Part 3: Channel Implementation Chapter 8: Strategic Alliances in Distribution

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Part 3 Channel ImplementationChapter 8
Strategic Alliances in Distribution

• MKTG 406 Pimentel

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Strategic Distribution Alliances

• Alliance
• Two or more organizations have connections that
  cause them to function according to a perception
  of a single interest shared by all the
  partiesi.e. they act as if vertically integrated
• Strategic alliance
• Connections
• Enduring
• Substantial
• Cut across many aspects of the businesses
• Term alliance is over-used
• Incorrectly applied to various business
  relationships

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Things that Inhibit Alliance Formation

• Lack of appreciation for other channel members
• Not channel-centric
• Viewing other channel members as competitors
• Personnel lacking experience in channels
• Withholding of information
• Lack of trust

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Building Trust

• Built gradually through daily interactions
• Cycle of communication and trust
• Conditions that encourage trust
• De-centralized decision making
• The nature of formalization
• Reducing everything to rules and set procedures
  damages trust
• Formalizing the roles of the channel members
  builds trust
• Domain consensus

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Upstream Motives to Create an Alliance

• Better coverage
• Lower costs
• Coordinate promotional efforts to better reach
  ultimate consumers
• Better market information
• Response to consolidation of wholesalers
• Create barriers to entry of future competitors

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Downstream Motives to Create an Alliance

• Assured stable supply of desirable products
• Response to consolidation of manufacturers
• Coordinate promotional efforts to better reach
  ultimate consumers
• Coordinate channel flows
• To serve customers better
• Value added
• Increase sales
• To improve inventory management
• Increase turnover
• Decrease stock levels
• Decrease write-downs
• Differentiation as manufacturers preferred
  outlet
• Create barriers to entry of future competitors

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Benefits of Alliances

• Trust
• Communication
• Differentiation
• Enduring competitive advantage
• Higher profits
• But not all relationships should be alliances

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When to Have an Alliance

• Three conditions simultaneously
• One side has special needs
• The other side has capability to meet these needs
• Each side faces barriers to exiting the
  relationship

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Building Commitment

• Expectation of continuity
• Trust and two-way communication cycle
• History of doing business together
• Reputation for treating channel members fairly
• Balance of power
• Combined stakes are high

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Building Commitment

• Asymmetric commitment is rare
• Rarely deceived
• Judged on what has been done, not what is said
• React when asymmetric commitment is suspected
• Cycle of perception and adjustment

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Gauging Commitment

• History
• Willingness to communicate freely
• Selective distribution/category exclusivity
• Idiosyncratic investments
• Dedicated personnel and facilities
• Locating facility near you and distant from your
  competitors
• Compatible systems
• Learning about you
• Tying of identities together
• Efforts to expand the pie

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Building Commitment

• Give commitment to get commitment
• Mutual vulnerability

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Stages of the Relationship

• Awareness
• Exploration
• Expansion
• Commitment
• Decline and dissolution

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Stages of the Relationship

• Awareness
• Exploration
• Trial and evaluation period
• Forecast costs and benefits
• Communication and negotiation
• Norms develop
• Trust and satisfaction grow
• Inferences without much history
• Idiosyncratic investments

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Stages of the Relationship

• Expansion
• Relationship grows considerably
• Realizing greater benefits
• Trust grows
• Interdependence grows
• Common goals
• Interactions are enjoyable

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Stages of the Relationship

• Commitment
• Relationship has become stable
• Both sides invest heavily to maintain the strong
  partnership
• Neither is open to overtures by other firms

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Stages of the Relationship

• 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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Key Terms

• Alliance
• Channel-centric
• Asymmetric commitment
• Idiosyncratic investments
• Domain consensus