Channel Power, Control, and Leadership
Channels perform better if a party is in charge, providing a level of leadership to coordinate goals and efforts.
LEARNING OBJECTIVES
Describe why manufacturers, wholesalers and retailers take the lead in channel partnerships
KEY TAKEAWAYS
Key Points
- In a type of business cold war, manufacturers and retailers are constantly trying to match each other in size.
- The manufacturer should lead if the design and redesign of the channel is best done by the manufacturer and if control of the product —merchandising, repair, etc.—is critical.
- The wholesaler should lead where the manufacturers and retailers have remained small in size, large in number, relatively scattered geographically, financially weak, and lacking in marketing expertise.
- The retailer should lead when product development and demand stimulation are relatively unimportant, and when personal attention to the customer is important.
Key Terms
- retailer: one who purchases goods or products in large quantities from manufacturers directly or through a wholesale, and then sells smaller quantities to the consumer for a profit
- dictatorial: In the manner of a dictator, usually with callous disregard for others.
Channel Power, Control, and Leadership
Power is our willingness to use force in a relationship. It is often the means by which we are able to control or influence the behavior of another party. In the channel mechanism, power refers to the capacity of a particular channel member to control or influence the behavior of another channel member. For instance, a large retailer may want the manufacturer to modify the design of the product, or perhaps be required to carry less inventory. Both parties may attempt to exert their power in an attempt to influence the other’s behavior. The ability of either of the parties to achieve this outcome will depend upon the amount of power that each can bring to bear.
Channels usually perform better if a party is in charge, providing some level of leadership. Essentially, the purpose of this leadership is to coordinate the goals and efforts of channel institutions. The level of leadership can range from very passive to quite active—verging on dictatorial. The style may range from very negative, based on fear and punishment, to very positive, based on encouragement and reward. In a given situation, any of these leadership styles may prove effective. Given the restrictions inherent in channel leadership, the final question is “who should lead the channel?” Two important trends are worth noting, since they influence the answer.
First, if we look at the early years of marketing, the role of the wholesaler (to bring the producer and consumer together) was most vital. Consequently, during this period, the wholesaler led most channels. This is no longer the case. A second trend is the apparent strategy of both manufacturers and retailers to exert power through size. In a type of business cold war, manufacturers and retailers are constantly trying to match each other in this respect. The result has been some serious warfare to gain channel superiority.
Channel Control: Wholesalers and retailers undertake size competition in order to gain channel control.
Under which conditions should the manufacturers lead? The wholesaler? The retailer? While the answer is contingent upon many factors, in general, the manufacturer should lead if the design and redesign of the channel is best done by the manufacturer and if control of the product—merchandising, repair, etc.—is critical. The wholesaler should lead where the manufacturers and retailers have remained small in size, large in number, relatively scattered geographically, financially weak, and lacking in marketing expertise. The retailer should lead when product development and demand stimulation are relatively unimportant and when personal attention to the customer is important.