Behavioral Processes in

Marketing Channels
 The Marketing Channel
as a Social System

• When individuals or collectivities (firms/agencies)

interact as members of marketing channel, an
interorganizational social system exists.

• The channel can be affected not only by economic

variables, but also the fundamental behavioral
dimensions present in all social system such as
conflict, power and communication.
 Conflict in the Marketing Channel
• Conflict exists when a member of the
marketing channel perceives that another
member’s actions impede (obstruct) the
attainment of his/her goals.
 Conflict versus Competition
• Competition: behavior that is object-centered,
indirect, and impersonal

• Conflict: direct, personal, and opponent-

centered behavior
 Supermarket retailers and
manufacturers
• Competition: the battle of private vs. national brands

 The attempts by manufacturers and supermarket retailers

to gain wider acceptance of their respective brands is
usually impersonal and market-centered (not engaged in
direct blocking activities aimed at impeding each other’s
goals of increased consumer acceptance of their brands)
 Ecommerce & Retail
Conflict
Eg.
• A brand sells directly by ecommerce and through a network
of retail shops. Many of the retail shops are independently
owned sales partners. Steep discounts on the ecommerce
platform cause sales to drop at the retail shops.
 Causes of Channel Conflict
underlying causes of channel conflict:
• Role incongruities
• Resource scarcities
• Perceptual differences
• Expectational differences
• Decision domain disagreements
• Goal incompatibilities
• Communication difficulties
ROLE INCONGRUITIES
Members of the marketing channel have a series of roles they are
expected to fulfill. If a member deviates from the given role, a conflict
situation may result.
• Example: Franchisees are expected to operate in strict accordance
with the franchisor’s standard operating procedures. If the franchisee
deviates from the given role by deciding to institute some of his/her
own policies, a conflict situation may result.
RESOURCE SCARCITIES
• Sometimes conflict stems from a disagreement between channel
members over the allocation of resources needed to achieve their
respective goals.
Example: the retailers are viewed by both the manufacturer and the wholesaler as
valuable resources necessary to achieve their distribution objectives.
Frequently, the manufacturer will decide to keep some of the higher volume retailers
as house accounts (stores that the manufacturer will sell direct). This leads to
objections by the wholesaler over what is considered to be unfavorable allocation
of this resource (the retailer).
PERCEPTUAL DIFFERENCES
• Perception: the way an individual selects and interprets
environmental stimuli. The way such stimuli are perceived, however,
is often quite different from objective reality.
• Example: the use of point-of-purchase (POP) displays, the
manufacturer who provides these usually perceives POP as a
valuable promotional tool needed to move products off a retailer’s
shelves. The retailer, on the other hand, perceives POP material as
useless junk that serves only to take up valuable floor space.
EXPECTATIONAL DIFFERENCES
Various channel members have expectations about the behavior of
other channel members.
• These expectations are predictions or forecasts concerning the future behavior of other
channel members. Sometimes these forecasts turn out inaccurate, but the channel member
who makes the forecast will take action based upon the predicted outcomes – thus channel
conflict. An example of this could be seen at the retail end where a retailer expects stock on
credit due to his past experience, now if the salesman, upon instructions of the distributor,
tries to tightens the credit suddenly the retailer might refuse to oblige, resulting in possible
conflict.
Decision domain disagreements
each channel member explicitly or implicitly carves out
for himself an area of decision making which he feels
is exclusively his own.
Hence, conflicts arise over which member has the right
to make what decisions. The area of pricing decision
has traditionally been a pervasive example of such
conflict.
• Example: many manufacturers feel that pricing decisions are
in their decision-making domain. The manufacturer makes it
known to the retailer that if he/she doesn’t abide by the
manufacturer’s pricing “recommendations” the retailer will
lose the product line. Retailers who need price flexibility in
highly competitive markets often feel that by attempting to
dictate pricing, the manufacturer is encroaching (gradually
move) on the retailer’s domain.
GOAL INCOMPATIBILITIES Each member of the marketing channel has
his own set of goals and objectives that are very often incompatible
with those of other channel members. When goals of two or more
members are incompatible, conflicts may result
• Example: amazon.com
Amazon is trying to sell as much merchandise as possible from
whatever sources provide the most revenue and profits to them.
The CD, book or electronics firm who advertises through
Amazon.com wants Amazon.com to sell their new products.
COMMUNICATION DIFFICULTIES Communication is the vehicle for all
interactions among channel members, whether such interactions
are cooperative or conflicting. Any breakdown in communications
can quickly turn cooperation into conflict.
• Example: For example manufacture often make changes in product design, prices
and promotional strategies. The resellers generally feel that they are entitled to
ample advance notice of such changes so that they can make appropriate
strategic adjustments, if necessary. If adequate communication is not provided
and these failing results in negative consequences for a channel member, severe
conflict can result.
Channel efficiency: A measure of channel performance
in relation to efficiency and cost
Effect of conflict on channel efficiency
• Negative effect—reduced efficiency (extra inputs i.e.
time and effort of salespeople)
• No effect—efficiency remains constant
• Positive effect—efficiency increased (2 parties
reconsider the reason of conflict and reallocation of
inputs based on the comparative advantages of each
channel member for performing the distribution
tasks necessary to achieve their distribution
objectives.)
Conflict and Channel Efficiency
 Managing Channel Conflict
1. Detecting channel conflict
2. Appraising the effect of conflict
3. Resolving conflict
 Managing Channel Conflict

1. Detecting channel conflict

Channel managers can detect potential conflict areas
by surveying other channel members’ perceptions
of his or her performance. Such surveys can be
conducted by outside research firms, or trade
associations.
The marketing channel audit or distributors’ advisory
councils/ channel members’ committees can also
be used as an approach to detect channel conflict.
 Managing Channel Conflict

2. Appraising the effect of conflict

• A growing body of literature has been emerging to

assist the channel manager in developing methods
for measuring conflict and its effect on channel
efficiency.
• For the present, most attempts to measure conflict
and appraise its effects on channel efficiency will still
be made at a conceptual level that relies on the
manager’s subjective judgment.
 Managing Channel Conflict
3. Resolving conflict
- When conflict exists in the channel, the channel manager
should take action to resolve the conflict if it appears to be
adversely affecting channel efficiency.
- Three techniques are suggested:
- A channelwide committee, a sort of “crisis management
team”
- Joint goal setting by committee
- A distribution executive position created for each major
firm in the channel. The individual(s) filling this position
would be responsible for exploring the firm’s distribution-
related problems.
- Another approach to resolving channel conflict is by
 Power in the Marketing Channel
The Channel Power refers to the ability of any
one channel member to alter or modify the
behavior of other members in the distribution
channel, due to its relatively strong position in
the market.
Bases of power for channel control:
• Reward power
• Coercive power
• Legitimate power
• Referent power
• Expert power
REWARD POWER:
This source of power refers to the capacity of one
channel member to reward another or usually
perceived as financial gains that channel members
experience as a result of conforming to the wishes
of another channel member.
eg. The manufacturer provides several additional benefits to the
intermediaries, with the intention to motivate them to perform
certain activities as required. This power is very useful since it
brings in the maximum efforts from each channel partner, but this
may sometimes be negative as the channel partners may always
seek for the benefits in case, they are required to do some other
activity.
Coercive Power: The manufacturer threatens to terminate
the relationship with other channel partners or withdraw
the resources deployed with them. With this power, the
manufacturer can dominate the others and keep them
under his control.
But the negative side is, the channel partners may lose their
faith in the manufacturer and may enter into inter-conflicts.
Legitimate power: The manufacturer reminds the channel partner
to carry out their activities in accordance with the contract they have
entered into at the time they became the channel partners.
The manufacturer may find it convenient to keep a check on the channel
partners in terms of their signed agreement, but the partners may
feel humiliated for the continuous reminder for their code of
conduct.
Referent power The manufacturer should develop its
image in such a way, that the intermediaries must
feel proud to be associated with it. The manufacturer
with the influential image can get varied options with
regard to the channel partners.
• But if the manufacturer is weak then intermediaries
may not like to get associated with it because that
might spoil their market image.
Expert power The manufacturer has the expertise that
he transfers to the channel partners, and once they
acquire it, the power of expertise reduces. Thus, the
manufacturer should focus on creating the new
expertise, thereby keeping the channel partners
updated with the day to day operations.
• The manufacturer uses this power to retain the
interest among the channel partners to work, but the
intermediaries may not feel to learn any new things
apart from what they have learned.
 Communication Processes in
Marketing Channel
Communication is “the link that holds together a
channel of distribution.”
• It provides the basis for sending and receiving
information among the channel members and
between the channel and its environment.
• It creates a flow of information within the channel
and leads to an efficient flow of products/services
through the channel.
 Behavioral Problems in
Channel Communication
• Differing goals among channel members (large firms vs. small
firms)
• Language difficulties (terminology/jargon used by professional
corporate managers in large firms: profit, promotion)
• Perceptual differences (delivery time, margin and discounts,
return privilege, warranty provisions etc )
• Secretive behavior (manufacturer not disclose the promotional
plan fail to get potentially valuable feedback from middlemen)
• Inadequate frequency of communication (may leave channel
members feeling left out of the loop and lack of necessary info.)
The channel manager should try to detect any behavioral problems
that tend to inhibit the effective flow of information through the
channel and resolve those problems before the communications
process in the channel becomes seriously distorted.
CHANNEL AND MANAGEMENT
STRATGEY
In order to maximize profit, companies must manage their
marketing channel effectively. Management of marketing channel
refers to the process of analysing, planning, organizing and
controlling its marketing channel.
The marketing management process as a strategic blending
marketing variables (the marketing mix) to meet the demands of
customers to which the firm wishes to appeal (the target markets)
in light of internal and external uncontrollable variables.
The basic marketing mix variables, often referred to as “the four Ps,”
are product, price, promotion, and distribution (place).
The external uncontrollable variables are major environmental forces
as the economy, sociocultural patterns of buyer behavior,
competition, government, and technology;
the no marketing functions of the firm constitute internal
uncontrollable variables.

The major tasks of channel and management strategy to seek out

potential target markets and to develop appropriate and
coordinated product, price, promotion, and distribution strategies
to serve those markets in a competitive and dynamic environment.