Channel Power, Conflict and

Cooperation:

 A channel structure is not only an economic

system but social as well.
 That means it reflects all the characteristics
of a social system:
 Power.
 Cooperation.
 Conflict.
Channel Power defined:

The ability of a channel member

to control and influence the
marketing strategy of an
independent channel member at
another level in the channel.
Examples of Channel Power:

 A manufacturer could use his power to

force a retailer to stock the
manufacturer's full product line when
the retailer is interested only in stocking
the best selling items.
 A retailer can force a manufacturer to
carry frequent promotions.
Channel power involves
dependency:
If B is dependent on A,
then A has a high level
of power over B. Here,
dependency is the
inverse of power.
Power:

 Range of power. A channel member may

hold power in area but in another.
 Potential power: ability to alter behavior.
 Exercised power: The actual alteration of a
channel member’s behavior.
Channel power forms:

 Coercive power.
 Noncoercive power.
Coercive Power:

 Based on the ability of one channel member

to punish another channel.
 Opposite of reward power also called threat
power.
Examples of Coercive Power:

 A manufacturer can threaten to discontinue

selling to a retailer who has a bad customer
service record.
 A franchisor can cancel a franchise, if
franchisee buys from independent sources of
supply.
 A powerful retailer may stop displaying a
brand if it is not supported by frequent
discounts.
Coercion may backfires:

 The threatened party may take legal action.

 Forms associations to counterbalance other
channel member’s power.
 Threats may help magnify channel conflict.
 Fear, anxiety, and resistance are typical
responses to threats.
Noncoercive Power include:

 Reward power.
 Referent power.
 Expertise power.
 Persuasion power.
 Legitimate power; and
 Information power.
Reward power:

 Channel members who comply are

rewarded.
 Called promise power.
 Examples.
Reward may also backfire:

 May prove to be ineffective.

 The reward may be perceived as a bribe.
 May suggest that performance is inadequate.
Referent power:

 Based on the desire of a channel member to

identify with another.
 Reasons may include brands carried,
prestige, image, size, reputation …etc.
Expertise power:

Attributed knowledge due to

long term relationships with
customers, knowledge of
market conditions …etc.
Persuasion power:

Ability of one channel

member to persuade
another of the validity of its
position based on rational
appeals.
Legitimate power:
Based on right to
exercise power.
Examples include
dealerships and
contractual agreements.
Information power:

Information is power.
Examples access to
scanner data in the retail
sector has empowered
retailers.
Methods of manufacturer dominance:

 Having high economic scale.

 High market share.
 High brand loyalty.
 Using franchising.
 Using push money.
 Full-line forcing to sell slow moving merchandise.
 Offering goods in short supply to preferred
distributors.
 Methods of wholesaler dominance:

 Having economic scale.

 Using private label strategy.
 Using gray market strategy.
 Developing and maintaining high customer
loyalty.
 Tying agreements to sell slow-moving
merchandise.
 Using forward and backward vertical integration.
 Offering discounts to retailers.
Methods of Retailer dominance:

 Using store loyalty.

 Increased bargaining power through high market
share.
 Using centralized purchasing.
 Using a private label strategy.
 Selling against the brand.
 Using gray market distribution channels.
 Requiring slotting and other fees.
 Developing associations.