THE POWER OF TRUST

IN MANUFACTURER-
RETAILER
RELATIONSHIPS
Presented By:
Group 4
Abha Mahalka( U110001)
Amrita Purkayastha (U110008)
Prakhar Aggarwal(U110035)
Rashmi Agarwal(U110041)
Rishi Agarwal(U110042)
Shashank Vijay(U110055)
POWER OF FEAR

 Definition: The capacity that A has to

influence the behavior of B so that B acts in
accordance with A’s wishes.

 Advantageous only in short run.

• Results in one stage maximizing profits, often at Customer
suffers
the expense of other stages – sub system
optimization – Customer suffers
BOP
• Can hurt a company when balance of power change
changes
• Fall of customers/suppliers due to over
Self Defeat
exploitation based on coercive power would lead
to self defeat
• Less powerful partners seek ways to resist – Resistance
coalitions, own retail stores
DISADVANTAGES…
WHAT IS TRUST ??

Trust

Depend Honest
ability y

Leap of
Faith
ADVANTAGES OF POWER OF
TRUST

Win -Win
More situation
profits, for
Goodwill, less costs manufactur
share of er, retailer
Higher heart to go and
performa the extra Customer
nce mile too
More
Commitmen
t
TRUST – LIMITATIONS

Mutual Trust

When
Exclusivity would Object of
of relation trust trust
work?

No single
pattern works
for all
CREATING TRUST

JUSTICE
 Share of pie Fairness of parties procedures
 Division of benefits and and policies for dealing with
burdens between its vulnerable partners.
Distributi
partners
Procedural
ve
 Prerogative of the bigger
partner.
 Example: Mark & Spencer
kitchen product supplier
PROCEDURAL JUSTICE
●
Engaging in two way communication with weaker
partners
Bilateral Communication ●
Example: Mark & Spencer gives keycards to regular
suppliers

●
Dealing equitably with weaker channel partners
●
Giving everyone fair share of business
Impartiality ●
Minimizing changes in the yearly pie, so suppliers can adjust capacities
●
Example: Mark & Spencer allows suppliers to appeal decision to higher
level

●
Vulnerable partners can appeal powerful party’s
channel policies and decisions
Refutability ●
Example: Mark & Spencer allows suppliers to appeal
decision to higher level
 ●
Powerful party provides coherent rationale for its channel
policies and decisions
Explanation ●
Example: Mark & Spencer does it in annual meeting
attended by store managers and major suppliers

●
Understanding and awareness about the conditions weaker
partners operate in.
Familiarity ●
Example: Mark & Spencer visit plants and conducts inter-
employee meetings before taking in a manufacturer.

●
Mutual respect is crucial as ultimately it’s a relationship
between teams of people.
Courtesy ●
Example: Sherwin-Williams (paint manufacturer) lets Sears
managers help in selecting people who handle their account
 DISTRIBUTIVE VS PROCEDURAL

Distributive Procedural

●
Procedural justice is long
term.
●
Simply higher margins may ●
Requires greater effort,
seem better.
energy, investment,
●
Its expensive and risky.
patience and even a change
●
Attractive returns may be
in organizational culture.
the magnet. ●
Procedural fairness is the
glue to hold relationships.
SHIFTING FROM THE POWER GAME
TO THE TRUST GAME

Attribu Power Trust

te Game Game
●
●Create fear ●
●Create trust
●
●Modus Operandi ●Pursue self-interest
● ●
●Pursue what is fair
●Guiding principle
●
●Create interdependence
●Avoid dependence
●
●

●Negotiation Strategy ●Primarily unilateral

●Bilateral
● ●
●

●Through expertise
●Communication
●
● ●Through coercion
●
●‘Open’, informal, long-
●

●Influence
● ●‘Closed’, formal,
●
term
●Contracts
● detailed ●Select partners with
●

●Through detailed
●Conflict reduction
●
●
similar values and mutual
●Conflict Resolution
● contract understanding
●Legal system
● ●Mediation and arbitration
●
MAKING THE SHIFT

Avoid long detailed

contracts

Have an informal
flexible relationship

Legal force replaced

by mutual obligation

Example1: Wholesalers in Japan

Example 2: Mark & Spencer regards supplier relationships (some of
them more than 100 yrs old) as morally binding
MAKING THE SHIFT

Encourage employees
to learn partner’s
business

Looks for
opportunities
benefiting both

May have to
reorganize to achieve
this

Example1: Kraft did away with sales force and assigned the
people to business teams dedicated to every retail customer.
MAKING THE SHIFT

Encourage personal
relationships unlike in
power game where it
is discouraged

Companies should
minimize employee
turnover as
relationships take long
time to build
MAKING THE SHIFT

Change type of people

recruited to work with
channel partners.

Shift from volume

price focus to
relationship focus

Change in incentive
and performance
measurement required

Example: P&G changed from rewarding sales managers to transfer

inventory to rewarding for maximization of both P&G and retailer
profit
MAKING THE SHIFT

Joint education
programs to
breakdown barriers

build relationship
based on trust and
mutual respect

Example: Philip Morris runs 2 day seminars training retailers to

become better at their jobs. Gives out certificates which retailers
proudly display in their stores
FINAL NOTE
Trust results in
 Reduced transaction cost
 Flexibility towards market changes
 Creative solutions for mutual as well as customer
benefit.
 Vertically integrated companies are too inflexible
and traditional manufacturer-retailer relationships
are too adversarial for this.
THANK
YOU!!