in the Marketing Channel Chapter 4 Behavioral Processes in the Marketing Channel

Marketing Channel as Social System Objective 1: 4 Marketing Channel as Social System Social System Generated by any process of interaction on the sociocultural level Occurs between 2 or more actors “Actor” can be an individual or a collective Marketing Channels are Social Systems in addition to Economic Systems

While cooperation is the goal… Objective 2: 4 Behavioral Processes While cooperation is the goal… Channels are constrained by 4 factors Conflict Power Roles Communication

Conflict ≠ Competition Objective 3: 4 How Conflict Emerges Conflict occurs when one actor perceives another actor’s actions as impeding the attainment of one’s goals. Conflict ≠ Competition Conflict is direct, personal, and opponent-oriented Competition is indirect, impersonal, and object-oriented

Causes of Channel Conflict Objective 4: 4 Causes of Channel Conflict 7 General Causes for Conflict: Role incongruities Resource scarcities Perceptual differences Expectational differences Domain disagreements Goal incompatibilities Communication difficulties

Conflict and Channel Efficiency Objective 5: 4 Conflict and Channel Efficiency Does conflict decrease efficiency? Can conflict increase efficiency? How does conflict affect channel efficiency? Does conflict have any affect?

Effects of Channel Conflict 4 Effects of Channel Conflict 3 Possible Efficiency Outcomes Negative Effect Diminished efficiency as quarrel continues Positive Effect Increased efficiency as actors look inward No Effect Conflict is seen as superficial and dependency/commitment as more important

Managing Channel Conflict Objective 6: 4 Managing Channel Conflict Detecting conflict Managing Conflict Appraising the effect of conflict Resolving conflict

Detecting Channel Conflict 4 Detecting Channel Conflict No precise principles or guidelines, but… Regular surveys of other members’ perceptions of firm’s performance Perform routine channel audits Form an advisory council or member committee OR OR

Appraising the Effect of Conflict 4 Appraising the Effect of Conflict Subjective process that relies on the manager’s judgment from past experience

Often relies on creativity, but some suggestions include… 4 Resolving Conflict Often relies on creativity, but some suggestions include… Channel-wide committee Joint goal setting Establishment of a Distribution Executive (e.g., CLO or CSCO) Applicability is often a function of size…

Power in the Marketing Channel Objective 7: 4 Power in the Marketing Channel Power The capacity of an actor to control or influence the behavior and actions of another Keys to understanding Power… Dependency 5 Bases of Power Uses of Power

Source of Power in Channels* 4 Source of Power in Channels* Power is a function of Dependency Pab = Dba

The 5 Bases of Power and Control 4 The 5 Bases of Power and Control Reward Power Coercive Power Legitimate Power Referent Power Expert Power

Graph Provided in Class Objective 8: 4 The Use of Power* *Outside Material* Graph Provided in Class (i.e., Bucklin’s Theory of Channel Control)

Theory of Channel Control Benefit (eg, $) Payoff Function The amount of benefits (or profits) that accrue as a result of giving up control Control Given Up

Theory of Channel Control Benefit (eg, $) Tolerance Function The amount of pain/burden felt as a result of giving up control to another. Control Given Up

Theory of Channel Control Benefit (eg, $) Zone of Indifference Corresponds to the indifference of keeping/ending the relationship due to the costs associated with “breaking-up” an arrangement Zone is the area between the Tolerance Function and the red line denoting the outside edge of the zone Control Given Up

Theory of Channel Control Benefit (eg, $) Area “A” The only area where the Payoff Function is above the Tolerance Function, and it’s increasing As one gives up more control initially, they experience greater benefit (e.g., why consultants exist) Control Given Up A

Theory of Channel Control Benefit (eg, $) Area “B” The only area where the Payoff Function is above the Tolerance Function, but it’s decreasing As one continues to give up control, the benefits begin to fall. Burden simultaneously begins to rise substantially as benefits continue to fall (i.e., steep rise in the Tolerance function). Control Given Up A B

Theory of Channel Control Benefit (eg, $) Area “C” The area where the Payoff Function is below the Tolerance Function, and still in the zone of indifference Here the burden felt outstrips the benefit gained, but there’s a cost assoc. w/ breaking up Control Given Up A B C

Theory of Channel Control Benefit (eg, $) What bases of power should be used in “A”? And why should the others not? In stage A, the benefits far exceed the costs associated with giving up control. Consequently, the only bases of power one should use are referent power and expertise power. Both highlight that if they give up control they are going to benefit more. Legitimate power is not used as it would naturally push the individual from “A” into “B” as no one likes being told what to do and immediately creates more burden. There’s also no point in rewarding cause the reward would be wasted. Why would you reward when if they give up more control then they already benefit more. Not using coercive should be obvious to students as to why, but again, it parallels the rationales for why not to use legitimate and reward. Control Given Up A

Theory of Channel Control Benefit (eg, $) What bases of power should be used in “B”? And why should the remaining not? In stage “B”, one is still making money and more than they were originally, but as they continue to give up more control, their benefit continues to go down and the amount of burden felt is dramatically going up with each additional amount of control given up. Consequently, the rational person would immediately say no more; I’m not giving up any more control. To overcome that rational response, they must be forced. Thus, one uses legitimate power here. Just like when a parent says “because I’m your parent and I said so.” The remaining powers, reward and coercive, are not used here because they both do the same thing, as to be discussed on the following slide, and they both only work in the short term. Control Given Up A B

Theory of Channel Control Benefit (eg, $) Why should the remaining bases of power be used in “C”? What do they do? Only in stage “C” do you finally use reward and coercive power. This is because, as you’ll note, the rational person is already thinking about leaving as the amount of burden felt is outpacing the amount of benefit received. They simply haven’t yet because they’re still in the zone of indifference. Consequently, both of these powers are ideal because each works in a unique, yet short-term way. Both powers shift their corresponding functions (i.e., reward is paired with the payoff function and coercive is paired with the tolerance function). Consider if you place a dot on the payoff function somewhere in zone “C” then reward someone, what effectively happens is that dot becomes transported back into zone “B” because reward power works to shift the payoff function up, but only for a short period of time due to decreasing marginal utility. I always tell students consider you’re dating someone and about to break up cause you just can’t stand them anymore. Then the person gives you a very nice gift. All of a sudden that person isn’t as bad anymore, but that feeling only works for a short time. The same is true for coercive power, but it works with the tolerance function. Coercive power shifts the tolerance function down so that one shift back into zone “B” but only for a short time. I tell my students to remember when they were a kid and they were so annoyed with their parents that they didn’t want to listen and kept acting up (essentially they were in zone “C” ~ the amount of burden felt was much more than the payoff they saw from listening). I then ask them to remember when perhaps their dad threatened to spank them or give them some other type of punishment. That threat of punishment (i.e., coercive power) immediately made doing what they said not seem nearly as burdensome (i.e., they had been shifted back into “B”). But the same is true of coercive power regarding it’s applicability only in the short term. If someone constantly threatened to punish you the threat no longer holds as much weight and thus won’t work to shift you anymore. Control Given Up A B C

Roles in the Marketing Channel Objective 9: 4 Roles in the Marketing Channel Roles A prescription defining what the behavior and actions of a position should be Roles change over time Straying far from one’s role may create conflict. Roles provide insights into the constraints one might experience

Roles in Marketing Channels 4 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?

Communication Processes Objective 10: 4 Communication Processes Common behavioral problems in Channel Communications… Differences in goals between members Differences in the kinds of language used Perceptual differences Secretive behavior* Inadequate frequency