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					Marketing Channels
Chapter 8
Strategic Alliances in Distribution

Strategic Alliances
 An alliance is strategic when the connections that binds the organizations are enduring and substantial, cutting across numerous aspects of each business.  Genuine commitment  Willingness to sacrifice

Why forge a strategic distribution Alliance? Upstream Motive
Profit Better coverage Market information To coordinate marketing effort Response to wholesaling consolidation  Entry barriers for new competitors     

Why forge a strategic distribution Alliance? Downstream Motive
 Assured and stable supply of desirable products  To better serve the customer  Higher Volume and Higher Margin  Reduced Stock cost  Fewer stock out situations  To Differentiate

Do Alliances Outperform Ordinary Channels
 Commitment leads to trust  Trust is a social capital  Trust improves performance

Building Commitment by Creating Mutual Vulnerability
 The Minimum requirement:
       Expectations of Continuity Two way Communication Trust Fair treatment Balanced Power Combined Stakes Perception of commitment

How the other side Gauges Your Commitment
 Distributor perspective:
 Discounting of Acrimonious past of supplier  Actions of supplier
 Degree of selectivity  House accounts  Idiosyncratic assets

How the other side Gauges Your Commitment
 Supplier perspective:
 Discounting of Acrimonious past of Downstream member  Degree of selectivity in product category  Idiosyncratic assets

Actions that bind Distributors to Suppliers
 Expectation that Payoffs justify the cost  Two way Communication

Actions that bind Suppliers to Distributors
 Assess the motivation and channel members ability  Idiosyncratic investments  Two way Communication  Win-Win mind set

Creating Alliances via Ties that Bind
 To get commitment Give commitment  Take serious notice of those who
 Limit dealing with your competitors  Make investments tailored to you

 Do not hesitate to initiate relationship related investments  Manage the image of fair dealings  Trust

Building Commitment by the management of Daily Interactions
 How channel members manufacture trust  The fundamental role of economic satisfaction
 Expected economic rewards

 Non economic satisfaction also Matters

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 reciprocates 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

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