Marketing Channels

Part 1: Marketing Channel Systems

A Management View
8e
Rosenbloom

4 Part 1: Marketing Channel Systems

CHAPTER

Behavioral
4
CHAPTER

Processes
Behavioral in
Processes
MarketingChannels
in Marketing Channels

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 Mini Case: Burger King’s $1 Whopper &
Channel Conflict

• Burger King launched a $1 Whopper promotion to

attract price-sensitive customers and compete
aggressively in the fast-food market.
• However, many franchisees (independent restaurant
owners) resisted the promotion
• Why? The low price reduced their profit margins, while
corporate headquarters prioritized market share and
brand traffic
Discussion Questions
• Why did franchisees oppose the $1 Whopper despite
potential higher sales volume?
• How does this case illustrate that marketing channels are
also social systems, not just economic ones?
• What could Burger King do to better manage
relationships with its franchisees?
2

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 ① The marketing channel as a social system
② Behavioral processes
Learning Objectives

③ How conflict emerges

④ Causes of channel conflict
⑤ Conflict and channel efficiency
⑥ Managing channel conflict
⑦ Power in the marketing channel
⑧ Basic research findings
⑨ Roles in marketing channels
⑩ Communication processes 3

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 Are Marketing Channels Only Economic
Systems?

• Marketing channels are not purely economic

systems driven only by efficiency and cost
• They are also social systems, shaped by
relationships, interactions, and human
behavior
• Channel members (manufacturers,
wholesalers, retailers) interact, negotiate,
and influence each other
• These interactions involve trust, power,
conflict, cooperation, and communication

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 Are Marketing Channels Only Economic
Systems?

• Therefore, marketing channels reflect

behavioral processes similar to other
social systems.
• For channel managers, success depends on
Understanding these behavioral
dynamics.
• Applying this knowledge to design, manage,
and improve channel relationships.

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Objective
Marketing Channel as Social System
1
Social System
• Generated by any process of
interaction on sociocultural level
• Between two or more actors
• Actor is individual or collectivity

Individuals or collectivities
Interacting within marketing channel
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Objective
Behavioral Processes
2
Conflict

Roles

Power

Communication

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Objective
How Conflict Emerges
3

When a channel member perceives

Cause that another member’s actions impede
the attainment of his or her goals

Direct, personal, and

Behavioral trademarks
opponent-centered behavior

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 Competition or Conflict? Think & Discuss
Scenario: Manufacturer vs Supermarket
A major food manufacturer launches a new cereal
brand. At the same time, a large supermarket promotes
its own private label cereal. Later, the supermarket
refuses to accept the manufacturer’s discount coupons
and gives better shelf space to its own brand.
• When both the manufacturer and supermarket try to
increase sales of their own brands, Is this competition or
conflict? Why?
• When the supermarket limits acceptance of the
manufacturer’s coupons, Is this competition, or become
conflict? What changed in the behavior between the two
situations?

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Objective
Causes of Channel Conflict
4

1. Role Incongruities
2. Resource Scarcities
3. Perceptual Differences
4. Differences of Expectations
5. Decision Domain Disagreements
6. Goal Incompatibilities
7. Communication Difficulties

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 Causes of Channel Conflict

1. Role Incongruities
• Mismatch in how each member perceives
their role vs others’ expectations
• Leads to confusion and overlap in
responsibilities
• Example: Retailer expects wholesaler to
promote products, but wholesaler sees its role
as only logistics.

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 2. Resource Scarcities

• Limited resources create competition

among channel members
• Common in high-demand or constrained
supply situations
• Example: Multiple retailers compete for
limited stock during a product shortage

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 3. Perceptual Differences

• Members interpret situations based on their

own perspectives and interests
• Same issue, different conclusions
• Example: Manufacturer blames retailer for
low sales, retailer blames weak product quality

Disagreement about what is happening

13

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 4. Differences of Expectations

• Members have unmet or inconsistent

expectations about performance
• Often caused by lack of clear agreements
• Example: Retailer expects fast delivery,
supplier operates on slower schedules

Disagreement about what should happen

14

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 5. Decision Domain Disagreements

• Conflict over who has authority to make

decisions
• Especially in pricing, promotion, or territory
• Example: Manufacturer wants to control
pricing, retailer insists on setting its own prices

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 6. Goal Incompatibilities

• Members pursue different or conflicting

objectives
• Strategic misalignment across the channel
• Example: Manufacturer focuses on brand
image, retailer focuses on short-term sales
discounts

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 7. Communication Difficulties

• Poor, delayed, or unclear communication

creates misunderstandings
• Can escalate small issues into major conflicts
• Example: Promotion not communicated
properly → retailer runs out of stock

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 Causes of Channel Conflict

• Most conflicts arise because of:

• Misalignment (goals, roles, expectations)
• Constraints (resources)
• Human factors (perception,
communication)

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Objective
Conflict & Channel Efficiency
5
Does conflict Can conflict
decrease increase
efficiency? efficiency?

How
does conflict
affect channel
efficiency?

Does conflict have

any affect?
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 Conflict & Channel Efficiency: p.116

Conflict in marketing channels is not always bad

Its impact depends on:
– Intensity of conflict
– Type of relationship
– How it is managed
Conflict hurts efficiency when it disrupts coordination,
but improves efficiency when it forces improvement.

Think of Channel efficiency: as to how well the

marketing channel delivers products to customers with
minimum cost, time, and friction.

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 Conflict & Channel Efficiency

• Conflict can have three possible outcomes:

• Negative → reduces efficiency
• Positive → improves efficiency
• Neutral → no significant effect
• The outcome depends on:
• Level of conflict (low, moderate, high)
• Degree of dependency among channel members
• Willingness to resolve conflict

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 Effects of Channel Conflict

Negative Effect: Reduced Efficiency

As the level of conflict increases,

Channel efficiency declines

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 Negative Effect
Case: Nike vs Retailers (e.g., Foot Locker,
department stores)
• Nike once shifted aggressively to direct-to-
consumer (DTC) strategy.
• Reduced supply to traditional retailers
• Retailers reacted by:
– Reducing shelf space for Nike
– Promoting competing brands (Adidas, Puma)
• Result:
– Retailers lost traffic and sales
– Nike lost distribution reach and visibility
Overall channel efficiency declined for both
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 Negative Effect (dysfunctional
conflict)
Negative Impact on Retailers
• Less Nike inventory → fewer customers
visiting stores
• Customers go elsewhere (Nike stores / online)
• Loss of:
– Foot traffic
– Cross-selling opportunities
• Retailers’ efficiency declines (lower sales per
store)
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 Negative Effect

• Negative Impact on Nike

• Less presence in physical stores → lower
market coverage
• Competitors gain visibility
• Some customers prefer in-store shopping →
Nike loses those sales
• Nike’s efficiency declines (reduced reach,
missed demand)

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 Effects of Channel Conflict

No Effect: Efficiency Remains Constant

Exists in channels characterized by

high level of dependency among
members

Channel efficiency is not affected

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 Efficiency Remains Constant

• Occurs when:
– Channel members are highly dependent on each
other
– Conflict exists but is controlled or tolerated
• Members continue performing tasks despite
disagreements
• Conflict becomes “background noise”

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 Efficiency Remains Constant

• Case: Supermarket & major brand

• Supermarket disagrees with pricing strategy
• But continues stocking product (too important
to remove)
• No change in efficiency

• Coca-Cola & large retailers

– Frequent disagreements over shelf space & pricing
– Still cooperate due to mutual dependence
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 Effects of Channel Conflict

Positive Effect: Efficiency Increased

Conflict might be impetus for either

or both members to reappraise their
policies

Channel efficiency increases

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 Positive Effect: Efficiency Increased

• Moderate conflict can:

– Encourage innovation
– Force reassessment of policies
– Improve coordination and performance
• Leads to better alignment with market needs
Case: Distributor complaints
• Distributors complain about slow delivery
• Manufacturer improves logistics system
Faster delivery → higher efficiency
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 Positive Effect: Efficiency Increased

• Amazon vs third-party sellers

– Sellers complain about policies
– Amazon improves systems (logistics, fulfillment
tools)
Conflict → better system efficiency

Constructive conflict creates pressure to

improve.

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Objective
Managing Channel Conflict
6
Detecting
conflict

Appraising the
effect of
conflict

Resolving
conflict
Managing
Conflict

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 Detecting Channel Conflict

Regularly survey other members’

perceptions of firm’s performance

Perform marketing channel audit

OR

Form distributors’ advisory councils

OR or channel members’ committees

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 Appraising the Effect of Conflict

• Evaluate:
– Is it functional (useful) or dysfunctional (harmful)?
– What is the intensity?
– What is the source? (goals, perception,
expectations)
Teaching insight:
• This step is subjective → depends on manager
judgment

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 Resolving Conflict
• Options:
• Negotiation
• Mediation
• Changing policies
• Incentives

Case: Pricing conflict

Retailers complain about low margins
Manufacturer offers better incentives
Conflict resolved → efficiency restored

Key point:
Ignoring conflict = escalation

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 Which situation is this?

• Manufacturer and retailer stop cooperating → delays

→ ?????

• Distributor complains → firm improves system

→ ?????

• Retailer unhappy but continues business

→ ?????

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Objective
Power in the Marketing Channel
7
The ability of one channel member to
influence or control the behavior of
another member.
Exists because channel members are
interdependent but have different
goals

Keys to understanding Power:

• Power Bases
• Use of Power Bases

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 Why Power Exists

Sources of Power in Channels

• Dependency: One member needs another
(e.g., access to customers)
• Scarcity: Unique resources (brand, data,
logistics)
• Alternatives: Fewer alternatives = more
power
• Power = How much others need you vs how
easily they can replace you!

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 Power in the Marketing Channel

• Power is not inherently negative → it is

necessary for coordination and
performance
• But misuse of power → leads to conflict,
inefficiency, and instability
• Simple Example
• A large retailer like Walmart can force
suppliers to reduce prices
• A strong brand like Apple can force retailers
to follow strict display rules

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 Bases of Power for Channel Control

Reward Power

Coercive Power

Legitimate Power

Referent Power

Expert Power

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 1. Reward Power

• Ability to provide benefits or incentives

• Discounts, better margins, promotions
• Example:
• P&G gives retailers trade allowances for
better shelf placement

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 2. Coercive Power

• Ability to punish or threaten

Reduce supply, remove support, terminate
relationship
Example:
• A manufacturer threatens to cut supply if
retailer doesn’t follow pricing rules
• Most dangerous → leads to conflict +
dissatisfaction

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 3. Legitimate Power

• Based on contracts, agreements, or

accepted authority
Example:

Franchise agreements (e.g., McDonald’s

enforcing store standards)

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 4. Referent Power

• Comes from brand attractiveness or

reputation
• Others comply because they want to be
associated
Example:
• Retailers want Nike/ Apple products because
of brand prestige

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 5. Expert Power

• Based on knowledge, skills, or expertise

Example:
• Amazon influencing sellers using data
analytics and logistics expertise

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 Case: Nike vs Retailers

Nike
Has: Referent + Expert power
Uses: Coercive power (by restricting access and
bypassing retailers)
Retailers
• Have: Structural/channel position power
(access to customers)
Use: Coercive power (reducing shelf space)

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 Using Power in the Marketing
Channel

1. Identify available power bases

Bases are a function of size of:
• producer or manufacturer
• organization of channel
• particular set of circumstances

2. Select and use appropriate

power bases to better or
worsen channel relationships

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Objective
Basic Research Findings
8
Classic Findings

1. Expert and referent power in

conventional channels may be more
effective than direct monetary incentives
or threats in inducing channel members
to accept controls.

2. Power employed by manufacturers

based on economic rewards or coercion
provided a higher degree of control over
channel members than power based on
legitimacy, expertise, or reference
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 Basic Research Findings
Non-coercive power bases increase satisfaction in
“weaker” channel members, such as franchises
1. Franchisees are likely to have higher morale.
2. Franchisees are more likely to cooperate with the
franchisor.
3. Franchisees are less likely to terminate their
contracts.
4. Franchisees are less likely to file individual suits
against the franchisor.
5. Franchisees are less likely to file class action suits.
6. Franchisees are less likely to seek protective
legislation such as the “Franchise Full Disclosure
Act” (1970).
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 Basic Research Findings
General Inferences from findings

1. Power must be exercised to influence member

behavior.
2. Effectiveness of power bases to influence members
is situation-specific.
3. The exercise of power and how it is used affects the
degree of cooperation, conflict, and satisfaction
among channel members.
4. The use of coercive power probably promotes
conflict and dissatisfaction to a greater degree than
the other power bases.
5. The use of coercive power can reduce channel’s
stability and viability.

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Objective
Roles in Marketing Channels
9
A set of prescriptions defining what the behavior
of a position member should be

• Roles change over time.

• Straying far from a role may cause conflict.
• Roles help describe & compare the expected
behavior of channel members and provides insight
into the constraints under which they operate.

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 Roles in Marketing Channels

• A role in a marketing channel is the expected

pattern of behavior associated with a
member’s position (manufacturer, wholesaler,
retailer).
• These expectations are socially defined (not
just written contracts)
• They guide what each member should do
• They influence performance, cooperation, and
conflict.

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 Roles in Marketing Channels

• Roles are position-based → different

members = different expectations
• Roles are interdependent → one member’s
role affects others
• Roles are dynamic → they evolve over time
• Role clarity → reduces conflict
• Role ambiguity or deviation → increases
conflict

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 Role example

Manufacturer Role
• Focus: Brand growth and market share
• Expected behavior:
– Invest in advertising
– Push products to intermediaries
– Build brand preference
Example:
• Procter & Gamble
Promotes brands like Ariel heavily → expects
retailers to stock and sell
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 Role example

• Wholesaler Role
• Focus: Serving retailers efficiently
• Expected behavior:
– Carry multiple brands
– Choose products based on retailer demand
– Optimize inventory and logistics
Example:
• A food distributor in your local market
Chooses fast-moving brands, not necessarily
one manufacturer’s brand
55

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 Role example

Retailer Role
• Focus: Customer satisfaction + sales
• Expected behavior:
– Select attractive product mix
– Manage shelf space
– Maximize store profitability
Example:
• Safeway
Decides which brands get visibility
56

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 Role Change Over Time

• Traditional Model
Manufacturer: decides everything
Dealer: just sells cars
• Today (Shift in Power)
• Dealers want:
– Input in product decisions
– Say in pricing & incentives
– Influence over warranties
• Example:
• Toyota dealers pushing for more control
• Large multi-brand dealerships = “mega dealers”
57

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 Roles in Marketing Channels

Questions to help the channel manager

• What role does the channel manager expect a

particular channel member to play in the
channel?
• What role is this member expected to play by his
or her peers?
• Do the manager’s expectations for this member
conflict with those of the member’s peers?
• What role does this member expect the manager
to play?

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Objective
Communication Processes
10

• Communication is the glue that holds the channel

together
• It enables the flow of information among channel
members
• It connects the channel to its external environment
(market, customers, competitors)
• Effective communication supports coordination,
cooperation, and performance

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 Why Communication Matters

• Ensures efficient flow of products and services

• Aligns expectations among channel members
• Reduces misunderstandings and conflict
• Supports decision-making and coordination
• Improves overall channel efficiency
• Poor communication → role ambiguity + conflict

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 Key Responsibility:

• Channel managers should clearly communicate:

• Delivery time
• Margins and discounts
• Return policies
• Warranty provisions
• Performance expectations
• Never assume that “everyone already knows”

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 Communication as a Process

• Communication Process in Marketing

Channels
• Communication involves:
• Sending information (manufacturer → wholesaler
→ retailer)
• Receiving and interpreting information
• Providing feedback
• Effective communication requires:
Clarity
Consistency
Timeliness

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 Case:
A regional supermarket chain works closely with Nestlé to distribute a new
snack product. Nestlé launches a promotional campaign expecting high sales
and communicates general expectations to the retailer. However, the retailer
prioritizes shelf space for higher-margin products and does not actively
promote the new snack.
At the same time, the retailer does not share detailed sales data with Nestlé,
assuming the product is underperforming. Nestlé, on the other hand, believes
the retailer is not supporting the product enough.
In addition, both parties use different performance metrics—Nestlé focuses on
market share and brand growth, while the retailer focuses on margins and
turnover. Communication between them is infrequent, and no regular
meetings are held to align expectations. Over time, sales decline, frustration
increases, and both parties begin to blame each other for the poor
performance.
Questions
1. What problems can you identify in the communication between Nestlé and the
retailer?
2. How do differences in goals affect their relationship?
3. How do language or metric differences contribute to misunderstanding?
4. What role does lack of information sharing play in this situation?
5. How does the frequency of communication affect the outcome?
6. What could have been done differently to avoid this situation? 63
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 Communication Processes

Behavioral Problems in Channel

Communications

3. 4. 5.
Perceptual Secretive Inadequate
differences Behavior frequency of
among communication
members

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 Behavioral Problems in Channel
Communication
• Problem 1: Differing Goals
• Channel members often have different
objectives
• Examples:
• Manufacturer: maximize brand sales
• Retailer: maximize profit per shelf
• Result:
• Misaligned decisions
• Communication breakdown

65

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 Problem 2: Language Differences

• Members use different terminology and

metrics
Examples:
• Manufacturer: market share, brand equity
• Retailer: margins, turnover
• Result:
• Messages are misunderstood
• Same words, different meanings

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 Problem 3: Perceptual Differences

• Members interpret the same situation

differently
• Examples:
• Manufacturer: “Retailer is not pushing the
product”
• Retailer: “Product is not selling”
Result:
• Misjudgment of performance
• Increased tension
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 Problem 4: Secretive Behavior
• Members may withhold important information
• Result:
• Lack of trust
• Poor coordination
Questions:
When is secrecy acceptable?
When does secrecy become a problem?

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 Problem 5: Inadequate Communication
Frequency

• Communication is too infrequent or

irregular
Examples:
• No regular meetings
• Delayed updates
Result:
• Small issues become major problems
• Members feel left out of the loop

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 How to Improve Communication

• Clearly define expectations and responsibilities

• Use consistent and shared terminology
• Encourage information sharing
• Maintain regular communication (meetings,
reports)
• Build trust among channel members

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 Discussion Question #2
Bill Schwartz, the owner of Newvalue Supply, a
medium-sized wholesaler of plumbing supplies, was
furious. He had just gotten off the phone with the sales
manager of Jefferson Industries, the manufacturer of a
very profitable line of high-quality faucets that Newvalue
had been selling for several years. “That SOB is now going
to start selling the big home center accounts directly,”
fumed Bill Schwartz to his son Paul. “We’ve worked real
hard to establish this line and then, when it finally gets
going with some real volume, Jefferson wants to cut us
out,” he continued.

Discuss the possible underlying causes of the conflict

that seems to be emerging in this situation.

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 Discussion Question #3
Amoco, one of the nation’s largest oil companies, has
been forcing a number of its independent service stations
to convert from full-service stations offering repair service
to convenience stores or “gas only” stations. Thus the
highly profitable repair part of the business will no longer
be available to those station owners forced to convert.
The franchised independent dealers have little choice but
to give in to Amoco because the oil company typically
owns the station’s land and buildings and offers leases of
only three years or less. This arrangement appears to vest
all of the power with the producer and virtually none with
the dealers.

Discuss this situation in light of the bases of power and

the possible
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 Discussion Question #6
In the summer of 2009, Walmart, the world’s largest retailer, left
no doubt about its enormous power in the marketing channel.
Walmart announced to all manufacturers whose products it sells that
they must adhere to Walmart’s new “green” environmental initiative.
The manufacturers must estimate and disclose the environmental costs
of producing their products and then allow Walmart to use that
information to develop a “green” rating system that will be disclosed to
consumers on product labels. The cost of the “green” program will be
borne entirely by the 100,000 Walmart suppliers. Although the
program will take a number of years to fully implement, some parts of
it may be in place by as early as mid-2011. Suppliers will not be able to
opt out of this program. So all of them, from the largest to the smallest,
will have to participate. If they do not, Walmart has made it clear that
those suppliers will likely be dropped by the giant retailer.

What power base(s) appear to be in play in this situation? What do

you think Walmart is trying to accomplish here by exercising its great
power in the marketing channel?
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