Assignment 1: Channel Relationships

ASSIGNMENT 1
CHANNEL
RELATIONSHIPS
Agents
Producer Wholesaler Retailer Consumer
Agents
Channel Relationships arise out of:
1. Structure
2. Services provided
Relationship types
Relationship
Nature
Ad hoc Ongoing
Alliance Partnering
Relationship Relationship
Strategic
Relationship
Purpose
Transactional Cooperative
Operational
Transactional Relationships:-
 Occur when a customer and supplier focus on the
timely exchange of basic products for highly
competitive prices.
Partnering Relationships (Partnerships):-

 Occur through extensive social, economic, service,
and technical ties over time.
 The intent is to lower total costs and/or increase
value for the channel.
 Achieving mutual benefit.
 Require communication, cooperation, trust, and
commitment among channel members.
Alliance Relationship:-
Require certain conditions in order to be effective:-
 Recognition of the interdependence of channel
members.
 Close cooperation between channel members.
 Careful specification of roles and functions, that is,
joint rights and responsibilities each play in the
marketing channel.
 Coordinated effort focused on common goals, and
 Trust and communication between channel
members.
Channel Relationships
 The members that do business to-gather have some kind of working
relationships.
Divergent Goals Convergent
Misunderstood Harmonious
Convergent
Process
Acrimonious Mismanaged
Divergent
Harmonious Relationship:-
 Requires similar goals for channel members

regarding various aspects – Goal
Convergence (the What aspect) & Process
Convergence (the How aspect).
 Process convergence is how to achieve
effectiveness and efficiency in the process of
delivering service outputs required by end-
users.
Distribution
A good distribution strategy takes into account:
How relationships within the channel of

distribution can impact the marketer’s
product.
Relationship Issues
 The Relationship issues cover:
1. Channel Power
2. Channel Conflict
3. Need for long-term commitments
Channel Power
 A channel can be made up of many parties

each adding value to the product purchased by
customers.
 However, some parties within the channel may
carry greater weight than others.
 In marketing terms this is called channel power,
which refers to the influence one party within a
channel has over other channel members.
 When power is exerted by a channel member
they are often in the position to make demands
of others.
POWER
Backend or Product Power

 product manufacturer or service provider markets a brand
that has a high level of customer demand.
Middle or Wholesale Power

 when an intermediary, such as a wholesaler, services a
large number of smaller retailers with products obtained
from a large number of manufacturers.
 Power Exertion: Since the small retailers are often not in
the position to purchase products cost-effectively and in as
much variety as what is offered by the wholesaler.
Front or Retailer Power
• the power in this situation rests with the

retailer who can command major
concessions from their suppliers
•most prevalent when the retailer

commands a significant percentage of sales
in the market they serve and others in the
channel are dependent on the sales
generated by the retailer.
Channel Conflicts
 In an effort to increase product sales, marketers are often
attracted by the notion that sales can grow if the marketer
expands distribution by adding additional resellers.
 Such decisions must be handled carefully, however, so that
existing dealers do not feel threatened by the new distributors
who they may feel are encroaching on their customers and
siphoning potential business.
 For marketers, channel strategy designed to expand product
distribution may in fact do the opposite if existing members feel
there is a conflict in the decisions made by the marketer. If
existing members sense a conflict and feel the marketer is not
sensitive to their needs they may choose to stop handling the
marketer’s products.
CHANNEL CONFLICT
Large retailer threatens to stop buying a

product unless the supplier grants “
unreasonably low” prices and/or high
supports services
Need for long-term
commitments
 Channel decisions have long-term consequences for marketers
since efforts to establish new relationships can take an extensive
period of time while ending existing relationships can prove
difficult.
 EXAMPLE 1: Company A, a marketer of kitchen cabinets that
wants to change distribution strategy, may decide to stop selling
their product line through industrial supply companies that
distribute cabinets to building contractors and instead sell
through large retail home centers. If in the future Company A
decides to once again enter the industrial supply market they
may run into resistance since supply companies may have
replaced Company A’s product line with other products and,
given what happened to the previous relationship, may be
reluctant to deal with Company A.
Need for long-term
commitments
 EXAMPLE 2: Building contractors may be comfortable
purchasing kitchen cabinets from industrial suppliers. If
Company A decides to change their reseller network
they may find it difficult to regain the building contractor
customer base, who may continue to purchase from the
industrial suppliers but are now purchasing products
from Company A’s competitors. In this case, Company
A may have to give serious thought to whether breaking
their long-term relationship with industrial suppliers is in
the company’s best interest.

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ASSIGNMENT 1

Producer Wholesaler Retailer Consumer

Partnering Relationships (Partnerships):-

 Requires similar goals for channel members

A good distribution strategy takes into account:

How relationships within the channel of

 A channel can be made up of many parties

Backend or Product Power

Middle or Wholesale Power

• the power in this situation rests with the

•most prevalent when the retailer

Large retailer threatens to stop buying a

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