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 4 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 Ex1) Vertical Marketing System - 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 manager’s expectations for this member conflict with those of the member’s peers? What role does this member expect the manager to play?

2. Economic Process 1) Formalization 2) Centralization - 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 1) Motivational Investment in the Partner - 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 4 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 A’s Level of Investment in: Coercion Reward Legitimacy Expertise Reference DEPENDENCE OF B ON A U T I L I T Y A’s Offering to B: Coercion Reward Legitimacy Expertise Reference Competitive Levels of: Coercion Reward Legitimacy Expertise Reference POWER OF A OVER B S C A R C I T Y

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 Control = Achieved Influence Conflict - 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 Promise Threat Legalistic Request Information exchange Recommendation Power Bases Reward Coercion Legitimacy Referent, Reward Expertise, Reward ©McGraw-Hill Companies, Inc. 2002

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 (cont’d) 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 ©McGraw-Hill Companies, Inc. 2002

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

Managing Channel Conflict Detecting conflict Managing Conflict Appraising the effect of 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 ©McGraw-Hill Companies, Inc. 2002

CONFLICT RESOLUTION STYLES Accommodation Collaboration or Problem solving Compromise Competition 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)

Key Qualitative Outcomes Trust Satisfaction Commitment ©McGraw-Hill Companies, Inc. 2002

FIGURE 9.1: HOW HIGH LEVELS OF CONFLICT ERODE CHANNEL RELATIONSHIPS 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 Firm’s belief in counterpart’s honesty and benevolence _ NON-ECONOMIC SATISFACTION of focal firm: positive affective response to psycho-social aspects of relationship, or gratification from non-financial sector + COMMITMENT Focal Firm’s desire to continue relationship and to sacrifice to build and maintain it Based on Geyskens, Steenkamp, and Kumar (1999)