown in figure 8 the absolute frequency of each declaration is higher than the one of the
average sample (see vertical bar line in figure 8).
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Cluster 1 - The Hopefuls
5
4
3
3
4
5
Coercive
Supplier's behavior
Loyal
Conflict
dealer's relationship
perception
Trust
Calculative
Dealer's
Commitment
Compliance
Dealer's behavior
Affective
Cooperation
Figure 8 - The cause-effect chain for the Cluster 1 – The Hopefuls
This means they are engaged to reinforce a closer relationship with automakers. As regard their
behavior, this group has an high mixture of cooperation and compliance. High compliance is
explained by the attitude of dealers toward the feeling of lack of communication and therefore
the renunciation to add extraordinary resources to boost combined activities. The declaration of
this behavior finds its roots in dealer’s commitment. This cluster has the idea that the relationship
investments are sunk cost and therefore they are compelled to remain in the business although
they mistrust in the automaker. This calculative commitment drives to a compliance approach
which means remissive acceptation of the supplier’s request.
As suggested for the
“Disappointed” this regime comes from far away and is rooted in the history of car
commercialization (Volpato and Buzzavo 2003, Volpato 1999) in Italy and generally speaking in
Europe.
Differently from the average sample this cluster expresses not only a sharp attitude toward
compliance as result of a dependence feeling, but a counter intuitive genuine desire to cooperate
more closely with the supplier. This is especially proved by their wish to share more information
with the automaker (explicitly marked in question D35). Notwithstanding they don’t have any
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particular feeling of trust above the average (see figure 8) they show an high affective
commitment; justified by the feeling of belonging to the supplier network (question D38).
All these considerations let us to imagine that this cluster is bringing back the burden of an old
relationship based on asymmetry and dependence but has now maturated a new perspective of
the relationship more inclined to open and frank collaboration with the supplier. One reason for
this new insight could be found in the perception of car market evolution and renewal.
For these reasons we are inclined to define this cluster as the “Hopefuls” stating their positive
vision for further relationship enhancements even if actual constraints.
Cluster 2 – the Fulfilled
Last cluster we have identified is represented by dealers who feel evidently satisfied by the
relationship with the principal.
As we can see from figure 9, the declarations are unbalanced in favor of a trust-based
relationship.
Cluster 2 - The Fulfilled
5
4
3
3
4
5
Coercive
Supplier's behavior
Loyal
Conflict
dealer's relationship
perception
Trust
Calculative
Dealer's
Commitment
Compliance
Dealer's behavior
Figure 9 - The cause-effect chain for the Cluster 2 – The Fulfilled
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The circle of power asymmetry and dependence has not a great importance for this group of
dealers (left side of the figure). The dimension of calculative commitment is still central but do
not drag consequently a predisposition of the dealer for a consistent compliance behavior (the
absolute frequency is less relevant than in the whole respondent dealer’s group).
On the other hand the relationship is sustained by a great harmoniousness due to the trust the
agent put in his principal.
Dealers who belong to this group have the perception of supplier’s fair approach, believe the
principal does not act in a coercive manner and finally is loyal to the member of the network. As
a consequence the trust determinants dominate the thought and the action of the dealer who is
motivated by an affective commitment.
At the end a cooperative behavior arises and guides every decision of the dealer in supplier
comparison.
This picture shows clearly a satisfied status of the dealer as regard distribution relationship with
the supplier. May we assume this is the best relationship configuration it can be obtained in the
dyad?
As told by Lado, Dant and Tekleab (2007) a productive and dynamic relationship need a
combination of trust-base substrate and a continuing tension toward evolution and innovation.
This can be seen as a balance between collaboration purpose and competition push. The
equilibrium of the two extreme vectors can optimize the relationship performance in the light of
an evolving market positioning.
In this perspective how can we evaluate the optimization of the existing relationships in the
cluster two? The analysis of cluster’s data let us to foresee a satisfactorily status for the dealer
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but nothing can be said as regard performance optimization, especially from the point of view of
the supplier.
In order to deepen this evaluation we need to understand how clusters feel about their economic
satisfaction.
Figure 10 reports the declaration of the interviewees about economic satisfaction split in two
areas: fairness of rewards in comparison to the resources devoted to the brand franchised and
reward fairness compared to the performance of other dealer operating in the same area.
D 43
D 40
EconSatis
CL 1
2,1
2,6
CL 2
2,6
2,9
CL 3
2,1
2,5
Sample
2,2
2,7
2,3
2,8
2,3
2,5
Return fairness compared to the resources invested in the brand
Return fairness compared to the earning of the other area operators
Figure 10 - The declaration about dealer’s economic satisfaction
Although the average absolute frequency never gets the minimum threshold of neutrality (a.v. 3;
that means general dissatisfaction for compensation for the business activities), as already stated
by Buzzavo and Pizzi (2005) in occasion of his annual evaluation of Italian retail satisfaction
index, it’s clear to see that cluster 2 has declared a relative higher level of economic satisfaction
compared to the other two clusters.
This could let us to think that these dealers are enough satisfied of the relationship but relatively
not compelled to improve their competitive position since the reward they obtain is quite
satisfactorily.
If we consider furthermore that an average dealership is a family own enterprise which
governance approach is usually simple and aimed to assure the equity pay-back and not
intrinsically oriented to innovation, we have to suppose that the trust-based relationship is not in
itself able to boost distribution relationship performance.
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In other words we are arguing that this cluster is not only definable as the satisfied one but it
could be better labeled as the “Fulfilled”, stating their natural and potential low resilience to
evolution and development.
Managing and evolving relationships
The frame depicted in the previous section of this paper clarifies the existence of many ways to
interpret the relationship from the dealer point of view.
The three clusters (the Disappointed, the Hopefuls and the Fulfilled) have a specified feeling
toward their principals that are the results of passed experiences, their ideas of the present and
vision for the future.
In this scenario we have to recognize furthermore the role played by the supplier in term of
behavior as regard the use of coercive and non coercive influence strategies and the way they
communicate fairness to the distribution network.
Usually suppliers have approached the relationship with the dealer in a standardized method with
no particular attention to dimension, culture, emotions, competencies etc.
This level of personalization has always been left to the attitude and the free interpretation of the
area managers devoted to manage the relationship.
There is no evidence of a strategic segmentation of the network exception for the volumes held
by each dealers. A qualitative segmentation of the network is far from being used by
professionals in the automotive industry.
Here we want to envisage a potentially fruitful way to design a method for recognizing
customized path for managing relationships in this specific industry.
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A first way to face this goal can be found by combining the results of cluster analysis and the
substance of the Lado, Dant and Tekleab (2007) construct which highlights the centrality of
conjoint management of the lever of collaboration and the lever of competition with the dealers
in order to boost relationalism, the performance for both the parties and win competition.
Figure 11 synthesizes this concept in a surface defined by two vectors: the axis of collaboration
and the axis of competition.
CL 1 – The Hopefuls
CL 2 – The Fulfilled
CL 3 – The Disappointed
CL1
High
CL1
COMPETING
DETERMINANTS
CL2
CL3
CLn
Cluster actual
positioning
CLn
Cluster potential
and desired
positioning
Low
CL3
CL3
Low
CL2
High
TRUST DETERMINANTS
Figure 11 – dynamic positioning of the clusters as regard the dual strategy: compete and
cooperate
This model is intended to be used as a evaluator of actual positioning but more important as a
predictor of potential and desired future positioning of each cluster/relationship.
In this perspective, “competing” and “trust” axis become vectors of potential action to be taken
by the principal to evolve the relationships with dealers.
At a macro level potential actions to be taken can be identified in the dual strategic orientation
proposed by Ritter e Ford (2004) as reported in figure 12.
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Confront
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Concede
Create
Consolidate
Coerce
Change
Conform
Stability
Figure 12 – Potential strategic orientation in network management (source: Ritter e Ford 2004)
The authors identified two main streamline in network management: search for stability and
request for change.
Operating for stability means looking for maximum level of complicity with actual dealers and
therefore asks for accumulation of trust resources between the parties.
This implies the ability of principals to adopt a style more inclined to conform with the
capabilities of each dealer, to concede spheres of freedom to define own strategies and finally to
consolidate the relationship in order to reduce the cost of interaction also.
On the other hand the aims that animate the principals can go in the opposite direction toward the
evolution and change of the actual network. Search for change means first of all the evaluation
of the existing dealer to move to a new position (i.e a new role, new activities, different
performances, etc.). The three “C” the authors identify are coerce, confront and create.
Change management is always the most complicated process of renewal. Therefore the
principals has to act as a initiator of change. Since change is a latency process and requires trial
and error approach, it could require coercive approach where the counterpart is not able to
understand the evolution path or do not embrace the project. In this perspective confrontation
become a day-to-day tool to understand the attitude of the counterpart to adopt new programs or
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the necessity to leave the relationship in order to substitute them with new ones. The creation is
therefore the speculate position of consolidation. The principals has to face three main problems
when decide to create rather than consolidate a network: a) find new dealers capable to act in the
new constraint, b) manage the exit of old operators and c) unfold the decision to existing
network and therefore facilitating the entrance of new-comers.
Starting from this point of view that can be summed up in all the decisions taken inside of the
boundaries of the Cartesian coordinate system of figure 11 we can now imagine how the three
clusters represents different relationship status and therefore ask for specified treatments and
supplier’s behaviors.
Within the boundaries of collaboration (trust) and compete (power and dependence), Cluster 1
(the Hopefuls) finds his collocation in the central north part of the surface, Cluster 2 (the
Fulfilled) are positioned in the south-east angle and finally Cluster 3 (the Disappointed) is on the
south-west part of the plan.
This static representation must be matched with the vision of the evolution of the network
designed by the supplier.
Starting from the hypothesis that every principals is aimed to improve its distribution network it
is interesting to image how this goal can be pursued.
The model of Ritter and Ford (2004) show us that the evolution of a network can assume many
faces and furthermore that it should be conceived as a balance between forces that drive toward
stability and consolidation and forces headed to create and modify actual relationship status.
The position of the clusters in the quadrants of the Cartesian plane give us the stimulus to
envisage a potential movement of the each cluster in the light of distribution network
improvement. Gray dashed circles in figure 11 and the dotted lines show potential path of
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evolution of the network. The Hopefuls feel high pressure from the suppliers but are open to
collaborate therefore the logical evolution could be predicted in the competing strategies
reduction. This should bring to a new equilibrium where the principal is more trusted by dealers
who therefore convey a consistent affective commitment and act more cooperatively.
The Fulfilled dealers feel a trust-based relationship and are satisfied with their principals. As told
before aside the declarations done by the respondents of this cluster it is potentially predictable a
sentiment of relaxation as regard new challenge and outstanding performance targets. In this
scenario the most suitable evolution path could be found in adopting intriguing competitive
initiatives aimed to push the dealers, by a non-coercive or coercive ways, to implement
evolving strategies such as opening new point of sales, massive integration with strategic
supplier’s view, etc.. Generally speaking a sort of push strategy aimed to improve market
penetration and brand development where potentiality of it is evident and comes easily at sight.
In a dynamic view the cluster should move to the northern quadrant as reported by the gray
dashed circle in figure 11.
Cluster 3 the Disappointed has another positioning and requires customized approaches. Since
they feel at the borderline of the network and have a perception of misalignment with the
supplier, the most suitable and viable strategy, to adopt with worth dealers, is to win back their
trust by a loyal approach and secondly to open communication and sharing information and
program in a non coercive way. In a second step and after the trust-based relationship is restored
the strategy could be redirected to a confrontation approach in order to renew the relationship for
a mutual new value creation.
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These examples, intentionally fictitious, since unlinked to any specific case, give us the
opportunity to reflect on the way suppliers have to manage distribution relationship, especially in
the automotive industry.
Generally speaking the carmaker approach is standardized and finalized to implement the same
strategies with all the operators; nor goals or aims nor the strategies and the paths to reach them
have significant levels of customization on the profile of each dealer or homogeneous groups of
them. This approach has been stressed in the last decade when the EU legislator has introduced
retail standards as a way to define qualitative access to the distribution network for franchisee
newcomers.
This strategy has lead to an high level de-individualization of dealers which has been based
mostly on capability to invest rather than to business competencies and ability to local market
exploitation.
The aim of this section is therefore to unfold the opportunity and the benefit to move to a
reinterpretation of the distribution network management approach in order to conceive a wider
view and a multi-channel policy in contrast to a standardized one.
As a last contribute to this goal we desire to highlight the centrality of communication as a way
to implement fruitfully the customized relationship strategy before mentioned.
The role of communication
Communication has a great role since it feeds the entire relationship management process
promoting interaction for conflict resolution and cooperation for creative development of the
relationship.
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Generally speaking we can depict two main approaches to communication management starting
from the centrality position of the principal in a distribution network (Mohr and Nevin 1990,
Koza and Dant 2007).
We distinguish between unilateral (or unidirectional) communication strategy and bilateral (or
bidirectional).
As the two names suggest, the choice is strictly related to the relationship strategy conducted by
the supplier in the case of its power asymmetry.
Many researches show that parties, who show cooperative attitude, corroborate it by
communication openness and wide information exchange since this is one of the main tool to
improve collaboration (Deutsch 1994, Johnson and Johnson 1989). On the other hand the same
researches show that when the parties stand on antithetical sides, communication is managed
more carefully and it becomes the way to dissimulate real hidden strategies of the parties. In
these constraints and when one party has the privilege of power asymmetry, communication
becomes unidirectional or unilateral and has the main purpose to define the rules in terms of
contract and procedure and to define spheres of freedom of each party in a clear “role theory”
setting.
During our research we have asked the dealers to express their idea about the communication
approach of the their principals.
Figure 13 shows the main results in term of opposition between unilateral and bilateral
communication approach.
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3,8
CL1; 97
3,7
Unidirectional
communication
3,6
3,5
CL3; 81
3,4
sample
3,3
3,2
CL2; 67
3,1
2,8
2,9
3,0
3,1
3,2
Bidirectional communication
3,3
Figure 13 – Dealer’s perception of supplier’s communication style (unidirectional vs
bidirectional).
The label “unidirectional” synthesizes
the evaluation of four communication elements:
principal’s explanation about decisions, lack of communication for problem solving, formal
contract as relationship driver and processes as way to conduct day-to day relationship.
“Bidirectional” means the attitude of principal to listen the voice of the counterpart and to raise
its consciousness about communication. This vector is the average of four other questions that
have been administered to the interviewed dealers: dealer’s openness to provide information to
the principal, openness of the principal to generate two-way communication, attitude of the
principal to understand local market conditions, mutual fitting as a way to manage the
relationship rather than written rules.
Cluster 1 – the Hopefuls has the higher level perception about unidirectional communication and
an high level of bidirectional. The coexistence of high intensity for both vectors finds reason in
the perception of procedures as mean of coordination and lack of communication as regards
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problem solving that could be one of the inner effect of high presence procedures. On the other
hand this group shows an high willingness to share information about its business deals and
therefore openness to cooperativeness, that is a clear sign of bidirectional perception.
Cluster 2 – the Fulfilled has a south-east position in the chart of figure 13 under the dotted line
which represents the bisector of the chart.
Their perception is therefore more inclined to
consider a bidirectional communication with the supplier than a one way dialogue. It is
interesting to note that this scoring is primarily the outcome of a low level of unidirectional
sentiment about communication with the supplier. For instance they are persuaded that the
principal give enough explanations about commercial initiatives and for problem solving.
Cluster 3 – the Disappointed believes that there is unbalance in favour of an unidirectional
communication strategy of the principal. They don’t think the supplier is really interested in
understanding local market condition which is one of the main prerequisite for establishing an
open two-way communication with every participant of the distribution network.
Clusters positioning in respect to communication strategy reflects entirely the shape given to
each aforementioned cluster and therefore leaves paths for relationship management
improvement .
Generally speaking unidirectional communication is primarily fitting bureaucratic relationship
management since parties strictly adhere to the role and defined procedure. In these cases task
approach prevail on performance approach (Hall, Haas and Johnson 1967; John 1984) and, as a
result, competitive advantage of the channel (principal and agents) could be compromised in the
presence of chaotic final markets which require continuous strategy redefining. On the opposite
bidirectional communication fosters trust-based relationship and is better fitting evolving final
markets. Bidirectional communication approach therefore let the parties be more interactive and
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consequently moves the relationship from process perspective relationship to goal setting
approach (Corsten and Felde 2005; Moorman, Zaltman and Deshpande 1992).
As suggested by Koza and Dant (2007) the “right prescription” for relationship development do
not pass exclusively for bidirectional communication. Each relationship and each confrontation
area of each relationship needs a proper mix of unidirectional and bidirectional communication
approach in order to maximise the performance of the channel.
In order to evaluate how the right mix of unidirectional and bidirectional communication can be
defined, it’s important to understand the characteristic of the communication content. Matrix in
figure 14 shows four quadrants that can be assumed as many cases of communication contents
related to exchange contents.
High
Knowledge and
expertise about the
process
Low
Expert Power
?
Unidirectional
Mutual
adjustment
?
Bidirectional
Low
High
Outcome predictability
Figure 14 – Communication mix as consequence of exchange content.
If suppliers is knowledgeable about the process and can clearly predict the outcome on an
initiative, they’ll benefit of an expert power (Couglan, Anderson, Stern and El-ansary 2006;
Castaldo 2005) over the network members. The communication strategy can be therefore based
on an unidirectional approach since the content is clear and nothing should be modified.
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On the opposite side when process is not clearly known by the parties and therefore the outcome
is also unpredictable, the parties should act in a mutual way in order to converge resources and
sequential steps. In this perspective the most effective communication approach is the
bidirectional one since it opens up dialogue and mutual adjustment (Wathne and Heide 2000).
The other two quadrants represent question marks as regard the communication style. The one at
the north-east depicts circumstances where role theory is totally applicable since the process to
be performed is experienced by the parties but at the same time the outcome can’t be predicted.
In this constraint the activities to be performed by the parties, having unknown output, do not
clearly let the parties to evaluate pie splitting as regards the final benefit. If the principal want to
exercise his asymmetrical power he will define unidirectional communication otherwise he will
open a two way communication system aimed to evaluate the resources deployed by the
participant and consequently to define a channel equity benefit sharing approach. This the case
of an automaker who decide to enter a new target segment involving the existing distribution
network. Performance is ex-ante unknown notwithstanding the dealers have to manage the same
business since past experience is not applicable to the new initiative.
If supplier wants the dealers to participate actively has to show open dialectic in order to induce
them to invest resources in the venture, stimulated by an equity return. An unidirectional
communication behaviour probably will cause a compliance response of the dealers who could
demonstrate low commitment to the initiative.
The last quadrant is related to a circumstance where outcome is highly predictable since it is the
result of a known activity but there could be uncertainty in the process to manage the activity
itself (i.e. as a result of the entrance of new operators differently structured as regard its
organization or business model). This could require the reinterpretation of the rules and the actor
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roles and therefore a new negotiation process with all the parties is highly needed and
recommended. The behaviour of the principal could be inspired to the involvement of the agents
in rewriting the procedures, that is bilateral communication and declaration of quest of an equity
approach. At the opposite the principal’s decision can converge on a generalised solution that
could dissatisfy part of the dealers and that requires an unidirectional communication approach.
Conclusions
Two main considerations emerge from this paper. First of all relationship management requires
great flexibility and attitude to customization and secondly the interaction with the distribution
network can be rethought as the simultaneous conjoint presence of competition and cooperation.
As regard the first aspect it is remarkable that the direction taken by automotive industry is
exactly at the opposite of what this consideration is going to be.
The EU vertical restraint legislation has introduced retail standard as a criterion to define and
appoint new franchisees in the selective distribution setting.
This means automakers have the right to define minimum standards that every dealer has to
respect to be part of the network. Minimum retail standards are related to infrastructure,
organization, roles, procedures and at least behaviors to be performed when the brand has to be
spent by dealer in final markets.
Starting from this legal framework each automaker has defined a set of standard to be
complained by dealers. Generally speaking the definition of standards has been done with the
aim to fix high levels of quality as regard premises, procedures, organization, staff, etc..
The implicit purpose in this idea was to elevate general service and quality provided to final
customer and by second effect to protect the existing network by new comers. The compliance to
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retail standards ensures every operator to be unchallengeable part of the distribution network and
consequently the elevation of them arises the cost of franchise and reduces potentially
competition protecting existing network.
In the light of dealer-automaker rapport, the effect of this policy has plastered the relationship
since every dealer has to compliance to standards regardless to dimensions, culture, attitudes,
behavior etc. In other words if in the previous section of this paper we have sustained and
justified the need of a customized approach toward dealers in order to optimize commitment and
collaboration here we have to ascertain that the actual evolution is toward standardization.
Differently form customization standardization means identical treatment, apart from the
dimension parameter, of all the dealers that is different from equity which means the appropriate
answer to specific request coming from every dealer relationship.
This high level flattening will lead, in long-term, to dealer-automaker relationship depreciation
stating the incapability of this model to fit properly final market demand with dealer attitudes
and this latter with automaker desired positioning.
A second consideration that must be taken in charge is the new theoretical perspective opened by
the aforementioned interpretation of the relationship. Traditional academic schools of though
have always separated, as concurrent approaches, the relationship managed under dependence e
power asymmetry constraints (Lusch 1976a, 1976b, Etgar 1979, Lusch e Brown 1982, Anand e
Stern 1985, Heide e John 1988, Gaski 1986, Frazier e Summers 1986, Boyle, Dwyer,
Robicheaux and Simpson 1992, Gaski e Ray 2001) and the idea of trust-based relationship
(Anderson e Narus 1990, Kumar 1996, Castaldo 2002, Lusch, O’Brien e Sindhav 2003,
Geyskens, Steenkamp, Scheer and Kumar 1996, Kingshott 2006, Yilmaz, Sezen and Ozdemir
2005, Morgan and Hunt 1994, Scheer, Kumar and Steenkamp 2003). The results of this research
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in the domain of automotive distribution relationship confirm new perspectives in the concept of
distributor-supplier relationship. In this direction new insight are formulated by many academics
(Castaldo 2005, Lado, Dant e Tekleab 2007, Dant, Brown e Bagozzi 2007) who are inclined to
envisage the convergence of the two models (the power and competition in one side and trust and
collaboration on the other). The basic idea resides in the coexistence of the opposite tensions
(competition and collaboration) in each relationship and further more the belief that the right
mix of the two components can drive to optimization of the relation in itself and in term of
channel performance also.
This new insight is stirring of many significant effects such as, first all of all, the intrinsic
instability of strategy defining. Since relationship governance is made by the optimum
equilibrium between contextual competition and cooperation activities, and considering the
continuous evolution of market arena, suppliers has to review their approach with the assumption
that the equilibrium is unstable and must be continuously revised.
Secondly the concept of coexistence and right mix of coercive and non coercive strategy, finally
redirects to the notion of customization since the prescription of coercive influence strategies and
bidirectional communication policies as antecedents for trust-based resources creation must be
identified on the shape of each distribution relationship having attention individually to the
achievable goals.
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