Channel Management and Power

1
Channel Management and Power

• Vertical integration
• Channel power
• Channel conflict
• Causes
• Solutions

2
Vertical Integration

• Company structures
• Sole business unit (e.g., manufacturing,
  wholesaling, retailing, services)
• Conglomerates
• Japanese keiretsus

• Make or buy?
• Leverage
• Expertise
• Control
• Product quality and design
• Steady supply

3
Layers of Performance An Example
RETAILING
WHOLESALING/CHANNEL MOVING
MARKETING
PRODUCT MANUFACTURING
COMPONENT MANUFACTURING
4
Vertical Integration Costs and Benefits

• Costs
• Opportunity cost of personnel
• Difficulty in hiring appropriate managers
• Potential over-capacity
• Labor situation--may find lower costs in
• Non-union environment
• Lower cost area

• Benefits
• Dependability
• Synergy (?)
• Brand extensions
• Control

5
Reasons for Outsourcing

• Motivation
• Specialization
• Survival of the fittest
• Economies of scale
• Market coverage
• Independence from specific manufacturer

6
Channel Power Sources

• Reward
• Coercive
• Expert
• Legitimate
• Referent (brand name)

7
Channel Conflict

• Channel members have different objectives--e.g.,
• Brand unit sales vs. category unit sales
• Pricing
• Service output
• Terms of sale price, payment, quantities,
  returns

8
Conflict Resolution Approaches

• Information intensive approaches Sharing of
  information
• Expensive(-)
• Risky (-)
• May build trust ()
• Third party (mediation)

• Establishment of norms (rules of the game)
• Accommodation
• Confrontation
• Avoidance
• Compromise