The power of trust in manufacturer retailer relationships
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The Power of Trust in Manufacturer-Retailer Relationships. Presented By: Suna Eric Joe Paul Shanina. Overview:. Do Manufacturers and Retailers that trust each other generate greater profits? Is trust stronger than fear? Benefits, limits, and creation of trust

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The Power of Trust in Manufacturer-Retailer Relationships

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The power of trust in manufacturer retailer relationships

The Power of Trust in Manufacturer-Retailer Relationships

Presented By:

Suna

Eric

Joe

Paul

Shanina


Overview

Overview:

  • Do Manufacturers and Retailers that trust each other generate greater profits?

  • Is trust stronger than fear?

  • Benefits, limits, and creation of trust

  • Power vs. Trust relationship


Shift of balance of power

Shift of Balance of Power:

  • Retailers now control access to consumers, due to rise of:

    • Specialty superstores/Mega retailers

    • Buying Alliances

    • Mergers & Acquisitions

  • Since 1988: Survey on Manufacturer-Retailer relationships

    • Is the use of fear and intimidation the most effective way to manage the relationship?

    • Or does trust produce greater benefits?


  • Survey result

    Survey Result:

    Exploiting power may work in the short run, but it is

    Self-defeating in the long run.

    3 Main Reasons:

    1. “Exploiting power unfairly can come back to

    haunt a company if it’s position of power changes.”

    2. “When companies systematically exploit their

    advantage, their victims ultimately seek ways

    to resist.”

    3. “By working together as partners, retailers and

    manufacturers can provide the greatest value to

    customers at the lowest possible cost.”


    Nature of trust

    Nature of Trust

    • Dependability

    • Honesty

    • Leap of Faith


    Blind trust

    Blind Trust

    • Study conducted on a major replacement auto-part manufacturer and 429 of its retailer

    • 218 retailers that the manufacture had a high level of trust for, distrusted the manufacture


    Benefits of trust

    Benefits of Trust

    • Commitment

    • Higher Sales

    • Goodwill

    • Realize the full potential

    • Lower monitoring cost

    • “Going the extra mile”


    Limits of trust

    Limits of Trust

    • Both parties have to participate

    • There will be areas of difference

    • The relationship is not exclusive

    • Rarely all-encompassing


    Effects of interdependence

    Effects of Interdependence

    High

    Organization’s Dependence

    Low

    Low

    Partner’s Dependence

    High


    Creating trust

    Creating Trust

    • Distributive Justice

      • How the pie is shared

    • Procedural Justice

      • Perceived fairness of powerful party’s process for managing the relationship


    Distributive justice

    Distributive Justice

    • Perceived fairness of the outcomes received

    • How the benefits and burdens are divided between partners

    • Create long-term partnerships

      • Marks & Spencer example


    Principles of procedural justice

    Principles of Procedural Justice

    • Bilateral Communication

      • More powerful party is willing to engage in open communication with its partner

        • Marks & Spencer-CEO meets counterparts in supplier’s organizations periodically

        • Keycards to home office are given to suppliers

        • Trips with suppliers to trade shows to enhance mutual understanding and identify new ideas together


    Principles of procedural justice continued

    Principles of Procedural Justice(continued)

    • Impartiality

      • The more powerful party deals with channel partners equitably

        • Marks & Spencer attempts to ensure that everyone gets a fair share of the business when it has multiple manufacturers supplying a single product category

        • Tries to minimize major changes in volume of business awarded to suppliers from year to year

    • A sensitive issue-lawsuits accusing manufacturers of not using the same pricing and promotion schedules for all retailers


    Principles of procedural justice continued1

    Principles of Procedural Justice(continued)

    • Refutability

      • The more vulnerable partner can appeal the more powerful party’s channel policies and decisions

        • Dealer advisory councils where manufacturers can air their concerns

        • Marks & Spencer has a rule where their supplier can always appeal their decision to a higher level in the company


    Principles of procedural justice continued2

    Principles of Procedural Justice(continued)

    • Explanation

      • The more powerful party provides its partners with a coherent rationale for its channel decisions and policies

        • Marks & Spencer explains its policies and actions to its suppliers


    Principles of procedural justice continued3

    Principles of Procedural Justice(continued)

    • Courtesy

      • Treating a partner with respect is crucial for building the interpersonal chemistry that is the foundation of successful manufacturer-Retailer relationships

        • Relationships between companies are actually relationships between people on either side

        • Affects the way personnel are assigned to accounts

      • “Two Tough Companies Learn to Dance Together”


    Power vs trust

    Power Game

    Create Fear

    Pursue Self-Interest

    Avoid dependence by playing multiple partners by raising their switching costs

    Retain flexibility for self but lock in Partners by raising their switching costs

    Trust Game

    Create Trust

    Pursue Fairness

    Create interdependence by limiting the number of partners

    Both parties signal commitment through specialized investments, which lock them in

    Power Vs. Trust


    Power vs trust continued

    Primarily unilateral Communication

    Coercion

    Closed or Formal, detailed & short-term

    Use competitive bidding frequently

    Reduce conflict through detailed contracts

    Resolve conflicts through the legal system

    Bilateral Communication

    Expertise

    Open or Informal long-term

    Check market prices occasionally

    Reduce conflict potential by selecting partners with similar values

    Resolve conflicts through mediation or arbitration

    Power Vs. Trust(continued)


    Moving from power game to trust game

    Moving from Power Game to Trust Game

    • Past practices have to be unlearned before a new relationship based on trust can begin

    • Select partners that bring distinctive competencies and similar values

    • Establish a flexible and informal relationship

    • Look for opportunities to benefit everyone

    • Encourage employees to build personal ties


    Reorganizing

    Reorganizing

    • Recruit people who will work well with other channel members

    • Fire those who do not work well with other channel members

    • Replace power driven employees with relationship managers

    • Develop incentive and performance programs

    • Joint educational Programs


    The power of trust in manufacturer retailer relationships

    “Success in rapidly changing environment will go

    to those who learn to make the leap of faith”


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