Chapter 9

MOTIVATING THE CHANNEL MEMBERS

Teaching Notes
The focus of this chapter begins with the premise that channel structure(s) with channel
members have already been developed.

Chapter Objectives
Channel management is necessary, and a fundamental part of channel management is that
of motivating the channel members. The three facets of motivation management in the
channel are: (1) learning about the needs and problems of the channel members, (2)
developing programs to support their needs, and (3) providing leadership. Good channel
support programs require careful planning and fall into three areas: (1) cooperative
agreements, (2) partnership and strategic alliances, and (3) distribution programming.
Leadership must still be exercised on a continuing basis if motivation programs are to
operate effectively and viably.

Learning objectives
1) Understand the definitions of channel management and motivation management
in marketing channels.
2) Recognize the distinction between channel management decisions and channel
design decisions.
3) Be familiar with the basic framework for motivating channel members.
4) Know the major means for learning about channel member needs and problems.
5) Understand the basic approaches for providing support for channel members.
6) Be aware of the underlying differences in the relationships implied in the three
approaches for supporting channel members.
7) Be cognizant of the need to provide leadership in channels through the effective
use of power.
8) Realize that there are significant limitations on the degree of channel control
available to the channel manager in an interorganizational setting.

Chapter Topics
1) Finding Out the Needs and Problems of Channel Members
2) Offering Support to Channel Members
3) Providing Leadership to Motivate Channel Members

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Motivating the Channel Members
Chapter Outline
The channel manager needs to stress the realization of the potential to serve his target
markets effectively and efficiently.

Key Term and Definition

 Channel management: “The administration of existing channels to secure the
cooperation of channel members in achieving the firm’s distribution objectives.”

First, channel management deals with existing channels. Channel design decisions are
therefore viewed as separate from channel management decisions.

Secondly, the phase secure the cooperation of channel members implies that channel
members do not automatically cooperate merely because they are members of the
channel. Administrative actions are necessary to secure their cooperation.

Third, the term distribution objectives is equally relevant for channel management.
Carefully delineated distribution objectives are needed to guide the management of the
channel.

One of the most fundamental and important aspects of channel management is motivating
the channel members.

Key Term and Definition

 Motivation: Refers to the actions taken by the manufacturer to foster channel member
cooperation in implementing the manufacturer’s distribution objectives.

There are three basic facets involved in motivation management:

1. Finding out the needs and problems of channel members

2. Offering support to the channel members that is consistent with their needs and
problems
3. Providing leadership through the effective use of power

Finding Out the Needs and Problems of Channel Members

Before the channel manager can successfully motivate channel members, an attempt must
be made to learn what the members want for the channel relationship.

Manufacturers are often unaware of or insensitive to the needs and problems of their
channel members.

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 Marketing Channels 8e
A) Approaches for Learning about Channel Member Needs and Problems

All marketing channels have a flow of information running through them as part of the
formal and informal communications systems that exist in the channel.

Figure 9.1 provides an overview of most of the major components that go into making up
a typical channel communication system.

Ideally, such systems would provide the manufacturer with all of the information needed
on channel member needs and problems. However, most marketing channel
communication systems have not been formally planned and carefully constructed to
provide a comprehensive flow of timely information.

Consequently, the channel manager should not rely solely on the regular flow of
information coming from the existing channel communication system for accurate and
timely information on channel member needs and problems.

There is a need to go beyond the regular system and make use of one or all of the
following four additional approaches.

1) Research Studies of Channel Members

Most manufacturers never conduct research of channel member needs and problems.
Estimates indicate that less than one percent of manufacturers’ research budgets are spent
on channel member research.

2) Research Studies by Outside Parties

Research designed and executed by a third party is sometimes necessary if complete and
unbiased data on channel member needs and problems are to be obtained.

The use of outside parties to conduct research on channel member needs and problems
provides higher assurance of objectivity.

3) Marketing Channel Audits

The basic thrust of this approach should be to gather data on how channel members
perceive the manufacturer’s marketing program and its component parts, where the
relationships are strong and weak, and what is expected of the manufacturer to make the
channel relationship viable and optimal.

For example, a manufacturer may want to gather data from channel members on what
their needs and problems are in areas such as:
 Pricing policies, margins, and allowances
 Extent and nature of the product line
 New products and their marketing development through promotion
 Servicing policies and procedures such as invoicing, order dating, shipping,
warehousing and others
 Sales force performance in servicing the accounts
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Motivating the Channel Members
Further, the marketing channel audit should identify and define in detail the issues
relevant to the manufacturer–wholesaler and/or manufacturer–retailer relationship.

Table 9.1 shows specific issues grouped into six overall areas that were crucial in the
relationship between manufacturers and distributors.

Whatever areas and issues are chosen, they should be cross-tabulated or correlated as to
kind of channel members, geographical location of channel members, sales volume levels
achieved, and any other variables that might be relevant.

Finally, for the marketing channel audit to work effectively, it must be done on a periodic
and regular basis so as to capture trends and patterns. Emerging issues are more likely to
be spotted if the audit is performed on a regular basis.

4) Distributor Advisory Councils

Three significant benefits emerge from the use of a distributor advisory council. First, it
provides recognition for the channel members. Second, it provides a vehicle for
identifying and discussing mutual needs and problems that are not transmitted through
regular channel information flows. And third, it results in an overall improvement of
channel communications, which in turn helps the manufacturer to learn more about the
needs and problems of channel members, and vice versa.

Offering Support to Channel Members

Support for channel members refers to the manufacturer’s efforts in helping channel
members to meet their needs and solve their problems. Such support for channel
members is all too often offered on a disorganized and ad hoc basis.

The attainment of a highly motivated cooperating “team” of channel members in an

interorganizational setting requires carefully planned programs.

Such programs can generally be grouped into one of the following three categories: (1)
cooperative, (2) partnership or strategic alliance, and (3) distribution programming.

A) Cooperative Arrangements

Cooperative arrangements between the manufacturer and channel members at the

wholesale and retail levels have traditionally been used as the most common means of
motivating channel members in conventional, loosely aligned channels.

Table 9.2 lists some 30 classic types of cooperative programs.

The underlying rationale of all such cooperative programs, from the manufacturer’s point
of view, is to provide incentives for getting extra effort from channel members in the
promotion of the products.
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 Marketing Channels 8e
The chapter uses two examples, Levi Strauss & Company and Warner Electric Brake &
Clutch Company to illustrate unsuccessful and successful cooperative programs. Key
learning points here are that Levi did not pay enough attention to the needs of its
retailers, lacked sensitivity to the retailers’ problems and showed a lack of trust.
Warner’s program focused on channel member needs and problems, was simple and
straightforward, and had a clear sense of mutual benefits.

B) Partnerships and Strategic Alliances

Partnerships or strategic alliances stress a continuing and mutually supportive

relationship between the manufacturer and its channel members in an effort to provide a
more highly motivated team, network, or alliance of channel partners.

Figure 9.2 shows Black & Decker Corporation’s statement of policy toward channel
members.

Webster points to three basic phases in the development of a “partnership” arrangement

between channel members.

 An explicit statement of policies should be made by the manufacturer in such areas as

product availability, technical support, pricing and any other relevant areas.
 An assessment should be done of all existing distributors as to their capabilities for
fulfilling their roles.
 The manufacturer should continually appraise the appropriateness of the policies that
guide his or her relationship with channel members.

Figure 9.3 shows the relationship between Coca-Cola and Wal-Mart.

Webster’s basic guidelines can be used for establishing partnerships or strategic alliances
in marketing channels.

Figure 9.4 summarizes Sonnenberg’s Basic Principles for Building Successful Channel
Partnerships.

Figure 9.5 provides a more detailed for establishing e-alliances.

Figure 9.6 shows Rust-Oleum’s “Partners in Profit” program which offers deferred
payments, special advertising allowances, and other assistance that helps distributors to
reduce their inventory burdens and increase profits on a continuing basis.

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Motivating the Channel Members
C) Distribution Programming

Key Term and Definition

 Distribution programming: “A comprehensive set of policies for the promotion of a
product through the channel.”

The essence of this approach is the development of a planned, professionally managed

channel.

The first step in developing a comprehensive distribution program is an analysis by the

manufacturer of marketing objectives and the kinds and levels of support needed from
channel members to achieve these objectives.

Further, the manufacturer must ascertain the needs and problem areas of channel
members.

Table 9.3 outlines some of the major areas that should be included in the analysis for
both the manufacturer and the channel members.

Table 9.4 provides some examples of channel policy options for channel members.

Nevertheless, virtually all of the policy options available can be categorized into three
major groups:

a. Those offering price concessions to channel members

b. Those offering financial assistance
c. Those offering some kind of protection for channel members

Table 9.5 outlines a programmed merchandising agreement.

Table 9.6 compares the characteristics of supplier/retailer relationships in a

conventional channel versus a programmed system.

Providing Leadership to Motivate Channel Members

Control must still be exercised through effective leadership on a continuing basis to attain
a well-motivated team of channel members.

Seldom is it possible for the channel manager to achieve total control, no matter how
much power underlies his or her leadership attempts. For the most part, a theoretical
state, where the channel manager were able to predict all events related to the channel
with perfect accuracy, and achieve the desired outcomes at all times, does not exist or is
not achievable in the reality of an interorganizational system such as the marketing
channel.

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 Marketing Channels 8e
Little explained succinctly the problems of achieving very high levels of control and
leadership in this interorganizational setting when he said:
“Because firms are loosely arranged, the advantages of central direction are in large
measure missing. The absence of single ownership, or close contractual agreements,
means that the benefits of a formal power (superior, subordinate) base are not
realized. The reward and penalty system is not as precise and is less easily affected.
Similarly, overall planning for the entire system is uncoordinated and the perspective
necessary to maximize total system effort is diffused. Less recognition of common
goals by various member firms in the channel, as compared to a formally structured
organization, is also probable.”

Answers to Review Questions

1. Channel management refers to the administration of existing channels, while channel

design refers to setting up new channels where none had existed before or to the
modification of existing channels. Channel design decisions are concerned with
setting up the channel; channel management is concerned with running what already
has been set up. Channel design creates potential; channel management realizes it.

2. An apt channel design is necessary but not sufficient. Even a near optimal allocation
of distribution tasks does not guarantee the performance of those tasks in an efficient
and effective manner. Motivation and leadership are needed to elicit cooperation from
the channel members so that the firm’s distribution objectives are attained. Such
cooperation is not automatic, and leaving the operation of the channel to chance or
the forces of the market is more likely to lead to haphazard and inefficient channels.

3. Ideally, a truly effective information flow would provide all the information the
channel manager needs. However, the ideal information flow does not exist. In
practice, the communication systems operating in marketing channels do not
routinely deliver the comprehensive, accurate and timely information needed by the
channel manager. Thus, the channel manager should not rely solely on the channel’s
communication system. Supplemental approaches including research studies, channel
audits, and distributor advisory councils should be utilized.

The channel manager must recognize that intermediaries perceive needs and face
problems quite different from those of a manufacturer. Understanding how channel
members view themselves is essential to effective channel management.

4. All channels of distribution have an information flow that enables channel members
to communicate and interact. This information flow can be characterized as direct and
indirect. The direct flow includes such sources as salespeople, catalogs, merchandise
information, visits to factories, and several others. The indirect flow includes trade
journals and trade association publications, advertising agencies, marketing research
firms, government publications, and many others (see Figure 9.1 in the text).

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Motivating the Channel Members
5. Channel managers can learn about the needs and problems of channel members using
four approaches:

 Research Studies Conducted by the Manufacturer: The manufacturer’s own staff

designs and conducts the study.
 Research Studies Conducted by Outside Parties: More complete and unbiased
information is likely to be obtained when a third party designs and conducts the
research. Channel members may be more willing to respond frankly to a party
from outside the channel. Outside research houses also lend expertise to the study.
 Marketing Channel Audits: A comprehensive review of channel relationships is
conducted to gather data on channel members’ perceptions and expectations. A
principal benefit of the audit is early warnings about potential conflict areas.
These audits should be conducted on a periodic and regular basis to capture trends
and patterns.
 Distributor Advisory Councils: This formal group is composed of channel
members, both the manufacturer and intermediaries. The council is a source of
recognition for intermediaries, a vehicle for identifying and discussing mutual
needs and problems, and a means of improving channel communications. These
councils foster direct and candid dialog among channel members.

6. (1) The cooperative approach is basically a “helping hand” offered by the

manufacturer to its channel members to encourage them to give more emphasis to its
particular products. Some of the most common forms of cooperative assistance are
cooperative advertising, promotional allowances, and free merchandise and contests
for salespeople (see Table 9.2 in the text).

(2) The partnership and strategic alliances approach stresses mutual commitment
among the channel members whereby each is expected to fulfill a defined role. It
represents a stronger commitment among the channel members to help each other
than that which exists in a typical cooperative arrangement among channel members.
A key test of whether a “partnership” approach exists in a particular channel is a
written document (not necessarily a contract) issued by the manufacturer stating
explicitly what is expected of the channel members and vice versa (see the Black &
Decker statement, Figure 9.2 in the text).

(3) The distribution programming approach goes well beyond the typical partnership
or strategic alliance. It is a comprehensive, detailed and formal program of operating
policies that deal with virtually all aspects of the channel relationship. Usually the
program is developed jointly by the manufacturer and channel members to
incorporate the needs of both. Distribution programming agreements often are
manifest in a legal contract among the channel members. Distribution programming is
used in many franchised systems, especially in the service sector.

7. A channel arrangement based on distribution programming has a much more

comprehensive and explicit set of operating policies than a conventional channel.
Secondly, the distribution-programmed channel is much more closely managed and
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 Marketing Channels 8e
supervised than the typical conventional channel. Third, many distribution
programming arrangements are formalized in the form of a legally binding, written
contract. Finally, distribution programming agreements foster mutual commitment
and long-term relationships among the channel members.

8. Control is the ability to predict events or to achieve a desired outcome. Leadership is

the use of power to achieve control. Power is the capacity of one channel member to
influence the behavior of another channel member. In order to motivate channel
members, the channel manager must be able to exert some control over the channel
members and must provide leadership. Both control and leadership, however, are
highly dependent upon the level of power available to the channel manager: more
power increases his/her capacity to exercise control and leadership in the channel.

9. Because most channels operate in an interorganizational setting, the following

conditions exist to a higher degree than is usually found in an intraorganizational
setting: (1) loose alignment of channel members is present; (2) central direction is
lacking; (3) single ownership is missing; (4) formal superior-subordinate relationship
is absent; (5) reward and penalty system is not precise; and (6) central planning is
rare. All of these conditions tend to limit the degree of control and leadership
available to the channel manager.

10. As discussed in the chapter, Cisco distributed more than $30 billion annually through
it "value-add channel resellers" or VARs. The VARs are channel members that go
well beyond the mere reselling of Cisco products. Cisco VARs develop close
relationships with customers to learn about their networking needs, integrate
hardware and software and develop customized solutions to solve customer problems,
in short, they are a virtual extension of Cisco in the marketplace.

To make this value-based model work, Cisco has addressed two key issues,
compensation and training. Cisco’s enlightened channel leadership produced an
incentive system that provided equal rewards to channel members having similar
capabilities to provide high-value services to final customers regardless of how much
Cisco product each sold. Then to ensure their channel partners were capable of
delivering the high-value services promised to their clients, Cisco provides broad and
intensive leadership by offering training, an extensive Cisco certification program,
and by establishing performance targets on a variety of metrics including end-user
satisfaction, level of VAR investment, as well as VAR profitability.

Commentaries on Issues for Discussion

1. It is unfortunate for Steinway that they allowed the relationships with their dealers to
deteriorate so far before responding to problems. Several methods are available to
manufacturers who want to be aware of channel member needs and problems. Ideally,
manufacturers proactively create formal communication systems by which they can
collect information that might help them avoid conflict down the road. However, the
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Motivating the Channel Members
channel manager should not rely solely on the regular flow of information coming
from the existing channel communications system for accurate and timely
information on channel member needs and problems. Rather, there is a need to go
beyond the regular system and make use of one or all of the following four additional
approaches for learning about channel member needs and problems: (1) research
studies of channel members conducted by manufacturers, (2) research studies by
outside parties, (3) marketing channel audits, and (4) distributor advisory councils.

2. No, Bic cannot possibly be “partners” with all of the thousands of retailers selling
these products, at least not in the sense of having a close working relationship with
frequent contacts. The obvious reason for this is that it would not be feasible to do so
with so many channel members.

However, Bic may be partners with some of its retailers. A parallel can be drawn to
Procter & Gamble’s strategic alliance with Wal-Mart. Power retailers can be
partnership candidates even for manufacturers of convenience goods in the most
intensive distribution possible.

The Bic example, in any case, can serve as a point of departure for a discussion of
when and under what conditions a partnership approach to motivating channel
members makes sense.

3. The Harley-Davidson dealers are not just being “crybabies” in their accusation of
Harley as channel stuffing to give the appearance of sales growth. Harley-Davidson
can be criticized for failure to motivate the dealers, being insensitive to the dealers’
needs, using questionable cooperative arrangements and not providing the leadership
necessary to achieve proper channel motivation.

Other areas that come into play in answering this question include:

a. The lack of partnership between Harley-Davidson and its dealers

b. The lack of approval of the appropriateness of the policies that guide relationships
with channel members
c. Poor distribution programming which has as its first step, the development of an
analysis of distribution methods and the kinds and levels of support required by
channel members to achieve distribution objectives.
d. Failure to adequately provide price discounts and financial and territorial
protection to channel members during times of economic uncertainty.

The Harley-Davidson dealers have many issues to complain about, as Harley-

Davidson has not done a good job in channel management through this practice.

4. The issue raised here is the need for objective (unbiased) channel research in order to
understand the needs and problems of channel members. In the case of this in-store
promotional campaign that Mary Robinson had been so closely involved in, there is a
real question as to whether her own research department will provide candid
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 Marketing Channels 8e
information about its very poor reception by the channel members. If the people in
the research department believe that Robinson can affect their future in the company
if they “tell it like it is”, they may find it desirable to tone down the negative views of
channel members and thereby not provide an accurate assessment of the promotional
program. This could happen even if Robinson is not the type of manager who “kills
the messenger who brings bad news.” As long as the people in the research
department perceive that she might do so, the objectivity of the research could be
suspect.

Preceding the issue of the research department’s frankness is the issue of the channel
members’ frankness. By using its own research staff to gather the data, the
manufacturer may have inhibited the channel members’ expression of their
displeasure. Channel members hardly would be the only research respondents to
bridle their responses rather than risk offending the researcher.

The students should recognize that use of an outside research house may be necessary
for complete and objective information, but it usually is more costly. The class might
discuss how the manufacturer should address this trade-off. Students who have taken
a marketing research course will have numerous suggestions to offer.

5. A possible answer to this question is that no, McDonald’s™ does not really
understand the needs and problems of its franchisees and yes, the support in the form
of an attempt to provide a better product for the customer was misdirected.

The reasons for these answers will vary by student. However, most should pick up on
the fact that:

a. McDonald’s did not fully “find out” what needs and problems of their franchisees
would experience using the new kitchen technology prior to implementing it
chain-wide. If the new technology had been fully researched from the
franchisees’ point of view, then franchisees would not claim that it was flawed
and poorly designed.
b. The support offered by McDonald’s, new kitchen design and technology, seems
not to be consistent with the channel members (franchisees) needs and problems –
how to increase sales.
c. The support offered by McDonald’s (new kitchen design and technology) seems
disorganized, and they are just responding on an “ad hoc” basis to competitive
pressures and not consistent with the interorganizational setting required of
carefully planned programs.
d. This new kitchen design and technology does not seem to be part of a distribution
programming whereby there is a comprehensive set of policies for the promotion
of a product through the channel. Questions that could have been asked include:
Was there a consumer need for such new design and technology in the first place?
Can our franchisees afford the capital and human resources needed to implement
this new design effectively? How do we manage and respond to customer
complaints regarding slow service levels and mistakes in meal selection?
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Motivating the Channel Members
e. Finally, McDonald’s is flawed in its demonstration of leadership in the content of
channel management. By commenting that the blame for the increase in
consumer complaints is because the franchisees have not learned to use the
technology, McDonald’s is shifting the blame on the franchisees and away from
corporate responsibility. This technique does not work to build channel
partnership or strategic alliances.
f. Students could also point out that McDonald’s is trying to use a combination of
coercive and legitimate power to unduly influence their channel members into
accepting this new kitchen design and technology. As mentioned in Chapter 4,
some of the strongest legitimate power bases are those held by the contractual
agreements between franchisor and franchisee, with the bulk of the legitimate
power held by the franchisor.

6. Virtually every sales organization faces two perpetual challenges:

 generating qualified sales leads

 conducting technical presentations and training

Sylvania’s program addresses its distributors’ needs in both these areas. It has
provided concrete and specific solutions to very real problems.

Sylvania demonstrated effective leadership by skillfully applying both expert and

referent power in this program. Its marketing, training and technical expertise (expert
power) is evident as is the mutual benefit of the program (referent power).

Sylvania also demonstrated sensitivity to the interorganizational setting of its channel

by designing the “Lightmobile” program as a joint presentation. This, and the way
customer materials are distributed, makes it clear to the distributors that Sylvania is
not encroaching on their customers and their domain.

7. As Webster explained, distribution partnerships are not born out of legal necessity, but
out of a need for mutually supportive relationships. Simply, in a rapidly changing
environment such as the one in which Film District finds itself, an alliance with
Netflix provides a degree of relative stability, at least for the foreseeable future.
Partnerships or strategic alliances stress continuing and mutually supportive
relationships between manufacturers and their channel members in an effort to
provide a more highly motivated team, network, or alliance of channel partners.

The alliance between Film District and Netflix promises to replace the traditional “us-
against-them” mentality with a new, cooperative perception of “us.” As Adobor and
McMullen have argued, the term "e-alliance" is used to describe such strategic
alliances when formed primarily as a part of an E-commerce strategy. This may well
also apply to digital delivery of media. Abobor and McMullen also argue that
because of the dynamic and volatile environment of E-commerce relationships,
channel members need to pay especially close attention to such issues as well-defined
exit strategies, short-term commitment, the swift development of trust, and ease of
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 Marketing Channels 8e
management. Thus, both Netflix and Film District will need to communicate with
each other regularly to be aware of changing needs and problems, and address them
as they arise.

8. There always is a need for channel management. The Toyota dealerships will not run
themselves, nor will Toyota’s channel run itself. Even the most comprehensive,
detailed and formal programmed system cannot be expected to deal with all
eventualities. Toyota’s channel manager still will need to deal with issues and
problems that arise in its relationship with its dealers across time. Toyota will need to
motivate cooperation, not just compliance with its standards, if it is to achieve its
distribution objectives.

The class discussion might focus on some of the issues and problems that could arise
in a well-designed channel with carefully selected members and explicit policies.
Students can start by identifying environmental events and marketing mix changes
that could cause problems.

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