Managing Channel Power PDF

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Lecture 7 textbook and lecture notes - Managing Channel Power
Dr Eleftherios Alamanos...

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MKT3017 Sales Management and Marketing Channels Lecture 7 - Managing Channel Power Todays lecture;   

Understand the Nature of Power Distinguish Five Sources of Channel Power Dependence and Power

What is power? Think of a marketing channel as relationships, e.g. between manufacturer and wholesaler, the different members of a channel form these relationships. Within any relationship, one of the parties will have more power than the other.  

Power: Ability of one channel member (A) to get another channel member (B) to do something it otherwise would not have done. Power is potential for influence

Think about the relationship between channel members, and how one channel member has the ability to influence the opinion of the other. There is a difference between power and cooperation – Cooperation is when B would have done it anyways. 

Two main ways to estimate and index power  Using an inventory of five types of power  Estimating the dependence of each organization

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Difference  Influence: altering what would have been the course of events  Exercising power: exerting influence

Distinguish Five Sources of Channel Power Power: A channel member will hold more power if they have a viable value proposition that appeals to the end-user. A channel member usually had power as they add value to the channel.

5 Sources of power;     

Reward Coercion Expertise Reference Legitimacy

Reward   

A benefit, given in return for a channel member’s agreement to alter its behaviour. This benefit can be financial. Producers: alter downstream behaviour by increasing rewards, e.g. a high profit margin, slotting allowance. Downstream channel members also can reward producers by more effectively establishing markets

Must be willing to grant rewards as well as have the ability to grant rewards A channel member has power as they offer a financial benefit to other channel members. Coercion Coercive Power – Negative power reward Based on expectation that it will be punished if it doesn’t comply with what another partner suggests. Comply due to threat of punishment. - Synonymous with the potential to threaten another organization, whether implicitly or explicitly - Being forced to accept something 

B’s expectation of punishment by A if it fails to conform with A’s influence attempt  

Coercion erodes the relationship-even if it does so slowly enough that the influencer fails to realize what it is losing. Relationships based on coercion are problematic as there is always conflict in the channel

Expert - Channel members are wiling to alter their behaviour because they consider another party to be an expert in one of the channel functions, e.g. a logistics company is an expert in distribution, so can convince others how to transport the product.

- Difficult to use, as many people perceive themselves to be experts in everything, so people may have strong opinions on how channel functions should be carried out 

Based on the target’s perception that the influencer has special knowledge or expertise that is useful, and that the target does not poses

To maintain expert power, a firm can; - Dole out expertise in small portions - Continently invest in learning - Transmit only customised expertise, which is so specialised it cannot be transferred easily to other products or services 

Not easy to use  A channel member must be trusted  Experts are usually accorded very high status  Independent-minded, entrepreneurial businesspeople don’t like to be told what to do

Legitimate - A case where everything within a relationship is outlined in contracts. Channel members have to obey with these terms and conditions as these have been outlined in a contract, e.g. A franchise. - The influencer has a legitimate power if the target feels a sense of duty to carry out the influencers requests, due to feeling constrained by moral, social, or legal forces - Legal legitimate power - contacts - Traditional legitimate power – Norms or values, e.g. internalised views - Not all relationships in a channel are covered by contracts, e.g. a relationship between a corner shop and a wholesaler is more based on trust and mutual dependence.  

Stems from the target company’s sense that is in some way obligated to comply with the requests of the influencer The major source of legitimate power is the contracts that channel members sign

Reference Some orgs want to be associated with other orgs. E.g. a tech shop may want to sell Apple, and so they will be willing to do whatever Apple say, happy to alter behaviour, not forced. - Exists when B views A as a standard of reference and therefore wishes to identify publicly with A, e.g. for prestige - Wholesalers and retailers pride themselves on carrying certain brands - Manufactures pride themselves on having their brands carried by certain outlets

Grouping 5 power sources 

Mediated versus unmediated power  Mediated when the target is forced to acknowledge these power bases. When power can be demonstrated.  Unmediated bases are ones that would not exist without the target’s own perception, namely, expert, referent, and traditional legitimate power.

Others such as coercive vs non coercive

Dependence and Power - Why do some people have more power than others?

Dependence We measure dependence from - Utility - Alternative scarcity A’s power over B increases with B’s dependence on A.  We recognize that B depends more heavily on A when it;  Obtains greater utility (value, benefits, satisfaction) from A  Has access to fewer alternative sources of that utility - If we have no other options, then we are dependent on the other organisation, and so have less power 

D = U  S (Dependence = utility X alternative scarcity)

Measuring dependence 

To assess utility,  Recognize your channel partner’s goals  How your offering helps it meet those pursuits  To what extent to we contribute to their goals and them to our goals?

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To assess alternative scarcity  Who are your (potential) competitors? Who else is available?  Determine how easily the channel member can switch from your organization to a competitor – How easy is it to leave the channel? E.g. by contracts, what are the costs?

Methods for measuring dependence 

Percentage of sales or profits that we get from the particular relationship  The higher this percentage, the higher the partner’s dependence and thus the more powerful the focal member is

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Role performance – Do we gain any other benefits from the relationship, e.g. brand recognition?  Greater superiority implies higher role performance

Balancing power: A net dependence perspective 

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Power is a property not of an organization but of the relationship, power refers to the relationships between organisations > The marketing channel is just a set of relationships. High mutual dependence, or interdependence, is synonymous with high mutual power > We will have balanced relationships when channel members have equal power because of mutual dependence High mutual dependence is beneficial for creating strategic channel alliances

Imbalanced dependence  

The balance of power favours the less dependent member Asymmetric relationships tend to be more conflict-laden, less trusting, and less committed than interdependent relation > These relationships require a lot of attention, have to be careful and understand the cause of the power

Strategies for balancing dependence - How can weak channel members react to imbalanced power? 

If B depends more on A than A depends on B, then B can

1)Develop alternatives  Involves the potential ability to add a supplier  E.g. a supermarket could find an alternative producer  Consider alternative options > How easy is it to leave the current channel? 2) Organize a coalition Europe: write contracts that require mandatory arbitration of any disputes - Weak channel members may form a coalition (work together) to try and change the relationship 3) Exit the situation Withdraw from the business, and therefore from the relationship

Summary       

Channel power is the ability to alter another organization’s behaviour. Translating power, a latent ability, into influence demands communication Negative or contingent framing is usually inferior to positive or non-contingent framing The interdependence of channel members makes power a critical feature of their functioning Definition of channel power and dependence Five sources of power Importance of the balance of dependence...