A channel of distribution by its very nature is made up of people. Ideally, a channel member should coordinate his or her efforts with other members in such a way that the performance of the total distribution system to which he or she belongs is enhanced. This is rarely the case. Part of this lack of cooperation is due to the organization structure of many channels, which encourages a channel member to be concerned only with channel members immediately adjacent to them, from whom they buy and to whom they sell. A second reason is the tendency of channel members to exhibit their independence as separate business operations. It is difficult to gain cooperation under this arrangement. Four human dimensions have been incorporated into the study of channel behavior: roles, communication, conflict, and power. It is assumed that an understanding of these behavioral characteristics will increase the effectiveness of the channel.
Most channel members participate in several channels. Establishing the role of a channel member means defining what the behavior of the channel member should be. For example, a basic role prescription of the manufacturer may be to maximize the sales of his or her particular brand of product. This connotes that the manufacturer is to actively compete for market share, and aggressively promote his or her brand. The role prescriptions of independent wholesalers, however, are likely to be quite different. Since wholesalers may represent several competing manufacturers, his or her role would be to build sales with whatever brands are most heavily demanded by retailers. Therefore, a major issue in channel management relates to defining the role prescriptions of the various participants in order to achieve desired results. This is accomplished through a careful appraisal of the tasks to be performed by each channel member and clear communication of these roles to the members.
Channel communication is sending and receiving information that is relevant to the operation of the channel. It is critical for the success of the channel member to work to create and foster an effective flow of information within the channel. Communication will take place only if the channel member is aware of the pitfalls that await. The channel manager should therefore try to detect any behavioral problems that tend to inhibit the effective flow of information through the channel and try to solve these problems before the communication process in the channel becomes seriously distorted.
Anytime individuals or organizations must work together and rely on each other for personal success, conflict is inevitable. Conflict, unlike friendly competition, is personal and direct and often suggests a confrontation. Because it is so pervasive in distribution, a great deal of research has been conducted in attempts to identify its causes, outcomes, and solutions.
There is also a need to manage conflict in the channel. This consists of (a) establishing a mechanism for detecting conflict, (b) appraising the effects of the conflict, and (c) resolving the conflict. This last consideration is most difficult to implement. Techniques such as a channel committee, joint goal setting, and bringing in an arbitrator have all been used. There are even cases when conflict is necessary. Such is the case in the e-marketplace. For example, Eric Schmidt, Chairman and CEO of Google Inc., notes: “From my experience the most successful companies are the ones where there is enormous conflict. Conflict does not mean killing one another, but instead means there is a process by which there is a disagreement. It is okay to have different points of view and disagree, because tolerance of multiple opinions and people often leads to the right decision through some kind of process.”
Power is our willingness to use force in a relationship. It is often the means by which we are able to control or influence the behavior of another party. In the channel mechanism, power refers to the capacity of a particular channel member to control or influence the behavior of another channel member. For instance, a large retailer may want the manufacturer to modify the design of the product or perhaps be required to carry less inventory. Both parties may attempt to exert their power in an attempt to influence the other's behavior. The ability of either of the parties to achieve this outcome will depend upon the amount of power that each can bring to bear.
Capsule 23: Review
- Three general alternatives exist in organizing the channel: conventional, vertical and horizontal.
- The steps in channel design include the following:
- Analyze the consumer.
- Establish channel objective.
- Specify the channel tasks.
- Select the appropriate channel from available alternatives.
- Evaluate the results.
- Channels may exhibit several human traits:
The Wall Street Journal
Marketing channels connect producers and consumers by moving finished goods that are available for consumption. Channel management is a process involving careful planning and monitoring. As with other marketing functions, marketing channels have objectives that guide their activities.
To successfully manage distribution channels, marketers must analyze end consumers, establish channel objectives, specify channel tasks, select the appropriate channel, and evaluate results of the process. If these steps are executed successfully, marketers can help their organizations save costs.
Several professional and trade associations exist for channel managers and those involved in the process. The American Society of Transportation and Logistics (www.astl.org) is a professional organization founded in 1946 by a group of industry leaders to ensure a high level of professionalism and promote continuing education in the field of transportation and logistics.
The National Association of Wholesalers-Distributors (www.naw.org) comprises over 100 national line-of-trade associations, representing virtually all products that move to market via wholesaler- distributors.
The National Retail Federation (www.nrf.com) conducts programs and services in research, education, training, information technology, and government affairs to protect and advance the interests of the retail industry. NRF also includes in its membership key suppliers of goods and services to the retail industry.
Marketing channels can make or break Internet companies. Many Internet companies attempt to differentiate themselves by providing fast delivery of customer orders anywhere in the world. To achieve this, these companies must successfully manage their marketing channels. The Interactive Journal's Tech Center is an excellent source for all issues related to technology.
Keep apprised of emerging technologies, developments in specific companies, and industry trends by reading articles in Tech Center and Marketplace.
Use the Interactive Journal to search for articles about one organization that successfully manages channels and one organization that does not. Compare the strategies of both companies and discuss what works and what does not work for each organization. Support your conclusions with concepts from the chapter.