Balance of Power and Strategic Alliances by ype17775


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									Part 3: Channel Implementation
 Chapter 8: Strategic Alliances
         in Distribution

 MKTG 406            Pimentel
      Strategic Distribution Alliances
• Alliance:
   • Two or more organizations have connections
     that cause them to function according to a
     perception of a single interest shared by all the
     parties—i.e. they act as if vertically integrated
• Strategic alliance:
   • Connections
      • Enduring
      • Substantial
      • Cut across many aspects of the businesses
• Term “alliance” is over-used
   • Incorrectly applied to various business
 Things that Inhibit Alliance Formation
• Lack of appreciation for other channel members
   • Not channel-centric
• Viewing other channel members as competitors
• Personnel lacking experience in channels
• Withholding of information
• Lack of trust
                 Building Trust
• Built gradually through daily interactions
• Cycle of communication and trust
• Conditions that encourage trust
  • De-centralized decision making
  • The nature of formalization
     • Reducing everything to rules and set
       procedures damages trust
     • Formalizing the roles of the channel
       members builds trust
        • Domain consensus
Upstream Motives to Create an Alliance
• Better coverage
• Lower costs
• Coordinate promotional efforts to better reach
  ultimate consumers
• Better market information
• Response to consolidation of wholesalers
• Create barriers to entry of future competitors
Downstream Motives to Create an Alliance
 • Assured stable supply of desirable products
 • Response to consolidation of manufacturers
 • Coordinate promotional efforts to better reach
   ultimate consumers
 • Coordinate channel flows
    • To serve customers better
       • Value added
       • Increase sales
    • To improve inventory management
       • Increase turnover
       • Decrease stock levels
       • Decrease write-downs
 • Differentiation as manufacturer’s preferred outlet
 • Create barriers to entry of future competitors
               Benefits of Alliances
•   Trust
•   Communication
•   Differentiation
•   Enduring competitive advantage
•   Higher profits
•   But not all relationships should be alliances
         When to Have an Alliance
• Three conditions simultaneously:
   1. One side has special needs
   2. The other side has capability to meet these
   3. Each side faces barriers to exiting the
           Building Commitment
• Expectation of continuity
  • Trust and two-way communication cycle
  • History of doing business together
  • Reputation for treating channel members fairly
  • Balance of power
  • Combined stakes are high
           Building Commitment
• Asymmetric commitment is rare
  • Rarely deceived
  • Judged on what has been done, not what is said
  • React when asymmetric commitment is
     • Cycle of perception and adjustment
              Gauging Commitment
•   History
•   Willingness to communicate freely
•   Selective distribution/category exclusivity
•   Idiosyncratic investments
     • Dedicated personnel and facilities
     • Locating facility near you and distant from your
     • Compatible systems
     • Learning about you
     • Tying of identities together
     • Efforts to “expand the pie”
          Building Commitment
• Give commitment to get commitment
• Mutual vulnerability
          Stages of the Relationship
1.   Awareness
2.   Exploration
3.   Expansion
4.   Commitment
5.   Decline and dissolution
        Stages of the Relationship
1. Awareness
2. Exploration
   • Trial and evaluation period
   • Forecast costs and benefits
   • Communication and negotiation
   • Norms develop
   • Trust and satisfaction grow
   • Inferences without much history
   • Idiosyncratic investments
        Stages of the Relationship
3. Expansion
   • Relationship grows considerably
   • Realizing greater benefits
   • Trust grows
   • Interdependence grows
   • Common goals
   • Interactions are enjoyable
        Stages of the Relationship
4. Commitment
   • Relationship has become stable
   • Both sides invest heavily to maintain the
     strong partnership
   • Neither is open to overtures by other firms
        Stages of the Relationship
5. Decline and dissolution
   • One side begins to withdraw and other side
   • One side takes relationship for granted and
     does not work to keep it going
   • One party sabotages the relationship to move
     on to other opportunities
   • Revert to individual transaction interactions
   • Cease doing business together
                Key Terms
• Alliance
• Channel-centric
• Asymmetric
• Idiosyncratic
• Domain consensus

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