1. Chapter 11 Strategic Alliances
Marketing 338
Chapter 11
Strategic Alliances

2. WHAT IS A STRATEGIC ALLIANCE?
“Coalignments between two or more firms in which the partners hope to learn and acquire from each other technologies, products, skills and knowledge that are not available to other competitors.” - David Lei

3. An Alliance is Strategic when the Connections that Bind the Firms are Enduring and Substantial
Desire for the relationship to continue over the long run
Must be willing to sacrifice /compromise
Risk of dependence

4. FIGURE 11.1: SYMPTOMS OF COMMITMENT IN MARKETING CHANNELS
A committed party to a relationship (a manufacturer, a distributor, or another channel member) views its arrangement as a long-term alliance. Some manifestations of this outlook show up in statements such as these, made by the committed party about its channel
We expect to be doing business with them for a long time.
We defend them when others criticize them.
We spend enough time with their people to work out problems and misunderstandings.
We have a strong sense of loyalty to them.
We are willing to grow the relationship.
We are patient with their mistakes, even those that cause us trouble.
We are willing to make long-term investments in them, and to wait for the payoff to come.
We will dedicate whatever people and resources it takes to grow the business we do with them.
We are not continually looking for another organization as a business partner to replace or add to this one.
If another organization offered us something better, we would not drop this organization, and we would hesitate to take on the new organization.
Source: adapted from Erin Anderson and Barton A. Weitz, “The Use of Pledges to Build and Sustain Commitment in Distribution Channels,” Journal of Marketing Research, 24 (February 1992), pp

5. Rationale for Strategic Alliances: Upstream Motives
Market entry
Economies of Scale
Risk reduction
Market Coverage
Consolidation
Create barriers to entry
Competitive Advantage

6. Rationale for Strategic Alliances: Downstream Motives
Stabilize Product Supply
Reduce Costs
Create Differentiation
Competitive Advantage

7. Reasons Why Alliances Form
COLLABORATIVE ADVERTISING
RESEARCH & DEVELOPMENT
TECHNOLOGY TRANSFER
RESOURCE VENTURING
COOPERATIVE BIDDING
CROSS-LICENSING
CROSS-MANUFACTURING
SHARED DISTRIBUTION

8. TYPES OF STRATEGIC ALLIANCES
Licensing Arrangements
Joint Ventures
Consortia

9. Do Alliances Outperform Other Types of Channels?
Ideally the alliance will bring together what is good about each firm
Evaluate each members’ strengths and each members contribution to competitive position

10. Alliances are not always the best distribution choice
Very difficult and costly to create
Requires trust
Requires commitment

11. Building Commitment
What makes a downstream member want to join an alliance?
Members they can trust
Members that are open to ideas
Members who treat other members fairly
Members that the other member knows
Expectation of mutual commitment
Will the alliance create a synergistic effect?

12. How do we measure commitment?
Past experience with the channel member
Actions of the channel member
Protection from competitors
Is direct selling a part of the distribution strategy?
Selectivity suggests commitment
Efforts to build company specific assets

13. Willingness to Build Company Specific Assets suggests Commitment
Reduces risk of replacement
For the reseller:
E.g. dedicated personnel and facilities, compatible/customized reporting systems, product specific training programs
For the supplier:
E.g. A degree of selectivity in product category, dedicated facilities, personnel trained in your product

14. This type of company specific assets…..
Expands the channel “pie”
Keeps channel members motivated to stay in the alliance
Signals the supplier that the distributor is committed and vice versa

15. If Commitment Builds Trust, How can We Increase Trust?
Economic Satisfaction
Non-economic satisfaction
Identify complementary capabilities
Consider Decision Structure
Improve communication

16. Economic Satisfaction
Is a positive, affective response to financial rewards of the relationship.
The better the alliance performs financially, the more satisfied the members
Tends to increase the level of trust

17. Non-economic Satisfaction…
Is a positive, affective response to the psychological and social aspects of the relationship
Occurs when the interactions with the members involve consideration
Tends to increase trust

18. Decision Structures that Affect Trust
Decentralization
Shared decision making
Centralization tends to undermine trust
Formalization
Decision making depends on rules and explicit procedures
Formalization tends to undermine trust unless it serves to clarify roles

19. FG 11.3: PHASES OF RELATIONSHIPS IN MARKETING CHANNELS
One side tends to spark it
Mounting dissatisfaction leads one side to hold back investment
Lack of investment provokes the other side to reciprocate
Dissolution may be abrupt but is usually gradual
Key feature: It takes two to build but only one to undermine. Decline often sets in without the two parties’ realization
Each party invests to build and maintain the relationship
Long time horizon
Parties may be aware of alternatives but do not court them
High expectations on both sides
High mutual dependence
High trust
Partners resolve conflict and adapt to each other and to their changing environment
Shared values or contractual mechanisms (such as shared risk) reinforce mutual dependence
Key features: Loyalty, adaptability, continuity, high mutual dependence set these relationships apart
Benefits expand for both sides
Interdependence expands
Risk taking increases
Satisfaction with results leads to greater motivation and deepening commitment
Goal congruence increases
Cooperation increases
Communication increases
Alternative partners look less attractive
Key feature: Momentum must be maintained. To progress, each party must seek new areas of activity and maintain consistent efforts to create mutual payoffs
Testing, probing by both sides
Investigation of each other’s natures and motives
Interdependence grows
Bargaining is intensive
Selective revealing of information is initiated and must be reciprocated
Great sensitivity to issues of power and justice
Norms begin to emerge
Role definitions become more elaborated
Key feature: Each side draws inferences and tests them
This phase is easily terminated by either side
One organization sees another as a feasible exchange partner
Little interaction
Networks are critical: One player recommends another
Physical proximity matters: Parties more likely to be aware of each other
Experience with transactions in other domains (other products, markets, functions) can be used to identify parties
Relationship Stage 5:
Decline and Dissolution
Relationship Stage 4:
Commitment
Relationship Stage 3:
Expansion
Relationship Stage 2:
Exploration
Relationship Stage 1:
Awareness

20. Why do strategic alliances fail?
Lack of strategy development
Wrong partners
No real reason for the alliance
Unrealistic expectations
Clash of corporate cultures
Dissatisfaction with the deals