Marketing Channels

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Page 238: Question 3 and 4:

Question 3: "Suppliers should not deal with intermediaries who are more powerful than they are". Debate this statement.

If a supplier deals with strong intermediaries, they will probably exercise power over him. As they are able to provide him with more utilities (value, benefits and satisfaction). However, if there are many strong distributors in the market offering similar packages of benefits and utilities. Then there will be no harm for a supplier to deal with a more powerful distributor or intermediary as they will no longer be so special and powerful since they know the supplier can switch to a any other intermediary anytime (they are easily replaced). Therefore, the level of dependence of the supplier on the intermediaries will be lower. Another way is to excel in logistics when dealing with downstream channel members. Therefore increasing their rewards for doing business with the supplier and becoming difficult to imitate. In turn, channel members make markets and are the faces of their producer to those markets.

Question 4: "We should not deal with powerful suppliers. They are sure to abuse us, after they use us". Debate this statement, often heard in the meeting rooms of distributors and sales agents.

As the usual channel conflict is a zero sum game where the gains of one party are the loss of the other. Many problems may arise between channel members till they actually reach a compromise where each party is satisfied and is able to see where he benefits from the relationship and cooperation. We can see that many powerful suppliers such as Wal Mart oblige their suppliers to adopt their strategies. For example, Wal Mart obliges many of its suppliers to adopt EDI (Electronic Data Interchange) using Web based systems that are not proprietary to any brand of IT or to any supplier. By exercising coercive power, some positive results may occur at the beginning but channel members may eventually react in a defensive way which may cause damages to the whole chain. Therefore, coercion should be employed only when all other avenues to make a change have failed. Even in case the supplier is an expert in the field, intermediaries do not like to be told what to do; they believe they are also experts in what they do. Therefore, to use that power over them, they have to be convinced it is in their best interest too. Of course, suppliers should also maintain a balance of power by providing the distributors with some kind of reward (especially financial rewards) to be able to keep them motivated and not feel oppressed.

Question 6: "You are the owner/manager of an auto dealership in Germany selling the Audi line. Your dealership is exclusive to Audi; you have invested heavily to build the dealership and your contract is such that, if you decide to sell your dealership, Audi has the right to approve or disapprove any buyer you might find. What is the balance of power in your relationship? What could your supplier do to ensure you do not become alienated?

Dealership agreements founded on the principle of equity between the dealer and supplier survive longer than those do where one partner is favored over another due to clever clauses, terms, and conditions. Long-living agreements are relatively simple and balanced, while short-living agreements are comparatively clever and imbalanced. In this case, the contract is binding and has a legitimate aspect (legal obligation) and since I, as the owner/manager of the dealership, invested heavily in this dealership; the supplier seems to be having a coercive power over me as he knows it will not be easy to sell the dealership if they do not accept the new dealer. And since the dealership is exclusive to Audi (I sell no other type of cars), so I have no other choice but to adhere to what satisfies the supplier's requirements. However, they still need me to be motivated to sell and market the Audi cars. So they may promise a reward if I achieve a...
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