MANAGING CHANNEL
RELATIONSHIPS
Chapter 6
Chapter 6 Outline
Manufacturers’ Motives for Building a Strong
Channel Relationship
Intermediaries’ Motives for Building a Strong
Channel Relationship
Building Channel Commitment
Strategies for Building Commitment
Manufacturers’ Motives for Building a Strong
Channel Relationship
Why would a manufacturer want to build a strong relationship
with intermediaries such as a wholesaler or retailer?
Channel relationship begin with the realization that a
manufacturer can profit from the many advantages offered by a
wholesaler or retailer.
The following are some of the reasons that a manufacturer
would want a strong channel relationship with
intermediaries such a wholesaler or retailer.
1) To obtain better market coverage: The most important
reason that a manufacturer would want a strong channel
relationship with its intermediaries is to obtain better market
coverage at lower cost..
Manufacturers’ Motives for Building a Strong
Channel Relationship
2) Coordinate marketing effort: A manufacturer
may also want to coordinate its marketing effort
more effectively by using wholesalers or retailers.
Manufacturer may seek greater cooperation from
retailers and wholesalers relating to the exchange
of information on end-users.
3) Consolidation at the wholesale level: Mergers
and acquisitions are transforming the wholesale
industry.
Manufacturers’ Motives for Building a Strong
Channel Relationship
The wholesale industry is being transformed from
industry that has many smaller wholesalers
(fragmentation) to an industry that has few large
wholesalers (consolidation).
Manufacturers fear that they will lose distribution
access to their end-users if they do not have strong
channel relationships with the few large wholesalers.
The few large wholesalers are very powerful and can
pick and choose which manufacturer they want to
have a channel relationship with.
Intermediaries’ Motives for Building a Strong
Channel Relationship
The following are some of the reasons that
intermediaries such as retailers and wholesalers
would want a strong channel relationship with
manufactures:
1) Stable supply of desirable products: Retailers
and wholesalers seek strong channel relationship
with manufacturers to ensure a stable supply of
describe products.
Intermediaries’ Motives for Building a Strong
Channel Relationship
Because of the many mergers and acquisitions
occurring in the manufacturing sector,
intermediaries want to ensure product supply from
the remaining manufacturers.
2) Ensure the success of their own marketing
effort:
Intermediaries want to coordinate their marketing
effort with manufacturers to better serve their
customers which will lead to higher volumes and
higher margins.
Intermediaries’ Motives for Building a Strong
Channel Relationship
3) Cut costs: For example, by coordinating logistics,
intermediaries can
increase inventory turnover
keep lower levels of stocks
take fewer write-down of obsolete stocks
4) Differentiate themselves from other
intermediaries: By positioning themselves as the
manufacturer's preferred outlet for their products,
wholesalers and retailers can discourage other
competitors for entering their market.
Intermediaries’ Motives for Building a Strong
Channel Relationship
Intermediaries differentiation is based on a strategy
of offering value added services such as:
Offering customer support
Onsite product training
Technical expert on call
Special packaging and handling
Class Exercise
In the relationship between manufacturers and
intermediaries, who needs who more? Explain your
answer.
Building Channel Commitment
A channel member who wants to build
commitment in a relationship must start by
building the expectation
Ultimately, the key to that potential
building partners will
a long-lasting
business relationship is a combination of trust,
be doing business for a long time (expectation of
communication, shared values and goals,
continuity).
dependability, and flexibility. When both
parties demonstrate these qualities, they are
The expectation
more likelyof continuity
to have is enduring
a successful and critical before
partnership.
any organization can cooperate and invest to build
a future.
What inspires confidence that a business
relationship will last for a long time?
Building Channel Commitment
Continuity expectation increases when the
following is present in a channel relationship:
Trust
Two-way communication
A reputation for fair dealing
A long-standing, stable relationship
Balanced power
Combined stakes
Strategies for Building
Commitment
Intermediaries evaluate manufacturers commitment
to a long-term channel relationship based on past
behavior.
Intermediaries ask two important questions when
evaluating manufacturers’ commitment:
1) Did the intermediary have conflicts with
manufacturer in the past?
Strategies for Building
Commitment
2) What actions did manufacturer take to tie
itself to the intermediary?
These actions can take two forms:
A) Selectivity: The manufacturer give the
intermediary some level of protection from
competitors that might sell the same brand.
B) Idiosyncratic investments: are customized
investments in the relationship with the
intermediary.
Strategies for Building
Commitment
Examples of Idiosyncratic investments:
Manufacturer personnel and facilities dedicated to a
single intermediary
Compatible reporting systems tailored to the specifics
of a single intermediary systems
Investment to identify the intermediary's business in
the minds of customers
Investments in training programs and others resources
to help the intermediary run its business better
Q:
Which statement about commitment in a channel relationship is
most likely true?
A) Commitment in a channel relationship can be easily observed
and measured.
B) A committed organization wants the relationship to continue
indefinitely.
C) True commitment requires only minor investments of time and
money.
D) Commitment is indicated by a cordial relationship with
partners.
E) Short-term channel relationships indicate strong commitment.
Answer: B
Q:
Which of the following statements would LEAST likely be made
by the committed party in a channel relationship?
A) We defend them when others criticize them.
B) We are patient with their mistakes, even those that cause us
trouble.
C) We will dedicate whatever resources it takes to grow the
business we do with them.
D) We spend enough time with their people to work out problems
and misunderstandings.
E) We are continually looking for another organization as a
business partner to add to this one.
Answer: E
Q:
How did John Deere benefit from having strong, committed
relationships with its dealer network?
A) The firm convinced dealers to service John Deer products sold
by Home Depot.
B) The firm transitioned dealers from homeowner sales to
commercial farm sales.
C) The firm persuaded dealers to promote Home Depot through
their Web sites.
D) The firm used reward power to convert local dealers into
franchises.
E) The firm demanded that small dealers consolidate in urban areas.
Answer: A
What are idiosyncratic investments? How do they affect channel relationships?
Provide examples of idiosyncratic investments to illustrate your response .
Idiosyncratic investments are assets that are dedicated to a
channel partnership and cannot be redeployed in connection
with another distributor. Some notable, difficult-to-redeploy
investments include supplier personnel and facilities
dedicated to a single distributor and compatible reporting
systems. These assets vary in how easy they are to deploy,
but all of them are costly to move. Such idiosyncratic
investments are known as credible commitments, pledges,
or relationship-specific investments. When manufacturers
invest in a channel partner, the partner’s confidence in the
relationship and commitment should soar.
Reference
Palmatier, R.W., Stern, L., & El-Ansary, A.I. (2019).
Marketing Channel Strategy, 8Th edition, Routledge.
