Power and Conflict in Consumer Product Channels

Vendor Rewards Rewards can be realized in retailer gross margins Protection from competition –Exclusive territories, protection from competition –Unique products/exclusive distribution Trade promotion/deals –Trade discounts –Cooperative advertising Information on retail competitors

Retailer rewards “Category Management Privilege” Display space for an item –Intra-brand adjacencies on shelf/store –Location in store, visibility –Cooperation on promotional display Information on competing manufacturers Information on consumer purchasing

Retailer Coercion, Coercive Power Dropping/de-listing a product, product line Reducing display space Poorer display space, comparative display

Evidence of retailer coercive power in vendor concessions Unique SKUs –Sam’s Club SKUs, “variety flats” Slotting allowances Appearance in-store specials, undistributed print materials

Vendor Coercion? Full-line forcing, tying arrangements, minimum resale prices—are all illegal. Discontinuing as a distributor (usually spelled out in contractual agreements), seldom attempted in administered channels. Supplier has little, if any, coercive power

Expertise B’s perception that A has special knowledge, skills, experiences Examples: –Category management –Superior consumer research –Retailer pricing –Retailing costs and assignment of costs

Referent/Identification Consistency in brands, approaches to brand management, target customers –Porsche/BMW and U.S. import dealers network –Clothing designers and more prestigious department stores

Legitimate Traditional power, usually grounded in the laws and customs: –Resale price maintenance –Exclusivity of territories –Non-competition clauses Tradition, religious origins, cultural origins –“Honor thy father and mother” –Inferiority of the hireling –Markup is an unethical behavior

Conflict and interdependence When a channel member perceives the behavior of another to be impeding the attainment of its goals or the effective performance of its instrumental behavior patterns “Voice” versus “Exit”: Channel member will either express felt conflict or leave the channel.

Goal Incongruence Domain Dissensus Differing Perceptions of Reality –Differing perceptions of retail management Conflict Types

Goal Incongruity Suppose: –The retailer’s goal is to maximize the sale of manufacturer’s line –The supplier’s goal was to maximize the profitability of its retailers However—just the opposite is true: –The retailer’s goal is to maximize it’s profitability and satisfy the needs of the local market. –The manufacturer’s goal is to maximize market share and profitability of its brands.

Actions affecting goals Procter & Gamble going to EDLP with distributors No more inside margin for grocery wholesalers Suppliers adding distributors

Domain Dissensus The large customer and vertical competition Influencing the retailer’s operation Retailer requesting unique products, changes in production, packaging. Retailer influencing advertising

Differing perceptions of reality Ignorance of the other channel member’s –Responsibilities, –Roles, –Priorities Discounting the other channel member’s –Sophistication, –Knowledge, –Experiences

Economic sources Inherent Conflict Nature of costs Fixed costs Marginal costs, variable costs

Conflict Episodes Minor exchanges, requests Denials of requests Actions affecting competitors Actions affecting directly affecting margins (removal of deals) Actions directly affecting volume (denying a product) Vertical competition

Dysfunctional conflict Anti-competitive practices –Shifting business between competitors Lawsuits –Point of no return

Conflict resolution Exchange of members Membership in trade associations Third-party arbitration Purchase Civil lawsuits