Session 7&8: Managing Channel Power Summary

In marketing channels, using the power and keeping it is very important. The players seek power and
use it for growing the pie and enable everyone in channel to claim their share.

Power Defined: Power is the ability of one channel to get another channel member to do something,
which could not be possible without that. It is the potential for influence. Its difficult to gauge because
false positives are common. The important thing to distinguish between influence and exercising power.
False positives lead to powerful channel member and overestimate its ability to exert influence.

Power as a Tool: Power represents the potential for influence, great benefits can be achieved through
its judicious use and drive channel more efficiently and more coordinated operations. Power is a tool,
and its neutral, usage makes it good or bad.

The need to manage channel power: The channel members must work together to serve end-users.
Interdependence does not mean it does overall good. Channel members seek own profit and maximizing
channel profits doesn’t mean that its giving profits to everyone in the channel.

The Five sources of channel power: These five sources hold the best way to measure power.

 Reward power: A reward is given in return for a channel member to alter their behavior.
Channel member must believe in another channel member that he will create value and share
the profits with him.
 Coercive power: This power comes when one channel member is afraid of punishment by
another channel partner if he fails to comply.
 Expert power: This power comes when one channel member thinks that another channel
member has some specialized knowledge or expertise.
 Legitimate power: This is considered as good and proper. The channel member agrees to
whatever another channel member says because he believes that its good.
 Referent power: This power exists when one channel member views another channel as a
standard of reference. This happens because a channel member benefits from another channel
member image.

Grouping the five power sources: the five power sources gives us a framework to assess the power in a
channel relationship. There is a risk of double counting, so, one way is to separate just coercive power
and others into noncoercive. Another one would be to consider mediated and unmediated power. It is
easy to build mediated power, but unmediated power builds more slowly, subtly, and through a process
that remains difficult to understand.

Dependence as the mirror image of power: one channel partner’s power over another channel partner
increases with another channel partner dependence on this channel partner.

 Defining dependence: Obtains greater utility from A and has access to fewer alternative
sources of that utility. D = U * S

Measuring dependence: A reasonable approach to measure dependence on the focal actor comes from
assessing both utility and scarcity separately. To asses utility, sum up all the benefits your firm offers. To
assess scarcity or how easily the other channel member could replace you. Two factors to be considered
are who are your potential customer, and the second is, if the competitor exists, how easily can the
 Session 7&8: Managing Channel Power Summary

channel member replace you with the competitor. The combined analysis shows the Dependence of
your channel partner on you. The high switching costs make it hard for the channel partner to leave you.

 Percentage of sales or profits: percentage of sales or profits provided by the channel partner to
you is a quick estimate. More the percentage, more powerful you are. But this will not capture
the dependence and the switching costs for another channel partner.
 Role performance: this assessment of how well an actor performs its role compared with
competitors. Role performance doesn’t capture dependence well
 Bottom-up approach: this approach takes five ways to amass the potential to change channel
member’s behavior. The change varies with the level of dependence on the influencer, i.e., the
power to change the other channel member behavior.

Balancing power: power is a property of the relationship, but not of the organization. Channel outcomes
rest on the balance of power in a relationship. Dependence assessments must take both channel
partners’ view. Interdependence leads to high mutual power; it gives the ability to achieve high value.
High dependence is important in maintaining strategic channel alliances with effective coordination.

Imbalanced dependence: After some shifts, channel partners will be more dependent on another
partner. Now, the less dependent person benefits, but more dependent person suffers due to
exploitation.

Strategies for balancing dependence: There are three countermeasures available to the weaker party to
reduce its dependence.

1. Develop alternatives to A.
2. Organize a coalition to attack A.
3. Exit the situation and no longer seek the benefits that A provides.

Power based influence strategies:

 Promise: If you do what we wish, we will reward you.

 Threat: If you don’t do what we wish, we will punish you
 Legalistic: you should do what we wish because you have agreed to do so.
 Request: Please do what we wish
 Information exchange: Lets pursue a general discussion about the most profitable way, without
mentioning what we want.
 Recommendation: like information exchange. Discussion on profitable methods but provide you
with the conclusion.

Effectiveness of six influence strategies: The promise, threat, and legal influence provoke a backlash —
the use of threats effects the relationship between the two partners.

Framing influence strategies: framing effects have strong influences in channels. The valence refers to
whether it gets positive and negative

Positive: If you take the product, you will get support

Negative: If you don’t take a product, you will not get support