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Distribution Channel Management
Chapter 8
Strategic Alliances
In Distribution
Chapter 8 Outlines
Learning Objectives
- Define and describe the purpose of committed relationships among
channel members
- Distinguish upstream and downstream motivations to form an alliance
- Understand the reason why alliances outperform ordinary channels
- Learn how the each member judge the other side credible commitment
- Describe the building of commitment by both members based on
mutual benefit understanding
- Understand commitment building based on economic and noneconomic satisfaction
- Differentiate the five stages of a close marketing channel relationship
Strategic Alliances in Distribution
Points of Discussion
- What is the difference between a strategic alliance and
other well-functioning marketing channel?
- What do the members of the alliance hope to get out
of it?
- Do they actually gain the benefits they seek? At what Cost?
- What characterizes an alliance in distribution?
- How can these alliances be built?
- Is a distribution alliance worth its cost?
Strategic Alliance in Distribution
What is a strategic alliance?
- Generally when two or more organizations have
connections that cause them to function according to a
perception of a single interest shared by all the parties
- Membership cause each party to alter its behavior to fit
the objectives of the alliance
- It exhibits genuine commitment
- Committed party works hard to maintain and to grow the
relationship
Strategic Alliance in Distribution
The implication of a Commitment
- Commitment is a long time horizon
- It is an active desire to keep the relationship going
- A willingness to make sacrifices to maintain and grow
the relationship
- Channel members tend to commit in a symmetric way
See symptoms of commitment from Figure 8.1 page 291
Strategic Alliance in Distribution
Why Strategic Distribution Alliance? – Upstream
motives
- Expect to gain advantages and profits from downstream
channel members (produce to demands, cut
inventories, avoid stockouts, etc.)
- Appreciate the ability to achieve better coverage
at a lower cost
- Motivate distributors to represent them better in
current markers, new markets, new products
Strategic Alliance in Distribution
Why Strategic Distribution Alliance? – Upstream
motives
- Seek to coordinate its marketing efforts
- Seek greater cooperation in information exchange
(information about sales, inventory level, promotion
activities, etc.)
- Rebalance the power arrangement from a wave of
wholesaling consolidation
- Build good distribution network as barriers to entry by
new competitors in the future
Strategic Alliance in Distribution
Why Strategic Distribution Alliance? – Downstream
motives
- Downstream members assure stable product supplies
- Make their own marketing efforts more successful
- Seek to cut stock costs and suffer few out-of-stock situations
- Build alliances to differentiate themselves from others
- Offer value-added services – training, installation,
maintenance, technical assistance, etc.
Strategic Alliance in Distribution
Points of Discussion
- Do the parties to an alliance do their calculations
correctly?
- Do alliances really outperform ordinary channel
relationship?
Strategic Alliance in Distribution
Alliances outperform ordinary channels due to
Committed parties trust each other to
- do more for each other
- go out of their way to help each other
- easier to come to agreement
- easier to work out conflicts
- help each other to cope with unfavorable outcomes and
turn them around
- evidence indicates that channel partnerships generate
higher profits together
Strategic Alliance in Distribution
How distributor judges supplier’s credible
commitment?
- Supplier willingly dedicates personnel and facilities to
distributor
- Supplier eagerness to learn your organization
- Using compatible reporting system geared specifically
to your system
Strategic Alliance in Distribution
How distributor judges supplier’s credible
commitment?
- Investment designed to identify your business and
their business in the mind of the customer
- Investment such as training programs to help you run
your business better
- Setting a location near you
Strategic Alliance in Distribution
Supplier judges distributor’s commitment
- Dedication of people and facilities to supplier’s line
- Investment in upgrading and training the personnel
serving supplier’s line
- Efforts to learn about that supplier and build
relations with his people
Strategic Alliance in Distribution
Supplier judges distributor’s commitment
- Training of its customers on product information and
usages
- Efforts to introduce the two parties’ name in customer’s
eyes
- Investment in reporting system particularly compatible with
distributor’s system
- Set up a location of a facility closer to distributor
Strategic Alliance in Distribution
Actions that bind distributors to suppliers
- Distributor dedicates resources to suppliers
- Build commitment by opening two-way communication
- Freely exchange information
- Open to supplier to see weakness and strength
- Giving advice to supplier from time to time
Strategic Alliance in Distribution
How to build a strong successful relationship
- Alliance is like a balance, a scale
- Alliance takes time, risk, resources and determination
from both sides
- In return for commitment on their part, we say we are
committed to you and we prove it
Strategic Alliance in Distribution
How to build a strong successful relationship
- If you make investments, we make investments
- If you take risk, we take risk
- If you perform, we must perform
Two key ingredients to build successful alliance – mutual
commitment and high level of trust
Building Commitment by The Management
Points of Discussion
- What is economic satisfaction?
- Does economic satisfaction plays a fundamental role
in building and maintaining the trust?
- Is economic performance a cause or an effect of
committed relationships?
Building Commitment by The Management
The circular logic of building an alliance
- Build alliance --->
- Produce outcome --->
- Increase economic satisfaction --->
- Increase trust --->
- Get more commitment from alliance members
to build stronger alliance
Building Commitment by The Management
Non-economic satisfaction coming from
- Liberal use of non-coercive influence strategies such as
1. Exchanging information
2. Offer high-quality assistance
3. Making requests
- Perceptions of fairness on two fronts
1. Procedural fairness
2. Distributive fairness
Marketing Channel Relationship
Five Stages of Development to Reach Alliance Status
- Stage 1: Awareness
- Stage 2: Exploration
- Stage 3: Expansion
- Stage 4: Commitment
- Stage 5: Decline and Dissolution