Chapters 6 & 7:Behavioral Processes in

Marketing Channels

Major Topics Challenges of Managing ChannelsMarketing Channels as a Social

System - A Conceptual Framework Major Building Blocks of the

Framework*–Economic Structure–Economic Process–Political Structure–Political Process

3

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 Marketing Channel as Social

SystemSystem

44

Social System

• Generated by any process of interaction on sociocultural level• Between two or more actors• Actor is individual or collectivity

Individuals or collectivitiesInteracting within marketing channel

=InterorganizationalSocialSystem

Our Conceptual Framework: Political Economy Framework

Four Elements of Political Economy Framework*1. Economic Structure2. Economic Process3. Political Structure4. 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 Roles in Marketing ChannelsChannels

A set of prescriptions defining what the behaviorof a position member should be

• Roles change over time. • Straying far from a role may cause conflict.• Roles help describe & compare the expectedbehavior of channel members and provides insight into the constraints under which they operate.• Role Stress: Role Ambiguity and Role Conflict

Roles in Marketing ChannelsRoles in Marketing Channels

• 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?

Questions to help the channel manager

2. Economic Process - Three Dimensions of Decision

Making1) Formalization2) 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 Partner2) Replaceability of the Partner

- Strength of Ties1) Intensity: Past Resource Commitment2) Intimacy: Information Disclosure3) Reciprocity: Mutually Agreed Conditions

44Power in the Marketing ChannelPower in the Marketing Channel

The ability of a particular channelmember 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 Bases of Power for Channel Control*Control*

Reward Power

Coercive Power

Legitimate Power

Referent Power

Expert Power

Using Power in the Marketing Using Power in the Marketing ChannelChannel

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 appropriatepower bases to better or

worsen channel relationships

A’s Level of Investment in:

CoercionReward

LegitimacyExpertiseReference

Competitive Levels of:CoercionReward

LegitimacyExpertiseReference

A’s Offering to B:Coercion Reward

Legitimacy ExpertiseReference

DEPENDENCEOF B ON A

POWER OFA OVER B

FIGURE 8.1: THE NATURE AND SOURCES OF CHANNEL POWER

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• 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

4. Political Process

- Communication & Use of Power

- Control = Achieved Influence

- Conflict

Interfirm Communication

- Four Dimensions of Communication1) Content*2) Frequency3) Modality

4) Directionality - Influence Strategies**

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Behavioral Process in Marketing Channels IV:Using Power to Exert Influence

• Influence Strategy

– Promise– Threat– Legalistic– Request– Information

exchange– Recommendation

• Power Bases

– Reward– Coercion– Legitimacy– Referent, Reward– Expertise, Reward

– Expertise, Reward

©McGraw-Hill Companies, Inc. 2002

Communication ProcessesCommunication Processes

Behavioral Problems in Channel Communications

1.Differences in goals

between manufacturers &

their retailers

2.Differences in the kinds of

language they useto convey information

Communication Processes Communication Processes (cont’d)(cont’d)

Behavioral Problems in Channel Communications

3.Perceptual differences

among members

4.Secretive behavior

5.Inadequatefrequency

ofcommunication

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• 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

FIGURE 7-2: NATURAL SOURCES OF CONFLICT: INHERENT DIFFRENCES IN VIEWPOINTS OF SUPPLIERS

AND RESELLERS

Supplier Viewpoint Reseller Viewpoint Expression of Clash

FinancialFinancial Goals Goals Maximize own profit by Maximize own profit by Supplier: You don’t put enough effort

- Higher prices to reseller - Higher own-level margins behind my brand. Your prices are too

- Higher sales by reseller (lower prices from our supplier high.

and higher prices to our Reseller: You don’t support me enough.

customer) With your wholesale prices , we can’t make

- Higher reseller expenses - Lower expenses (less support) money.

- Higher reseller inventory - Faster inventory turnover

(lower reseller stocks)

- Lower allowances to - Higher allowances

reseller from manufacturers

Focus on: Focus on:

DesiredDesired Target Target - Multiple segments - Segment corresponding Supplier: We need more coverage and

AccountsAccounts to resellers’ positioning more effort. Our reseller doesn’t do enough

(e.g. discounter) for us.

- Multiple markets - Our markets only Reseller: You don’t respect our marketing

- Many accounts - Selected accounts strategy. We need to make money too.

(raise volume and share) (those that are profitable

to serve)

Desired ProductDesired Product - Concentrate on our - Achieve economies of Supplier: You carry too many lines. You

And AccountsAnd Accounts product category and scope over product categories don’t give us enough attention. You’re

PolicyPolicy our brand disloyal.

- Carry our full line - Serve customers by offering Reseller: Our customers come first . If we

(a variation for every brand assortment satisfy our customers, you will benefit.

conceivable need , plus our - Do not carry inferior or By the way, shouldn’t you consider pruning

efforts to expand our line slow-moving items your product line?

outside our traditional (every supplier has some of

strenghts) these)

*Based on Magrath and Hardy (1989)

Managing Channel ConflictManaging Channel Conflict

Detectingconflict

Appraising theeffect ofconflict

ResolvingconflictManaging

Conflict

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• Conflict Resolution Strategies1. Information-intensive mechanisms:

DAC, Personnel exchange

2. Third-party mechanisms: mediation and arbitration

3. Building Relational norms: flexibility, solidarity

©McGraw-Hill Companies, Inc. 2002

CONFLICT RESOLUTION STYLES

Accommodation Collaboration

or

Problem solving

Compromise

Competition

or

Aggression

Avoidance

Low Assertiveness

High Cooperativeness

Cooperativeness: concern for the other party’s outcomes

Low Cooperativeness

Assertiveness: Concern for one’s own outcomes

High Assertiveness

Based on Thomas (1976)

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• Key Qualitative Outcomes – Trust

– Satisfaction

– Commitment

©McGraw-Hill Companies, Inc. 2002

CONFLICTLevel of tension, frustration, disagreement in relationship experienced by focal firm

ECONOMIC SATISFACTIONof focal firm: positive affective response to financialrewards derived from relationship or economic gratification

NON-ECONOMIC SATISFACTIONof focal firm: positive affective response to psycho-social aspects of relationship, or gratification from non-financial sector

TRUSTFocal Firm’s belief in counterpart’s honesty and benevolence

_

_

_

_

COMMITMENTFocal Firm’s desire to continue relationship and to sacrifice to build and maintain it

+

Based on Geyskens, Steenkamp, and Kumar (1999)

FIGURE 9.1: HOW HIGH LEVELS OF CONFLICT ERODE CHANNEL RELATIONSHIPS