A Brief Review of Channel GovernanceChannel GovernancePayoff from CoordinationGovernance Requires PowerPowerPoint PresentationSlide 6Slide 7Slide 8Market Structure & DependenceBehavioral ToolsTrust--The Power FacilitatorGovernance by IntegrationThe Irony of Power--ConflictSlide 14Slide 15Slide 16Bi-Lateral Governance High, Mutual DependenceGovernance RequiresA Brief Review of Channel A Brief Review of Channel GovernanceGovernanceDistribution Channel StrategyL. P. BucklinSpring 2000Channel GovernanceChannel Governance•Definition: The use of hierarchical type controls to coordinate activities throughout the channel instead of market forces–to provide superior end-user service –to motivate members to adhere to a common marketing plan–to limit conflict among channel members•Coordination requires the presence of power and its judicious usePayoff from CoordinationPayoff from Coordination•Insure effective service delivery–Obtain wide stocking, Reynolds Wrap–Insure similar products, service pattern across all EUI, Pizza Hut–Provide appropriate pre and post-sale services, Cummins, Caterpillar, Ford–Simplify end-user shopping costs, Ford •Insure image consistency–Standardized facilities, Pizza Hut–Greater efficiency, Ford, KraftGovernance Requires PowerGovernance Requires Power•Power: the ability one one channel member to influence the behavior of another•The degree of power depends heavily upon the relative dependence of the governed party•The greater the degree of control sought in a channel, the greater the need for a form of governance which will that powerChannel Governance ModesChannel Governance Modes•Spot channels -- control through open markets and short-term transactions•Administered channels -- control through rewards, expertise, and the power to punish•Contractual channels -- control by long term agreements and the power of the contract•Vertically integrated channels -- control by ownership and authority of a single firmChannel Governance ModesChannel Governance ModesMarketBased ControlsHierarchyControlUnilateralGovernanceBilateralGovernanceAdminis-teredContractualSymmetric DependenceAsymmetric DependenceReynolds Wrap (Intensive distribution) Anasazi (Selective distribution) Cummins Engine (long term incentive) Pizza Hut (franchise contract) Kraft Food (integration)IntensiveDistributionSelectivity by ResellerTypeSelectiveDistributionby MarketAreaWhollyOwnedDistributorSBUwith ownNarrow LineResellersFunctionalIntegration(SeparateL&I* functions)ExclusiveDistributionExclusiveDistributionwithExclusiveDealingFranchisedDistributionAdministeredChannelContractualChannelIntegratedChannelChannel Structure Tools Channel Structure Tools Degree of Channel Closure-->Form of ChannelGovernance*CBs=competitive brands<--Greater Power SourceIntensiveDistributionReynoldsSelectivity by ResellerTypeAnasazi, HPSelectiveDistributionby Market AreaFordWhollyOwnedDistributorKraft (USA)SBUwith ownNarrow LineResellersIngersoll RandFunctionalIntegration(SeparateL&I* functions)PolaroidExclusiveDistributionCumminsExclusiveDistributionw/ ExclusiveDealingFordFranchisedDistributionPizza HutAdministeredChannelContractualChannelIntegratedChannelGovernance Tools Governance Tools *L&I=Logistic & Informational<--Greater Power SourceForm of ChannelGovernanceDegree of Channel Closure-->Market Structure & DependenceMarket Structure & Dependence•The power of a national (supplier) brand–Reynolds, HP •The role of personal selling to the end-user–Anasazi•Number & strength of competitors–Reynolds, Anasazi•Relative reseller scale, breadth of product line, legal–Kraft, HP Printer, Ford, Cummins•Reseller horizontal organization–Pizza HutBehavioral ToolsBehavioral Tools•Employing reward and monetary incentives–Exclusivity: Cummins –Promotional programs: Reynolds•Employing coercion(threats): Cummins, Pizza Hut•Employing legitimate authority–Contract—Pizza Hut, Ford, Cummins–Integration (hierarchy)--Polaroid, Pizza Hut•Employing expertise: influence through skills, knowledge, social position. Caterpillar, Anasazi•Authority sharing: Pizza Hut, CaterpillarTrust--The Power FacilitatorTrust--The Power Facilitator•Trust reflects another's belief that you will act in their individual or collective interest•Trust increases in importance as channel control becomes more important and the length of the relationship is extended•Trust is built upon prior actions, visibility of reputation, mutual understanding, fair dealingsGovernance by IntegrationGovernance by Integration•Desirability–Enhance ability to coordinate channel–Heavy sunk investments in channel partners–High potential for partner opportunism–Improve channel efficiency through routinization, reduction of sales costs•Problems encountered:–Integrated level faces intense competition–Major assortment discrepancy between levels–Units at each level operate at different scale –High monitoring costs–Loss of efficiency from bureaucracy, conflictThe Irony of Power--Conflict The Irony of Power--Conflict •Use of power within a channel is intended to constrain the behavior of another party•Constraints which weaken or diminish the position of the other party lead to conflict•Conflict erodes coordination and the effectiveness of the channel•The potential for conflict increases as the degree of control, dependence increasesChannel Conflict PotentialChannel Conflict PotentialMarketBasedHierarchyIncreasing ControlUnilateralGovernanceBilateralGovernanceAdminis-trativeContractualSymmetric DependenceAsymmetric DependenceConflict PotentialConflict PotentialSources of ConflictSources of Conflict•Changes in system power balance, environment•Unexpected changes in system policies, norms•Dependence not offset by perceived reward•Failure to achieve agreement on channel model•The level and fairness of profit distribution •The use of dual or multiple distribution channels•The extensive use of coercion to achieve control•The inability to achieve adequate profit returnConflict Management TechniquesConflict Management Techniques•Institutionalized methods•Use of third parties•Contract management•Control over management style•Incentive management•System component evaluation•Limitation of multiple channel typesBi-Lateral GovernanceBi-Lateral GovernanceHigh, Mutual DependenceHigh, Mutual