Understanding What Drives Channel Choice - Assignment Example

1- Coercion is just a negative reward. It’s all reward power. Power all comes down to one question: where is the money? Debate this statement. The basic underpinning of any commercials operations is the motive behind the same. The motive comes from sense of either being benefited or being protected from any sort of punishment (Hunt & Nevin, 1974). The given statement is just the extension of the aforesaid premises. In any supply chain, the channel partners work in a dynamic state of affairs. The relationship among these partners or the entity is always governed by some or other motive as discussed above. It may be reward or fear of punishment (El-Ansary & Stern, 1972). The later one is formally called as the power of Coercion. It is fear of punishment that often drives some of the channel partner to obey other entities in the supply chain. The partner exhibiting the power of coercion has capability and power to make some other partner believe that if they do not do as expected, then there are chances that they would get punished and that would in turn hurt their business (Etgar, 1978). Going at the core of these issues, it is very apparent that ultimately, its power of the entities exhibiting it runs the supply chain dynamics. In absence of this power the relationship will not be functional and there would be total anarchy. The power makes sure that all the partners work under a mutually agreed channel dynamics. The channel relationship in core is determined by the exhibition and sense of power. Be it reward or the coercion, they both represent the power dynamics. Reward is nothing but the direct business benefit extended to any entity. On the contrary, coercion is kind of negative reward. The one who exhibits power of coercion make it clear to the one being coerced that punishment is imminent if the relationship criterions are not adhered to. Now there is another aspect to this channel dynamics. The power on its own does not drive the whole channel dynamics that we are talking about. The power is ultimately runs in monetary terms in any supply chain. It is the money which ultimately decides the direction of the flow of power. It ultimately the monetary supremacy that the partners want to establish or it is the monetary loss that the partners want to avoid. Thus it is quite apparent that though the power decides the channel dynamics, it’s the money that decides the direction of the exhibition of power by the channel partners (Dukes, Gal-Or & Srinivasan, 2006). Let us understand the same through some examples. Let us consider a case of Australian retail sector. If any major global consumer product company wants to enter the market, then it would definitely be obliging the retail giants of the domestic markets. If we closely analyze this condition then it would be clear that, though the consumer goods company may be a major player in the global market, its entry into the new market would be dependent on the reaction of the retails players of the domestic market. Here the retails players will decide the terms of the trade and not the consumer goods company. The power that the retails players are exhibiting can either be reward power or coercive power. Through reward power, the retail player will make the consumer goods company believe that it would get the rewards in terms of higher sales if they accept the terms of the trade laid down by them. On the other hand the coercion will be in terms of dictating on the consumer goods company as if it does not heed to the terms then it may be barred from selling its product through the retail stores and this would result in poor recovery or sales. It is important to understand here that the power that is being exhibited by the retail players is not because of their hold on the market. Actually it is the already established, monetary supremacy that is governing the flow of power from the retails players to the consumer goods company. The monetary supremacy has been achieved from the accumulated wealth through prolonged and consistent customer footfall in those retail shops. In another scenario, let us assume that the entering consumer goods company is a deep pocketed giant and is ready to invest a lot of money in establishing the relationship with the existing domestic retail companies. If the consumer goods company is ready to offer very high incentive in terms of monetary benefits to the retail players on the sales outcome, then it is apparent that the terms of the trade will be dictated by the consumer goods company itself. With these two examples, it is very clear that there is no fixed channel dynamics that work across the channel partner. Rather it is the location of monetary supremacy that decides the flow of the channel power. 2- As markets mature, it is essential to set up multiple channels (different types), and to let them compete head on. Debate this statement. What responsibility, if any, do suppliers have to manage conflict between multiple channels? How can they go about doing so? The above statement pin points to the concept of free trade and existence of completion in the market. It is an established fact that concentration of power to any particular channel will lead to exploitation of the end user, until the same is adequately regulated (Robinson, 1933). Thus it becomes very essential that the channel power should either be regulated in terms of commercial regulations or it should be allowed to compete with other channels in order to keep it under control. With growth of any market, the channel also grows and accumulates power. If the channel partner together decides to collude so that they can dictate the market, then the end user starts suffering. To avoid this situation a strong regulatory regime is needed. However a commercial regulator in absolute terms is also not favored by the school of thought of free market. Thus the alternative left is to make or create multiple channels in any mature market so that they compete head-on and survive based on their performance (Albesa, 2007). This makes sure that the channel along with its partners puts all the effort to keep its operations optimized so that the end consumer keeps using the channel and the channel keeps growing. Antecedents Properties Mix Outcomes Transaction costs considerations Number of channels Channel 1 Sales Competitive strategy Degree of integration Channel 2 Costs Marketing considerations Degree of personal contact Channel 3 Control Flexibility Though the above is easier said than done, the requirement to balance the channel power is very crucial. It becomes more difficult to execute this channel balancing task, as it happens often that a channel partner is part of multiple channels (Berman & Thelen, 2004). Thus the completion does not always remain healthy and hence still imminently needs a regulator as a watchdog for the commercial operations. The aspect of a channel partner being associated with multiple channels is critical to analyze here. Let us understand this issue of conflict management by considering the role of suppliers in the channel dynamics. Suppliers being source to multiple channels have a very important role to play. Their favoritism or step motherly treatment to any particular channel can lead to empowering or ruining that channel. The suppliers thus have to play a role of power balancer among various channels. The terms of supply that is being agreed upon by supplier for the supplies to various channels should be rationally decided and should not be differing starkly as it may turn a channel totally useless and non competitive. On the other hand the terms of supply should also be governed by the market demand and supply forces (Denise & Geoffrey, 2002). Clouting by suppliers for or against any particular channel can become detrimental for the same. The other role that is played by the suppliers is that of conflict resolution among the channels. The suppliers in a way decide the channel profitability in terms of establishing the cost of raw material. Keeping the channel operations cost in perspective, the cost of raw material cannot be modulated as it is governed by the market demand supply rule. Thus keeping a common and rational costing regime across the channels, suppliers can motivate various channels to bring down their operations cost so as to be competitive in the market. The moment, suppliers start regulating the supply cost to various channels, the conflict will become imminent. The other aspect from the perspective of conflict management can be considered by instilling a sense of societal welfare among the suppliers. Often, suppliers remain part of a forum or group so that no single supplier can take unilateral decision and impact the market completion by influencing the supply terms. Thus, being a part of a common forum which operated transparently in favor of market as a whole is also an important aspect of supplier role as channel conflict manager. To an extent, the channel conflict management role has to be played by each and every partner which is being associated with multiple channels, the role is more crucial for suppliers as they are at the source of the supply chain and directly govern the channel dynamics. References Albesa, J. G. (2007). “Interaction channel choice in a multichannel environment, an empirical study”. Vol. 25. No. 7. pp 490-506. Berman, B. & Thelen, S. (2004). “A guide to developing and managing a well-integrated multi-channel retail strategy”. Vol. 32 No. 3. pp 147-156. Denise, D. & Geoffrey, L. (2002). “Multi-channel shopping: understanding what drives channel choice”. Vol. 19 No. 1. pp 42-53. Dukes, A. J., Gal-Or, E. & Srinivasan, K. 2006. Channel Bargaining with Retailer Asymmetry. Journal of Marketing Research, 43: 84-97. El-Ansary, A. I. & Stern, L. W. 1972. Power Measurement in the Distribution Channel. Journal of Marketing Research, 9: 47-52. Etgar, M. 1978. Intrachannel Conflict and Use of Power: A Reply. Journal of Marketing Research, 15: 275-276. Hunt, S. D. &Nevin, J. R. 1974. Power in a Channel of Distribution: Source and Consequences. Journal of Marketing Research, 11: 186-93. Robinson, J. (1933), Economics of Imperfect Competition, MacMillan and Co., London. Read More