Success Strategies in Channel
Management
Channel Power: Getting It, Using It,
Keeping It
1
Channel Power
Power in Channel
Implementation
Power Defined
Why Marketing
Channels Require
Power
Influence
Strategies
How to Frame an
Influence Attempt
The Balance Of
Power
Imbalanced
Dependence
Power as the
Opposite of
Dependence
Sources of Power
Measuring
Dependence
2
Channel Power
In marketing channels, getting power, using it correctly, and keeping it are
subjects of paramount importance. Virtually every element of
marketing channels is permeated by considerations of power.
These channels are systems made up of players who depend on each other.
Interdependence must be managed, and power is the way to do it. The
organizations who are players in a marketing channel must acquire
power and use it wisely, first for the channel to work together to
generate value, and second for each player to claim its fair share of
that value.
How the players gain and use their power today drives whether they can
keep it tomorrow. Many different sources and uses of power exist:
They are not equivalent.
3
Power in Channel Implementation
Channel members must implement
the optimal channel design and
indeed must continue to implement
an optimal design through time.
The value of doing so might seem to
be self-evident, but it is important to
remember that a channel is made up
of multiple interdependent entities
(companies, agents, individuals).
But they may or may not all have the
same incentives to implement the
optimal channel design.
Incompatible incentives among
channel members would not be a
problem if they were not dependent
upon each other..
How, then, can a channel captain
implement the optimal channel
design, in the face of interdependence
among channel partners, not all of
whom have the incentive to cooperate
in the performance of their
designated channel flows? The
answer lies in the possession and
use of channel power.
4
Power Defined
Power is the ability of one channel
member (A) to get another channel
member (B) to do something it
otherwise would not have done.
Simply put, power is a potential for
influence.
Exercising power means exerting
influence.
Is Power Good or Bad?
Because power is the potential for
influence, great benefits can be
achieved by the judicious use of
power to drive a channel to operate in
a coordinated way.
Like a hammer, power is a tool. A
tool is neutral. We can judge how
someone uses the tool, but then we
are deciding whether the usage is
good or bad. Power is merely an
implement. It is value neutral
5
Why Marketing Channels Require Power
Marketing channel members must
work with each other to serve endusers. But this interdependence does
not mean that what is good for one is
good for all.
Each channel member is seeking its
own profit. Maximizing the system's
profits is not the same as
maximizing each member's profits.
Left alone, most channel members
will not fully cooperate to achieve
some system-level goal.
Enter power, as a way for one player
to convince another player to change
what it is inclined to do.
6
Power as the Opposite of Dependence
Specifying Dependence
But what is dependence? B depends
more heavily on A:
Dependence is the utility provided,
multiplied by the scarcity of
alternatives. Both elements are
essential for dependence to occur
Channel members often consider
themselves powerful because they
deliver value to their counterparts.
But their counterparts don't need
them if they are easy to replace, and
this reduces their power.
It's easy to overestimate one's own
scarcity. For example, distributors of
maintenance, repair, and operating
supplies (MRO items) systematically
overestimate how readily their
customers would shift orders away
from them.
7
Measuring Dependence
How can you form a reasonable estimate
of how much a channel member depends
on you? A direct method is to assess both
utility and scarcity separately and then
combine them.
To assess utility, you could tally up the
benefits you offer. It is then important to
understand the channel partner's goals
and how its organization values what you
provide. Or you might estimate roughly
the profits you generate, directly and
indirectly, as a summary indicator of the
benefits you offer.
Because you want to assess the worth it
attaches to what you provide, focus on
what is important to it (it may be volume
rather than profits, for example).
To assess how easily you could be
replaced, consider two factors. First, who
could be or become your competitors?
What other organizations exist or might
enter the market that could supply what
you provide, or an acceptable
equivalent? If there are none, you can
stop here.
But if there are alternatives, a second
question arises: How easily can the
channel member switch from your
organization to one of these competitors?
8
Sources of Power
Power (the potential for influence) is
an ability, and abilities are not easy to
assess.
How do you take inventory of the
extent of an organization's ability to
change the behaviour of another
organization?
Five power sources: rewards,
coercion, expertise, legitimacy, and
reference."
Reward Power
A reward is a benefit (or return)
given in recompense to a channel
member for altering its behaviour. In
distribution channels, there is, of
course, great emphasis on the
financial aspect of rewards. Reward
power is based on the belief held by
B that A has the ability to grant
rewards to B. Of course, the ability to
grant rewards is not enough: B must
also perceive that A will grant
rewards.
9
Coercive Power
Coercive power stems from B's expectation of punishment by A if B fails to
conform to as influence attempt. Coercion involves any negative sanction
or punishment of which a firm is perceived to be capable. Examples are
reductions in margins, the withdrawal of rewards previously granted (e.g.,
an exclusive territorial right), and the slowing down of shipments. Coercion
is synonymous with the potential to threaten the other organization,
implicitly and explicitly.
Coercive power is the reverse of reward power. Technically, it can be
considered negative reward power - a reward that is withheld, that doesn't
materialize. Why treat it as a separate category? Why not consider
"negative rewards" as being just a step below giving a low level of
rewards?
10
Expert Power
Expert power is based on the target's perception that the influencer has special
knowledge, useful expertise that the target doesn't possess.
Using expert power is not as easy as it may sound, even for an organization
that holds considerable knowledge that would be useful to the channel.
There are three difficulties:
To be able to exercise expert power, a channel member must be trusted. Otherwise, others perceive the expert advice as an attempt at manipulation and
discount it.
11
Legitimate Power
To be legitimate is to be seen as right and
proper, as being in accordance with what
is seen as normal or established
standards. Legitimate power stems from
the target company's sense that it is in
some way obligated to comply with the
requests of the influencer: The target
thinks compliance is right and proper
by normal or established standards.
Thus, the influencer has legitimate power
whenever the target feels a sense of duty,
of being bound to carry out the
influencer's request.
Legal legitimate power is conferred by
governments, coming from the nation's law of
contracts and the laws of commerce. For
example, in many countries, patent and
trademark laws give owners a certain amount
of freedom and justification in supervising the
distribution of their value offers.
Norms of behaviour arise in a channel, norms
that define roles and effectively confer
legitimate power on certain channel members.
Norms - expectations of "normal" behaviour exist not only within industries but also within
certain channels, some of which manage to
build such norms as:
Solidarity.
Role integrity.
Mutuality..
12
Referent Power
Referent power exists when B views A as a standard of reference and
therefore wishes to identify publicly with A. Between individuals, there
are many personal, psychological reasons why person B would feel a
oneness with person A and would wish to be associated (identified) with A.
In a marketing channel, a prominent reason why one organization would
want to be publicly identified with another is prestige.
Down-stream channel members would like to carry high-status brands to
benefit their own image.
pstream channel members "rent the reputation" of prestigious downstream
firms."
13
Separating the Power Sources
The Balance Of Power
It is so difficult to categorize the five
sources of power neatly (without being
arbitrary) that many users of the
framework don't even try. They mainly
rely on three broader groupings.
One method is to separate out coercive
power and lump all the others together
into non-coercive power.
High mutual dependence is synonymous with
high mutual power. This situation gives
channel members the ability to create very
high levels of value added. Each party has
leverage over the other. This can be used to
drive coordination, to enhance cooperation.
High mutual dependence is conducive to
creating and maintaining strategic channel
alliances.
A second way that high and balanced
(symmetric) dependence encourages
cooperation is by blocking exploitation. There
is no weaker party in the relationship:
Symmetric dependence pro-motes bilateral
functioning by increasing each side's
willingness to adapt in dealing with the other.
14
Imbalanced Dependence: Is Exploitation
Inevitable?
What happens when channel member A is much more dependent than channel
member B? The balance of power favours B when A is open to
exploitation. All too often, that potential is realized. The more dependent
party suffers, in economic terms as well as in the non-economic benefits it
draws. This occurs even when the more powerful, less dependent channel
member is not attempting to appropriate the rewards due to A.
15
Imbalanced Dependence: Countermeasures
for the Weaker Party
The weaker party can take three
countermeasures. These three routes
are:
Developing alternatives to A
Organizing a coalition to attack A
Exiting the situation, removing itself
from danger by no longer seeking the
benefits A provides
Many channel members deliberately
keep a diversified portfolio of
counterparts to allow them to react
immediately if any one organization
exploits the imbalance of power.
Diversification reduces the risk of
being exploited.
Another countermeasure for B is to
organize a coalition to counter A's
power. More generally, this strategy
brings in third parties.
16
Tolerating Imbalanced Dependence: The Most
Common Scenario
The most common reaction to being
the weaker party in an imbalanced
relationship is no reaction. More
often than not, the more dependent
party accepts the situation and tries to
make the best of it. What happens
next? Are stronger parties always
exploitative? Do weaker parties
always suffer? Should imbalanced
relationships be avoided at any cost?
The channel can function very effectively
when the stronger party is careful to treat
the more vulnerable one equitably. It
then improves the quality of the
relationship, hence, the functioning of the
channel. Further, every channel member
has a reputation at stake. Unfair treatment
of one channel member reduces that
reputation, making it difficult to attract,
retain, and motivate other channel
members in the future.
Equitable treatment comes in two forms.
One form of fairness is distributive
justice, which refers to how the rewards
of the relationship are divided up among
the channel members.
17
Influence Strategies
Promise strategy. If you do what we
wish, we will reward you.
Threat strategy. If you don't do what
we wish, we will punish you.
Legalistic strategy. You should do
what we wish, because in some way
you agreed to do it. (The agreement
could be a contract, or it could be the
informal working understanding of
how the parties do business.)
Request strategy. Please do what we
wish (no further specification).
Information exchange strategy.
Without mentioning what we wish,
pursuing a general discussion about
the most profitable way for the
counterpart to run its business.
Recommendation strategy. It is the
same as information exchange, but
states the conclusion this time. "You
will be more profitable if you do
what we wish."
18
How to Frame an Influence Attempt
It is a truism that what you present is less
important than how you frame it.
Considerable evidence indicates that
framing effects are powerful in channels.
How should the influencer frame the
message to the target?
The valence of the frame is whether it is
presented as a positive or a negative.
Positive frame. If you do take on our new
product, you will get substantial
additional marketing support.
Negative frame. If you don't take on our
new product, you won't get substantial
additional marketing support.
Valence is a matter of sheer
presentation. In contrast, a more
substantial issue is whether to frame an
influence attempt as contingent.
A contingent appeal hinges on
compliance: If you take on our new
product, we will give you the distributorof-the-year award.
A non-contingent appeal is unilaterally
bestowed whether compliance is forthcoming: "Congratulations, you've been
named our distributor of the year! Oh,
and we have a new product to propose to
you.. ."
19