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Written By:
Rajat Gupta
MBA2(IB)
Channel Members
All those who help in bringing product to the consumer from the manufacture.
Wholesalers
o A wholesaler is someone who primarily sells to other retailers
o Also may retail on own
o Typically, buys in bulk
Retailer
o The most visible face of the distribution system
o India has the largest number of retailers in the world
Value-added reseller
o channel partners that buy products from marketers, add value by modifying or
enhancing value, then reselling them
o EXAMPLE - Vehicle dealer adds several accessories
Types of Channel
Four Channels through which marketers can reach customers
Channel 1 Channel 2 Channel 3 Channel 4
Manufacturer Manufacturer Manufacturer Manufacturer
Agent
Wholesaler Wholesaler
Channel Conflicts
Channel conflict is generated when one channel member’s action prevent the channel
from achieving its goal.
Channel conflict occurs whenever channel members have distinctly different opinions or
perceptions about distribution channel affairs. If no interdependence exists, there would
be no basis for conflict. Mutual dependence creates the basis for conflict
Channel Power - The ability to alter channel members behavior so that they take actions they
would not have taken otherwise. For example, Wal-Mart has a lot more power, given its large
volume purchases, than many of its suppliers
Reward Power - Manufacturers offers an extra benefit for performing specific acts or
functions. e.g., Coca Cola may be able to give a price break or pay a fee for additional shelf
space. A retailer that meets a certain goal—e.g., the sale of 50,000 cases per month—may
receive a bonus.
Expert Power- Manufacturer has special knowledge that the intermediaries value. Wal-Mart,
for example, because of its heavy investment in information technology, can persuasively argue
about likely sales volumes at different price levels.
Referent Power - Manufacturer is so highly respected that intermediaries are proud
to be associated with it.
If one has at least any one above channel power in his hand. It can be utilized in the following
manner:
One can easily control and manage channel according to his/her will. Like as
mentioned above Walt-Mart has channel and expert power. So, its easy for wal-mart
to drive channel accordingly
One having upper hand can motivate its channel member by rewarding like coca-cola
does.
Channel power is also decided how much one channel members depends upon other
All players are interdependent to each other.
Power is the instrument of influence to make other member willing to act in situations.
Channel power becomes more important if dependency of company is more on its
member but it remains till company finds any other alternative.
One having power can drive accordingly under different situations.
Channel Control
One having channel control is one who has upper hand over other in some way other. That
channel member should work best interest of the all the channel members. One doesn’t try to
dominate other unnecessarily. Member having control should takes steps towards the fulfilling of
the objective of the channel rather than driving channel in its own best interest.
Channel-Control Strategy
The above model describes if one has to keep long run relationship with its channel
members that one always has to be flexible and ready for negotiations on terms and
conditions from time to time and there should be less scarifies by other in terms of revnue
sharing etc.
On the other hand, if one member is highly dominating don’t ready to negotiate than
there would only short term and only transactional relationship.
Non–Specificability in Contract
Non-Specificabiltiy of contract means certain terms and conditions not mentioned in the contract
or for they have agreed upon verbally.
In case of loss or damage of goods, who will pay or in what share channel members will
have to bear that loss
Who will bear warehouse expenses and damaged occurred in warehouse
Who will held responsible, if technology go obsolete like in case of laptops, software’s
etc.
In case of bad debts, who will bear that loss.
Demand Uncertainty
It is always very difficult to predict market demand. Channel members have to keep check on
market demand and have to create demand. It’s one of the major function of Channel member.