1 / 18

A Brief Review of Channel Governance

A Brief Review of Channel Governance. Distribution Channel Strategy L. P. Bucklin Spring 2000. Channel Governance. Definition: The use of hierarchical type controls to coordinate activities throughout the channel instead of market forces to provide superior end-user service

shanon
Download Presentation

A Brief Review of Channel Governance

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. A Brief Review of Channel Governance Distribution Channel Strategy L. P. Bucklin Spring 2000

  2. Channel 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 use

  3. Payoff 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, Kraft

  4. Governance 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 power

  5. Channel 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 firm

  6. Channel Governance Modes Market Based Controls Reynolds Wrap (Intensive distribution) Anasazi (Selective distribution) Cummins Engine (long term incentive) Pizza Hut (franchise contract) Kraft Food (integration) Adminis- tered Control Contractual Hierarchy Unilateral Governance Bilateral Governance Asymmetric Dependence Symmetric Dependence

  7. Channel Structure Tools Degree of Channel Closure--> Form of Channel Governance Intensive Distribution Selectivity by Reseller Type Selective Distribution by Market Area Administered Channel Exclusive Distribution Exclusive Distribution with Exclusive Dealing Franchised Distribution Contractual Channel <--Greater Power Source Wholly Owned Distributor SBU with own Narrow Line Resellers Functional Integration (Separate L&I* functions) Integrated Channel *CBs=competitive brands

  8. Governance Tools Degree of Channel Closure--> Form of Channel Governance Intensive Distribution Reynolds Selectivity by Reseller Type Anasazi, HP Selective Distribution by Market Area Ford Administered Channel Exclusive Distribution Cummins Exclusive Distribution w/ Exclusive Dealing Ford Franchised Distribution Pizza Hut Contractual Channel <--Greater Power Source Wholly Owned Distributor Kraft (USA) SBU with own Narrow Line Resellers Ingersoll Rand Functional Integration (Separate L&I* functions) Polaroid Integrated Channel *L&I=Logistic & Informational

  9. Market 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 Hut

  10. Behavioral 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,Caterpillar

  11. Trust--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 dealings

  12. Governance 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, conflict

  13. 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 increases

  14. Sources 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 return

  15. Conflict Management Techniques • Institutionalized methods • Use of third parties • Contract management • Control over management style • Incentive management • System component evaluation • Limitation of multiple channel types

  16. Bi-Lateral GovernanceHigh, Mutual Dependence • Mutual commitment to welfare of channel partner, build integration, minimize conflict • Creation of joint control systems: Pizza Hut, Caterpillar • Focus upon issues of mutual concern • Mechanisms enable all parties to participate in decisions • Procedures developed for resolving differences • Methods created for communication of needs, concerns • General norms for behavior established • Joint decision making systems: resistant to relationship changes required by new conditions

  17. Governance Requires • Appropriate choice of governance mode from: • Recognition of potential payoff from channel coordination • Market conditions underlying power positions • Channel information & logistical requirements • The selection of partners with similar goals • Application of appropriate degree of channel closure • Implementation of technologies appropriate to diminishing conflict among channel members

More Related