Marketing Channel Relationships

Dependence and Interdependence in Marketing Channels

• Dependence can be imbalanced, but may not be detrimental in a stable environment
• Dependence motivates relationship quality and cooperation.
• Interdependence encourages relationship-specific investments and performance improvements by increasing the stakes for both parties.
• Both dependence and interdependence have pros and cons.

Power-Based Influence Strategies

• Channel management is about motivating and incentivizing interdependent yet independent entities to maximize the common good.
• Strong channel relationships mean a genuine commitment, willingness to engage, and compromise.
• Commitment implies an organization wants the relationship to continue indefinitely.
• Sacrifices are needed to maintain the growth of the relationship, such as giving up short-term profits.

Motives for Building Channel Relationships

• Channel conflict arises when behaviors of one channel member oppose the wishes or behaviors of its channel counterparts.
• Channel actors seek a goal or object that its counterpart currently controls.
• One member of a channel views its upstream and downstream partner as an adversary or opponent.
• Interdependent parties at different levels of the channel (upstream + downstream) contest with each other for control.
• In an omnichannel context, conflict can be exacerbated if the firms treat each channel separately rather than ensuring synergy.

Types of Channel Conflict

• Latent (inherent) conflict describes the inevitable collision between channel members pursuing separate goals, striving for autonomy, and competing for limited resources.
• Perceived (cognitive/emotionless) conflict arises as soon as a member senses any opposition viewpoints, perceptions, sentiments, interests, or intentions.
• Felt (or affective) conflict arises when emotions enter the picture and can escalate into manifest conflict.
• Manifest conflict is expressed visibly through behaviors (e.g., blocking each other's initiatives or goal achievement).
• High levels of manifest conflict can reduce an organization's satisfaction and damage the channel's long-term ability to function as a close partnership.

Consequences of Channel Conflict

• High channel friction creates unnecessary costs and derives less value to partner.
• Conflict will increase anticipated disappointment by inflating the local firm's belief that there are better alternatives available.
• Conflict will undermine channel partner's commitment and damage partners' trust in their counterparts.
• Channel managers must determine if the costs of conflict are worth the benefits.
• Conflict needs to be managed rather than minimized.

Major Sources of Conflict in Channels

• Conflict is rooted in differences between channel members.
• Channel members' goals: Each channel member has a set of goals and objectives that differ from other members. The difference in what they want and value causes principals to seek ways to monitor and motivate agents (e.g., Nike and Footlocker).
• Perception of Reality: Distinct perceptions of reality induce conflict because they imply divergent responses to the same situation. Misperceptions are common due to focus.

Resolving Channel Conflict

• Shared Incentives: Economic incentives work well, almost universally, regardless of personalities, players, or the history of the relationship. Appealing to economic self-interest is a highly effective way to settle disputes.
• Effective Communication & Relationship-Building: Good negotiators base their arguments on economics and combine them with a program of communication and a strong interpersonal working relationship.

Retailing: Nature and Classification

• Retailing consists of activities involved in selling goods and services to ultimate consumers for their personal consumption.
• A retail sale is one where the buyer is the ultimate consumer, rather than a business or institutional purchaser.
• A wholesale sale refers to purchases for resale, or for business, industrial, or institutional uses.

Low-Price Retailing System

• Low-price retailing systems (e.g., Walmart and Home Depot) maintain lower margins and high turnover while improving on service levels.
• From a channel perspective, the low-margin/high turnover strategy increases operational efficiency.
• In the case of Costco, the strategy transfers costs to the customer, who ends up taking on channel functions.

A Retailer's Strategy

• A retailer's strategy will reflect on the retailer's financial objectives.
• A retailer's financial performance can be based on reducing operating expenses (cost side) or on increasing sales (demand side).

Strategic Profit Model (SPM)

• The SPM is a tool retailers use to summarize factors affecting a firm's financial performance, as measured by return on assets.
• The SPM focuses on assets (their turnover and returns) and measures the profits that a retailer makes in relation to the assets it owns.
• It starts with the concept of net sales, defined as gross sales less customer returns and allowances.

Components of the Strategic Profit Model

• Margins: The ratio of profit to sales (or how much profit a retailer makes on each dollar of sale).
• Asset Turnover: How efficiently a retailer is using its assets to generate sales (or how many dollars of sales a retailer can generate for every dollar of assets).
• Return on Assets (ROA): This measures the profitability of a retailer's assets (or how much profit a retailer is making from each dollar of assets).

Explore the dynamics of dependence and interdependence within marketing channels. Understand how power-based influence strategies affect relationships and the motivations behind building strong channel connections. This quiz will delve into the pros and cons of channel relationships and the importance of commitment and cooperation.