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.

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 managers expectations for this member conflict with those of the members 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

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

As Level of Investment in:

Coercion Reward Legitimacy Expertise Reference

DEPENDENCE OF B ON A As Offering to B:
Coercion Reward Legitimacy Expertise Reference

Competitive Levels of:

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 partys dependence on you

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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

Power Bases

Promise Threat Legalistic Request Information exchange Recommendation

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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 (contd)

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

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FIGURE 7-2: NATURAL SOURCES OF CONFLICT: INHERENT DIFFRENCES IN VIEWPOINTS OF SUPPLIERS AND RESELLERS
Supplier Viewpoint Financial Go als
Max imize o wn profit by - Higher prices to reseller - Higher sales by reseller

Reseller Viewpoint
Max imize o wn profit by - Higher own-level margins (lower prices fro m o ur su pplier an d higher prices to ou r cu stomer) - Lo wer ex pen ses (less suppo rt) - Faster in ven to ry tu rno ver (lower reseller sto cks) - Higher allowances from manu facturers

Expression of Clash
Supplier: You d ont put en oug h effort behind my brand . You r prices are too high. Reseller: You d ont su pport me en oug h . With yo ur wh olesale prices , we cant make mon ey.

- Higher reseller ex pen ses - Higher reseller inventory - Lo wer allowances to reseller

Focus on: Desired Target Acco unts

- Multip le seg ments

Focus on :
- Segment co rrespon ding to resellers po sition in g (e.g. d isco unter) - Ou r markets only - Selected accoun ts (those that are profitable to serve) - Achieve econ omies o f scop e over produ ct categ ories - Serv e cu stomers b y offering bran d assortment - Do no t carry inferior or slo w-mov in g items (ev ery supplier has so me of these) Supplier: You carry too man y lines . You do nt give us en oug h attention. You re disloy al. Reseller: Our customers co me first. If we satisfy o ur customers, yo u will b enefit . By the way , shouldn t you consid er p ru ning yo ur prod uct line ? Supplier: We need more co verag e an d more effo rt. Ou rreseller do esn t do en oug h for us. Reseller: You d ont respect ou r marketing strateg y. We need to mak e money to o .

- Multip le markets - Man y accoun ts (raise vo lu me an d sh are)

Desired Product And Accoun ts Policy

- Con centrate on ou r produ ct categ oryan d ou r brand - Carry ou r full lin e (a variatio n for ev ery co nceivab le n eed , p lu s ou r efforts to exp and o ur line ou tsid e ou r trad itional streng hts)

*Based on Mag rath and Hardy (1989 )

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

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CONFLICT RESOLUTION STYLES

High Cooperativeness Accommodation Cooperativeness: concern for the other partys outcomes Collaboration

or
Problem solving

Compromise

Low Assertiveness

High Assertiveness

Avoidance Competition

or
Aggression Low Cooperativeness
Based on Thomas (1976)

Assertiveness: Concern for ones own outcomes

 Key Qualitative Outcomes

Trust Satisfaction Commitment

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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 Firms belief in counterparts honesty and benevolence + COMMITMENT Focal Firms 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)