CHANNEL CLIMATE Conflict in channel relationships is always possible as each channel member has its own sets of goals

and objectives that are frequently incompatible with those of channel members. Conflict between manufacturers and intermediaries may in fact be inevitable because of the Productivity Paradox : Manufacturers see their primary job as cost reduction while other members of the marketing channels see their primary job as persuing strategies of market differentiation. Other manufacturer intermediary conflicts include : quality of management, territory boundaries, margin sizes, and whether the intermediarys primary obligation and loyalties should lie with customers or with the manufacturer. Most of the opportunities to remediate these efforts lie in the channel climate. This channel climate emerges from the interactions of the various people, called the Boundary Personnel, who represent the various firms in the channel system. Identifying the influence the climate has on the behaviours within marketing channels help managers design strategies to get along, and the likelihood of the channels success improves as a result. Channel climate emerges from the nature of the environment that emerges from within the marketing channel. It reflects the channel members perceptions of the prevailing norms, attitudes and behaviours of the members of the channel. It describes how the organisation treats its members and interacts with the boundary personnel of other channel members. Channel climate also reflects how role specifications, authority and power systems, and reward structures are formed and administered within marketing channels. Thus, Channel Climate may be defined as the characteristics of the channel as reflected in the perceived level of consideration that exists in the exchange relationship. Consideration, in turn, is comprised of behaviours that reflect the presence or absence of mutual respect, trust, support, friendship, and the concern for the welfare of ones channel counterpart. Channel climate symbolises the channels internal environment and influences the level of satisfaction that individual members have with their channel arrangements and outcomes. Channel members are motivated and satisfied, and experience less conflict when their channel climate is characterised by a sense of consideration for members needs. Basically, most channel members seek openness, mutually shared channel objectives, commitment, cooperation, and eventually trust in their exchange relationships. Favourable channel climates help achieve these desirable outcomes. Do Model of Channel Climate and Its Components from the Module IMPORTANT CHANNEL CLIMATE BEHAVIOURS Cooperation Coordination Conflict

Use of Power Dependance

Cooperation and Coordination Workable relationships with channel partners area critical asset for any channel member. By building cooperative and coordinated relationships, a firm can leverage its limited resources through joint efforts with channel partners. Each partner then gains the benefit of the others experience and ideas, and garners higher profits through additional valueadded services. The channel climate impacts the success or failure of channel member transaction. Cooperation reflects a channel members motivation to collaborate with another channel members policies, strategies, tactics and procedures. When there is cooperation within a marketing channel, all members are moving together in the same direction. Cooperation, in turn, requires coordination a synchronised effort between channel members activities to ensure that each party achieves the goals of the channel. A cooperative channel climate, then, is reflected in the members willingness to work together for a common purpose. Similarly, if a coordinated channel system exists, members are working together in a harmonious or synchronised fashion. In the CRM, a cooperative and coordinated channel climate is the crux of the internal channel environment. Uncertainty can be reduced and issues of dependence (resulting from inequities in the distribution of power between channel members) can be managed by establishing formal or semiformal exchange relationships with other channel members. Problems of uncertainty or dependence are minimised by increasing coordination within a channel or creating negotiated alliances. Most channel relationships fail to develop in a coordinated fashion because of poor relationship planning or poor relationship management. There is no such thing as a longterm, cooperative, coordinated, no-strings attached, convenient, easily-maintained, onesided relationship. Moreover, effective communication is critical to achieving coordination between channel partners; without communication, it is harder to derive the benefits of cooperation and easier for conflicts to emerge. Conflict Conflict is the tension resulting from the incompatibility of the desired responses. Channel conflict emerges when channel members sense that the behaviour of other channel members is impeding their performance or the attainment of their goals. Franchising channels are based on the recognition by franchisees that they can benefit from joining established systems designed on high levels of cooperation. One challenge that franchisors confront is how best to maintain control over their franchisees without excessively constraining their franchisees entrepreneurial spirit. The success of franchisors, in large part, depends on their ability to manage the friction that results from the franchisors need and desire for channel control and the fanchisees desire for self-

governance. Channel conflict passes through two stages : (i) An Affective/perceptual stage in which one perceives that conflict exists (ii) A Manifest Stage, in which one acts upon the perception of conflict. Manifest conflict involves those behaviours that occur when one channel member is seen as frustrating the another members efforts to achieve goals or pursue interests. Manifest conflict usually takes the form of verbal or written disagreements. Channel conflict can also be latent. In this case, conflict exists and someone is upset, but elects not to express his or her dissatisfaction externally. Conflict does not necessarily have to be harmful to channel relations. In fact, when properly managed, conflict can lead to more information exchange or more information congruency among channel members. The trick is keeping conflict at a functional level rather than letting it develop into something negative. Power and Dependence Channel power is the ability of one channel member to evoke a change in another members behaviour. A conflict of interest or value between two or more channel members must first exist for meaningful power relations to occur. In channel settings, power is secured through the ownership and/or control of resources that are valued by some other channel member. A channel members power is derived from the Power Bases, or sources of power of the member. The bases of power available to the channel members traditionally include : (i) Coercive Base : This is power based on channel member As belief that member B has the ability to punish it if A fails to yield to the influence attempt. Examples of such power include : Bs decision to reduce As margins Withdraw As exclusive territorial right Delay a key shipment to A (ii) Expert Base : This is power based on the extent of knowledge and proficiency in a given area which channel member A attributes to channel member B. (iii) Legitimate Base This is power based on channel member As belief that member B has a lawful, verifiable, or logical right to influence, and that A is obligated to accede to this influence. In many channel settings, wholesalers are generally considered to have legitimate authority over decisions relating to physical possession flows. In those same settings, retailers may enjoy legitimate power over local promotion decisions. (iv) Referent Base :

This is power based on channel member As identification with or desire of affiliation with member B. Referent power has a significant presence in marketing channels, where manufacturers may take pride in having their goods carried in certain exclusive stores. Also, retailers may pride themselves as being the exclusive outlets for certain manufacturers brands. (v) Reward Base : This is power based on the belief held by channel member A that member B has the ability to mediate or moderate rewards. Traditionally, these power bases have been classified into two groups : Coercive Non-coercive The coercive category relates to the application of punishments or sanctions by one channel members against another to get it to do or stop doing something. The non-coercive category refers to the use of some type of reward-oriented power source. This category consists of reward, legitimate, referent and reward power. Each of the non-coercive power sources can potentially be used in coercive ways by more powerful channel members. In particular, the use of legitimate power can be very coercive. In addition, the use of power in channle settings is not automatically harmful to channel relationships. Non-coercive power sources can be applied to achieve influence or greater control. Power can also be discussed in terms of the degree to which one channel member depends upon another. The dependence of any channel member can reflect a powersubmission decision. A channel members dependence can serve as a measure of a relative power. When viewed from this perspective, power and dependence appear as complementary concepts : power both results from and strengthens the dependence of one party upon another within a relationship. The more dependent a channel member B is to channel member A, the more power A has over B. Still, dependance should not directly imply submission. All channel relationships involve some form of dependence, yet total submissiveness only characterises those channel relationships that are dysfunctional. Dependence within channel relationships is not a bad thing, so long as the relationship is characterised by trust and cooperation. Dependence and power are also part of a connected-disconnected continuum. All participants in a marketing channel are a sense dependent because each participant presumably has some power. Channels typically feature at least some agreement on business issues or instances of reciprocity. Dependence implies shared reliance, where one firm supports the functioning of the other, perhaps through the provision of products contributing to the profitability of another. Dependency among channel members also provides a basis of conflict.

ACHIEVING COOPERATIVE CHANNEL CLIMATES When channel partners rely on each other for some commodity or service known as mutual reliance they are likely to share power successfully. On the contrary, when one partner is completely dependent on the other, power is unequally distributed. While the latter situation may be successful in some instances, mutual reliance is usually a far more stable sort of business association. Marketers benefit when they identify which of their assets are potentially attractive to channel partners. One of the best ways to gain a cooperative channel climate is to tap into knowledge or resources that lie outside the boundaries of each firm on its own. Information is too often overlooked as a non-coercive source of channel power. Two types of information are required for effective channel relationships : (i) The first is Technical knowledge, which allows bilateral contributions to and involvement in channel decision making. (ii) The second type, Relationship Knowledge, permits a better understanding of ones partner and contributes to an understanding of partnership activities and political realities. Both of these information types provide the groundwork for successful negotiation. In the absence of relatively complete and accurate information concerning ones channel counterparts, it is difficult to know whether or not everyone is playing on a fair field. It is also much harder to empower others or open oneself upto potential vulnerability in the absence of information. Knowing ones partner offers power, albeit a gentle sort. To shift the balance of power and dependence between channel members in ways that contribute to a relationships well-being, each partner should : Explicitly identify what each partner brings to the relationship prior to entering the relationship. Ensure that each partner is flexible in terms of interests, needs, understanding, and a willingness to explore alternative approaches to problems prior to entering the relationship. Work to develop a culture of cooperation and mutually beneficial coordination after the relationship is joined. When near equivalence in investment is not possible, strive to ensure that there is a sense of equity in terms of concern for partner benefits. When such actions are possible, delegate authority and empower others. CONFLICT RESOLUTION AND CHANNEL CLIMATE There are two broad approaches to conflict resolution. One involves institutional mechanisms such as joint memberships in trade associations, distributor councils, executive exchanges, or arbitration/mediation boards. These methods are aimed at increasing the interaction and communication among channel members. A mutual understanding of each firms unique needs and problems is presumably promoted as a result of the interaction, allowing firms to avoid some potential conflicts. The other approach involves behaviourally-oriented strategies that facilitate these conflict

resolution mechanisms. These strategies can be classified into four distinct processes : Problem Solving Persuasion Bargaining Politics When problem solving conflict resolution behaviours are used, additional information is sought by one or both channel members, while at the same time, attempts are made to resolve the conflict through deliberation, reflection, and discussion, centred around this information. Problem solving is most likely to be used when the channel partners already agree on common goals and objectives. The use of problem solving generally results in concessionary behaviour and the development of new alternatves. Unless the channel members trust one another going into conflict, problem-solving behaviours are not likely to occur. Persuasion is similar to problem solving in that high-risk coordinated behaviour such as the exchange of information and agreed-upon goals already exist. When persuasion is used to resolve channel disputes, activities centre around one partys efforts to demonstrate to its counterpart how a new set of decision criteria or the adaptation of another perspective is likely to help reach channel goals. Persuasive tactics are then required to validate the importance and character of these new goals. Persuasion differs from problem solving, however, in that disagreements regarding the nature of appropriate decision criteria may exist. Bargaining involves inflexible, non-concessionary behaviours, promises, positional commitments, and general gamesmanship. This strategy searches for a tolerable mix of gains and losses for each party. Common goals are not expected in bargaining. Instead, disagreements over channel objectives are viewed as fixed. These disagreements are resolved through one channel members agreement to give in on the issue in conflict in exchange for some future consideration. Bargaining is often used when partners acknowledge basic differences in their views that are not likely to be modified. The conditions that encourage bargaining are also associated with politicking. However, in politics, the conflict arena expands to include the people involved, including third parties. These third parties may either be potential allies or adversaries, depending upon the channel members perspective. Politically-oriented conflict resolution strategies focus on power-oriented tactics. These tactics involve persuing allies, employing coercive methods, or the use of legitimate authority to impose outcomes. The use of problem solving or persuasion as a conflict resolution device is generally beneficial to the relationship. The favourable results from the tension associated with the conflict clarification of issues, expanded insight into alternatives, discussion of competing solutions are not undermined by either strategy. Increased cooperation, understanding and commitment to the relationship, usually result from the use of either strategy. Still, when viewed from the perspective of the more dependent channel member, problem solving and persuasion are high risk because each involves information

exchange. In channel relationships, high levels of financial and social risk are generally associated with information exchange. Conversely, the use of bargaining or politicking to settle conflicts is typically harmful to channel relationships. In each, one party gains at the expense of the other. The use of either strategy denies the channel members the benefits of group effort or synergy. Each typically leads to a reduction in harmony, creativity, and mutual commitment to the ultimate solution. However, from the perspective of the more dependent channel member, the tougher negotiating associated with either bargaining or politicking is low risk because the potential exposure to social or financial risks associated with information exchange is minimised. COMPLIANCE TECHNIQUES The goal of intrachannel influence attempts is to change the targeted firms or persons behaviour. These intrachannel influence attempts generally involve efforts to alter the perception of the desirability of an intended behaviour. Seeking compliance in this way is appropriate when the behaviour is related to shared goals and/or has positive implications for the channel partners. Rapport Building Rapport building, or the process by which harmonious or sympathetic relations are established, is based on subtle cues. Cues swapped between the respective firms boundary personnel having little to do with the object of exchange often speak loudest in the rapport-building process. From beginning to end, attention must be paid to differences in perspective and style. Only by understanding similarities and differences can reasonable expectations concerning the channel relationship be derived. Moreover, compliance can only be achieved when expectations are realistic. Some questions to be answered during the rapport building process are : have we developed or are we developing a climate of trust? Are our mutual levels of commitment to this relationship satisfactory? How similar are our corporate cultures? If they are not similar, is our cultural adaptation possible and desirable? Do we have a strategy for merging different management styles? If not, is such a strategy possible? If the answer to all these questions is no, the likelihood that suitable levels of rapport can be developed within the marketing channel is doubtful. Compliance will then be difficult to achieve without the use of power. Still, a certain amount of tension will always be present within channel climates. Similarly, there will always be some differences in style or motivation between channel members. Once rapport is established or is well underway, there are several strategies to achieve influence. Two of the more common are the information exchange and Recommendations Strategies. Both of these strategies are based on the desirability of the intended behaviour. Three other strategies requests, promises, and threats are not always consistent with the relational spirit, but they may be necessary in situations requiring to

prompt compliance or where the source firm is seeking compliance with actions not directly in the targets interests. Naturally, the appropriateness of a given strategy varies according to channel climate and the nature of the compliance sought. Influence Strategy Information Exchange Recommendations Requests Promises Threats Likely Outcome Target firm Compliance Target firm Compliance Target firm Compliance Target Firm Compliance Diminishing Returns) Dysfunctional Relations

(subject

to

Information Exchange In the information exchange strategy, the source firms boundary personnel initiate a discussion on general business concerns and operating policies to change the perceptions of how the target firm might be more effectively operated. No specific action is requested. This compliance strategy is based on the assumption that changing the channel members operating philosophies, decision criteria, and decision-making style will eventually translate into a broadly desirable set of behaviours. Franchisee advisory councils have proven useful in facilitating information exchange in franchising channel systems. Recommendations In the recommendations strategy, the source firms boundary personnel communicate the view that the target firms future will brighten if it complies with the sources suggestions regarding some action. The point is made that this brighter future could result either from the avoidance of negative consequences. The source clearly communicates to the target the type of behaviour expected. If used within a climate of rapport, the recommendations strategy to achieve the objectives sought. Firms that establish favourable reputations enhance their ability to successfully use recommendations and information exchange compliance strategies as long as the area of compliance relates to those areas of expertise. Requests Requests occur when the source firm simply informs the target firm of the actions it would like the target to take, without referring to any specific consequences of compliance or non-compliance. The incentive for compliance often results from a desire for participation in a reciprocal give-and-take relationship. The strength of the motivation to comply with requests depends on the degree to which the target finds the channel relationship satisfactory from an economic and interpersonal standpoint. Source firms shoukd measure the character of their channel relationship prior to using a request strategy. Requests will generally achieve compliance when a cooperative relationship has already been developed and the value of the compliance is substantially greater than the corresponding costs. The mutual use of requests will result in net gains for both firms. Their relationship would also strengthen since a sense of mutual trust, cooperation, and

personal identification between the boundary personnel of the two firms will likely follow. On the contrary, the excessive unilateral use of requests may eventually be perceived by the target as interference in their operations. Target resistance will incraese, as will resistance to future compliance attempts. Request strategies can sometimes involve legalistic pleas. When a legalistic plea is used, the source firm asserts that the target firms compliance is required based on a formal agreement. Such declarations may prove effective, but they are generally not in the best interests of the channel itself. Promises When promises are used, the source firm commits to a specified reward upon compliance from the target. Here, the consequences of compliance are directly influenced by the source member. Each party gains to the extent that the benefits derived from the target by the rewards exceeds the costs. Use of reward strategy over time should increase the targets dependence upon the source. However, one should tread carefully when offering rewards for the conduct of business, since the way in which rewards are offered may cause conflict (Bribes, inadequate performance). Finally, the provision of rewards is subject to diminishing returns over time. Threats A threat strategy is deployed when the source informs the target that sanctions will be applied should the target fail to perform the desired action. Threats are a high-cost compliance technique. For one, surveillance costs to ensure compliance and the costs to implement the negative sanctions may be high. Also, threats reduce the net benefits received by the target, thereby reducing their economic or psychological dependence upon the source firm. But the most significant costs associated with threats involve the effect on the relationship. Coercion expands conflict. As a result, the future effectiveness of other compliance strategies will be reduced because the other strategies are at least partially based on trusting channel climates. RELATIONSHIP BUILDING IN MARKETING CHANNELS The process of building up a relationship in marketing channels consists of four basic steps : Awareness Exploration Expansion Commitment However, there is no guarantee that a relationship will pass through all these four stages. During the awareness stage, the prospective channel partners become aware of one another and investigate the benefits of establishing a relationship. From the perspective of an individual manufacturer, this awareness and investigation entails identifying and evaluating the qualifications of various distributors as prospective channle partners. The exploration stage consists of five subprocesses :

Attraction Communication and bargaining Development and exercise of power Norm development, and Expectations development

Attraction involves an assessment of the potential benefits and costs associated with the relationship. These benefits could be tangible the receipt of a new product or potential services for instance, or intangible as in a favourable match between values and personalities. The exploration stage also involves initial communication and bargaining between the channel members. The quality of this communication and the prospect of this relationship developing further is indicated by the willingness of each partys boundary personnel to negotiate and disclose specific information about themselves or their firms. This self-disclosure could relate to ones specific interests, experiences and objectives. The firms develop a sense of the relative power they enjoy or must endure with respect to one another, and one or both may elect to exercise this power at this point. Norm development refers to the appearance, over time, of standards of expected conduct. At the beginning of the relationship, norms are based on the channel members previous experiences. As the relationship unfolds, a new set of norms develops based on the needs and the abilities of the individual parties. The final subprocess of the explorations stage is expectations development., which focuses on the concept of trust. Trust may be the most important ingredient in any channel relationship. Higher levels of trust lead to more cooperation and greater concession to the requirements of the relationship in a negotiation. These outcomes, in turn, lead to higher coordination among the channel members. The Expansion stage refers to the escalation of value-added benefits received by the respective channel members. Their interdependence also expands. In the commitment stage, the channel partners have achieved a level of fulfilment from their relationship. Loyalty has been achieved between the channel partners, and will likely remain in place unless norms or expectations are violated. Once channel partners have committed to one another, they also achieve a sense of openness and cooperation. Each members behaviour towards the other will then be shaped by mutually shared objectives and values, and a sense of trust will emerge. Vertical Partnering is a concept whereby smaller companies share the sorts of equipments, customer lists, and information that channel partners rarely shared in the past. As a result, smaller companies form complex bonds with larger companies to their mutual advantage. Cooperation and trust remain the key in such arrangements.

Stage Awareness Exploration

Expansion Commitment

Key Developmental Processes Cognizance of other partys existence Investigate potential relationship benefits Attraction Communication and bargaining Development and use of power Norms and expectations development Growth of value-added benefits from relationship Growth of interdependence Loyalty Shared values, objectives, and expectations Willingness to overlook the partners temporary shortfalls Trust Future Orientation

NURTURING CHANNEL RELATIONSHIPS Before engaging in a channel relationship, certain questions regarding expectations should be asked : Have our objectives been realistically linked to our respective resources? Have all key businesses been uncovered? Have we adequately analysed our potential partners strengths and weaknesses? Does our potential partner understand our expectations and we theirs? Communication is perhaps the most important element during the early stages of alliance formation. Establishing a relationship requires trust and mutual respect. Neither element is possible unless the players clearly represent their intentions early on in the process. Too many partnerships fail because channel members get annoyed with a lack of communication. Successful channel alliances require communication strategies that deal specifically with potential and current inconsistencies between member expectations. Certain questions need to be asked and answered here, including : how often should we communicate? Who will communicate with whom? What medium of communication is appropriate? What types of information are proprietary? What parts of our respective corporate cultures might hinder interfirm competition? IMPROVING CHANNEL RELATIONSHIPS THROUGH COOPERATION Benefits obtained from good channel relationships : The possibility of substantial gains in compensation resulting from cooperation and coordination that help realise channel goals. The performance benefits resulting from a committed channel relationship also include the certainty and the increased efficiency derived from mutually

anticipated roles and goals, and the expanded exchange effectiveness that comes first. Each partner also benefits from improved flows of communication. Higher quality information will be available on the others desires, priorities, and sources of satisfaction within the relationship. Each partner will be able to better anticipate and respond appropriately to the others changing market needs. The conflict that is inherent within marketing channels can be more easily converted into constructive tensions.

The destructive outcomes of conflict are well-known : Increased hostility, bitterness, polarisation, isolationism, etc. Relational exchange between channel members holds the promise of constructively managed conflict because there should be : More frequent and more effective communication Formal or informal processes through which grievances may be expressed More opportunity to critically review past partner actions More balanced distribution of power within the relationship Standardised processes of conflict resolution already in place. Other ways to sustain relationships in marketing channels (i) Pull Promotional Campaigns : directed at your partners customers (ii) Warranty, maintenance and repair agreements : can be offered to channel partners to reduce the risk associated with committing to the exchange process (iii) Cooperative advertising and Promotional allowances : serve the dual purpose of enabling smaller customers to advertise regularly and coordinating their role relationships with the source firm (iv) Coordinated cost-reduction programmes : dramatically pare your channel partners real costs of doing business with your company. Joint material requirements planning systems, computer-tocomputer order entry systems, and statistical process control are a few examples of such programmes. (v) Joint Sales Calls : assist channel partners in developing their and your own new business (vi) Logistics and Delivery Systems : create value. (vii) Shared Expertise Programmes : in which information is openly shared between supplier and producer firms strengthen channel relationships. (viii) Technical Assistance : support channel partners technical, product and application knowledge. (ix) Value-enhancement and codesign programmes : upgrade the value of current products and make it possible to jointly design new products.