The nature ofpower in

marketing channels

Maja ArnaudovaPower is a potential for influence, therefore, it is the ability of one channel member to get another channelmember to do something. There are five sources of power: Reward, Coercive, Legitimate, Expert and Referent power, and there are 6 ways of communication i.e. ways of exerting influence: Promise, Threat, Legalistic, Request, Information exchange and Recommendation. This project will elaborate this subject in details.

Mentor:Ph.D. Lidija Pulevska Ivanovska

Ss. Cyril and MethodiusFaculty of Economics

E-business department

Course: Multichannel Marketing

Contents

Summary..............................................................2

Marketing Channel....................................................3Marketing channel flows.............................................3

Channel Analysis.....................................................4Marketing channel members...........................................4

Framework for channel design and implementation.....................4Defining Power.......................................................5

False positives and negatives.......................................6Why use power?......................................................6

Power vs. Dependence.................................................7Specifying Dependence...............................................7

Estimating and measuring dependence................................10Relationship between power and dependence..........................11

Sources of Power....................................................11Formal Power.....................................................13

Personal Power...................................................17Segregation of the five sources of power...........................19

Balance of Power....................................................20Imbalanced dependence..............................................21

Strategies of Influence.............................................22Conclusion..........................................................26

References..........................................................27

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Summary

Channel power is the ability to change another organization’sbehavior. It is a tool, neither good nor bad. It infiltrates inall aspects of marketing channel. The interdependence of channelmembers makes power a critical feature of their functioning.

Channel members must invest over time to build power. They mustassess power accurately and use it wisely; both to carry outtheir objectives and to protect themselves. One way to thinkabout power is to conceptualize the power of A as being equal tothe dependence of B. The dependence of B on A is high when:

B derives great utility from dealing with A and cannot findthat utility easily in one of A’s competitors.

Real alternatives to A are few or when B faces very highswitching costs if it leaves A.

Power can be conceptualized as coming from 5 sources, each ofwhich effects how much one party depends on the other and thosesources are: Reward, Coercion, Legitimate, Expert and Referent.

Power is two sided mechanism and applies to one relationship at atime. The best indicator of power is in the dependence of the twosides on each other. Mutually dependent relationships oftengenerate exceptional value added. Each side has leverage to drivethe other to develop win-win solutions.

When the dependence is imbalanced, the stronger party can readilyexploit or ignore the weaker one. The more dependent party cantake countermeasures including diversifying, forming acoalitions, bringing an arbitrage, or exiting the business. Thereare many cases when the imbalanced relationship works well; thekey is restrained on the stronger party.

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Transferring power from a latent ability into influence involvescommunication and in the marketing channels there are 6 commonway to communicate. Three ways are fairly obtrusive and oftenprovoke resentment and conflict; those are promises, threats andlegalisms. The strategy of making promises as an influencestrategy is quite effective on the whole and is a staple ofstrong long-term relationship. The other three influencesstrategies are making requests, information exchange andrecommendations. Their effectiveness is highlighted by theirunobtrusive nature.

In this project, all these points of this topic about channelpower will be discussed in details.

Marketing Channel

Marketing channels are the connection between the manufacturerand the end users, both consumers and business buyers, and anessential asset in the company’s overall marketing andpositioning strategy. It is of a great importance to createstrong marketing channel to use it as a competitive advantagethat is not easily replicated by the competition.

Marketing channel is a set of interdependent organizationinvolved in a process of making a product or service availablefor use or consumption. Every marketing channel is created bynumber of members which are mutually dependent. Everyorganization involved in the channel has the same purpose orgoal, i.e. to make the end-users satisfied, no matter whetherthey are consumers or final business buyers.

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Marketing channel flows

As mentioned earlier, all members of the channel have same goal,to satisfy the customer. During this process of achieving thatgoal, there are 8 flows going down, up and through the channel.Physical possession, ownership and promotions are the flows whichgo down the channel, which means, they are moving from themanufacturer towards the customers, ordering and payment are theflows that are moving up the channel, from the end users towardsthe producer, and negotiating, financing and risking are theflows that are moving in both directions. In Figure 1 below, youcan see in which ways these flows can really go, and you willnotice one flow more, that is Information flow. Information canand does flow in every possible dyad of channel members in bothways.

Figure 1 Marketing flows in the channel

Note: The dashed line in the intermediaries shows that the flows can be performed from the producer to the intermediary, from the intermediary to the end users, from the producer to the end user or shared among them1.

1 Source: Lewis (1968, p.140), Rosenbloom (1999, p.16) and Coughlan et al. (2002, p.87)

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Channel AnalysisMarketing channel members

There are three types of channel members:manufacturer, intermediaries and end users.Intermediaries can be wholesalers, retailersor specialized; and the end users can be bothbusiness customers and consumers. Often oneof the channel members is considered as a“channel captain”. The Channel Captain is anorganization that takes the keenest interestin the working in that particular channel for the product orservice and acts as a prime mover in establishing and maintainingthe channel relations. Usually, the manufacturer is the channelcaptain, although this is not always the case.

Channel participant can make combinations of (relativelyspeaking) collaboration to create effective marketing channel.The number of channel members depends of the nature of theproduct or of the demand of the end users; also, the channelcaptain can be different from situation to situation.

Framework for channel design and implementation

Because of the concept of interdependence between all theparticipants and the value of specialization of the channel,attention must be paid to all the design and management elementsto ensure a well-working marketing channel. There are two mainprocesses: designing the right channel and implementing thatdesign.

The design process includes segmenting the market, choosing whichsegment(s) to target, and producing channel service outputs forthe targeted end users. The implementation process requiresunderstanding of each member’s sources of power and dependence,

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the potential of conflict, and resulting plan for creating anoptimal environment for effective execution of the channel work.In the framework in Figure 2 below, you can see the elements ofthe process of design and implementation2.

Identifying the sources of power, as a major part of theimplementation process, must be well understood. That is why I amgoing to give a full explanation of the member’s powers anddependences.

Defining Power

The concept of power is consideredcentral in understanding the meansby which one channel member canchange or modify the behavior ofanother member within its channel of

2 Source: Anne T.Coughlan, Erin Anderson, Louis W. Stern, Adel I. El-Ansary (Marketing Channels, 2006 p. 18)

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Channel Design Process

SegmentationChannel Structure

Splitting the work loadDegree of commitment

Gap analysis

Channel Implementation Process

Channel Power Channel Conflict

Manage/DefuseConflict

GoalChannel coordination

Figure 2 Channel design and implementation

distribution. Simply put, power is a potential for influence,therefore, it is the ability of one channel member (A) to getanother channel member (B) to do something that it otherwisewould not have done.

In marketing channel, interdependence is something that must bemanaged, and the power is the instrument to get it under control.The organizations who are players in the marketing channel mustacquire power and use it wisely, first for the channel to worktogether to generate value, and second for each player to claimits fair share of that value. The way in which the players gainpower and how they use it in the present implies whether they cankeep their power in the future. Some ways of getting a power areeffective in short run but ending with a great deal of damage inlong run; others may have limited effect in the short term, butslowly gain in their effectiveness over time. For that reason,each member in the channel has to understand where the power liesand find the best way to use it – or to react to the power ofother channel members.

It should be noted that power is potential or perceptual state.It is sometimes not necessary for power holder to consciouslyinfluence the target and the target may actively adopt complianceor cooperative actions. This is a deviation between power andintended power usage: a higher-level power holder may not be afrequent power user.

False positives and negatives

Identifying a power in a channel is rather difficult because ofthe common false positives and false negatives. Many times, powerseems to exist when one organization (A) follows the path thatanother firm (B) desires, which in fact this is just an exampleof cooperation, because the organization A would have followedthe same path regardless of the other firm B, - which is a caseof false positive. On the other hand, supposedly powerful channel

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member B overestimate its ability to exert influence andexpecting to make change happen. This optimism leads firm A toaccept channel initiatives that are doomed to fail. Channelmember A can be acting under B’s influence without even knowingit, and furthermore denying it. – This is the case of falsenegative.

Why use power?

Power and its usage can have a crucial impact on the workingrelationship in marketing channels. Under certain conditions, theuse of power in the channel can enhance performance for allchannel members, but the organizations comprising the channel areoften unwilling to adopt this approach. What is best for thesystem is not necessarily best for each member of it, andorganizations are fearful that their sacrifices will be tosomeone else’s gain. For example, manufacturer would like to seta high price at wholesale to gain more revenue from its only(exclusive) retailer. The retailer, to preserve its margin, willset a higher retail price. As a result, retail demand will belower than the level that would maximize the total channel’sprofit – this problem is called double marginalization. If themanufacturer was vertically integrated forward, or the retailerwas vertically integrated backward, this single organizationgenerating one income statement would set a lower retail price,following a strategy of lower overall margins, but highervolumes. Both the channel and the customer would be better off(higher profits for the channel and lower prices for thecustomers).

Acting by themselves, most channel members will not fullycooperate to achieve some system-level goal. Enter power as a wayfor one player to convince another to change what was inclined todo. This change can be good either for whole system, or for asingle member. The tools of power can be used to create value, or

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to destroy it, to appropriate value, or to redistribute it.Channel member must use power to defend themselves and to promotebetter ways for the channel to generate value.

Power vs. Dependence

There is a simple rule that ties power and dependence: the lowerthe dependence of one organization to another, the bigger thepower. In other words, A’s power over B increases with B’sdependence to A. If the organization B is dependent onorganization A, it is more likely to change its normal behaviorto fit A’s desires. B’s dependence gives A the potential ofinfluence.

Specifying Dependence

Dependence is defined as a state in which assistance from othersis expected or actively required. In the marketing channel

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literature, it refers to the degree to which the target firmneeds to maintain its relationship with the source in order toachieve its desired goals3, or the extent to which a tradepartner provides important and critical sources for which thereare few alternative sources of supply4.

Dependence is the utility provided, multiplied by scarcity ofalternatives. Both elements are essential for dependence tooccur. If B does not derive much value from what A provides (lowutility or low benefits), then it is irrelevant if there arealternatives or not: B’s dependence is low. On the contrary, if Aprovides great value, but B can find other sources to provide asmuch as value, then again it is irrelevant that A benefits B:dependence is still low. Either low utility or low scarcity ofalternatives (i.e. many alternatives) is like multiplying byzero: the dependence is always zero.

So, what determines B’s dependence on A?

The greater the utility (value, benefits, satisfaction,service) B gets from A

The fewer alternative sources of that utility B can find

Moreover, channel members often consider themselves as thepowerful one because of the benefits they provide to thecounterparts. But their counterparts do not need them if they areeasy to replace, and this detail diminish their power.

It is necessary for channel members to depend on another infulfilling their shared goals because each member specializes indifferent functions (mentioned earlier: information, promotion,negotiating, financing, ordering, risking etc.) Although these3 Kale, 1986, p.3904 Buchanan, 1992, p.65

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Dependence Scarcity of alternatives

Utility provided

functions can be shifted from one channel member to another, theycannot be eliminated and must be performed by some channel memberor members. Because of this functional specialization and theneed of resources, channel members are pushed intointerdependencies.

Common channel situation is when the manufacturer tries to changea downstream member’s behavior only to be surprised to see thatthe downstream organization refocuses on competing brands. Alsocommon is the case where the retailer has the power over themanufacturer because the end users are loyal to him, butsometimes the manufacturer changes their retail seller withoutshare loss, showing that their brand has the equity that allowsthe manufacturer to keep the end users. Both these scenariosoccur when an organization generates value but underestimate howeasily it can be replaced, in fact it overestimate its power.

Dependencies arise among firms because of task specialization andfunctional differentiation within the marketing channel. Within adyadic channel relationship, the channel position of each firmcontributes to the set of inseparable tasks or responsibilities

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Manufacturer inluences

downstream channel members

Retailers influences upstream channel members

that each party must perform to facilitate the other's goalattainment. Responsibilities may be related to channel positionsover time through tradition, cost tradeoffs, managerialpreferences, or legal considerations. They may also be negotiatedin certain business situations. The inherent responsibilities ofa business firm define its channel role in dyadic relationshipswith other firms.

A source firm's performance in providing assistances (e.g.,excellent training programs and operation manuals) to the targetfirm will drive the level of the source firm's power. Thissuggests that a firm's performance on elements of its channelrole or its role performance (i.e., its ability to carry outexpected or inherent tasks based on its position in the channelas perceived by members of another firm) will drive the level ofthe other firm's dependence in their relationship. Thisrelationship is based on the manner in which a source's roleperformance impacts levels of the target's goal attainment.

The concept of role performance is consistent with and can beinterpreted in terms of two determinants of dependence. Within adyadic channel relationship, the targets' motivational investmentin goals mediated by the source can be driven by the source'sperformance on elements of its channel role. Additionally, if thesource's performance is compared in a relative sense to industryaverage performance or the performance of a primary competitor, anotion of the alternatives available to the target within theindustry in question and their relative attractiveness can begained. Although the target may have other investmentalternatives in other industries, if a source firm's level ofrole performance is high, the likelihood of the target locatingmore attractive investments elsewhere appears lessened. Thisreasoning suggests that the "motivational investment" and"availability of alternative" dimensions are not independent.

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Estimating and measuring dependence

By assessing the utility and scarcity of alternatives (separatelyor combined) we can estimate how much channel member depends onanother.

First, to assess utility, the benefits one offers could be noted.It is important to understand the channel partner’s goals.Because the organization wants to assess the worth othercompanies attach to what they provide, they need to focus on whatis important to them (volume, profits etc.) The utility providedcan be estimated by inventorying the source bases of power, orrough estimation of the profits that are generated, directly orindirectly, can be summary indicator of the benefits one offers.

Second, to assess interchangeability, how easily the organizationcan be replaced, two factors need to be considered:

1. Who could be competitor of the mentioned organization?

This question can be reviewed from the point of who might enterthe market, or already exist on the market, that could supplywhat the organization provides, and are there any acceptableequivalents. If there are none, the research can be stoppedthere, but if there are, further researches of the competitorshould be done. This presence of alternatives arises anotherquestion:

2. How easily can the channel member switch from the firstorganization to one of these competitors?

If switching is easy, the power of the organization is zero. Inthis case it does not matter if the utility offered isincorrectly estimated. But if the switching is not so easy,impractical or really expensive, then the organization is rare,scarce, even though the alternatives exist. In this case, the

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provided benefits by the organization are needed and that is whatmakes the organization powerful.

Example: One manufacturer A in the textile industry is supplyingtwo distributers B and C. How much power has A over B and C? Themanufacturer’s brand makes it easier for distributers to reachcustomers via its salespeople, who sell other products in theirportfolio. Benefits, therefore, are substantial. But manufacturerA has three competitors making same products, so A appears to beeasily replaceable. Consequently, B does not depend on A and Ahas little power over B. The situation for C is different; C is asmall distributor, struggling to establish itself in itsmarketplace. The three other manufacturers will not supply C onthe same terms as will A. So the distributor C has no realalternative to A, therefore, C is dependent on A and A has powerover C. The manufacturer A would also have power if B and C hadmade investment in A that would be difficult to transfer toanother producer. This could include taking trainings in theunique features of A’s products, joint advertising with A, etc.Even though there are alternatives to A, the distributors wouldbe reluctant to sacrifice these investments by switchingsuppliers. The high costs of switching make A monopolist becausethe distributors have no ready alternative to A. Thus, thedependence of the distributors confers power od manufacturer A.

Relationship between power and dependence

As mentioned earlier, channel power is thought to be the inverse of channel dependence. The channel behavior studies conducted in Western countries showed (explicitly or implicitly) the followingcausal relationship: the more dependent a channel member is on another, the higher it perceives the other member’s power, which may be equal to actual power. Channel dependence has often been used as a measure of channel power due to the presumed causal relationship between the two.

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Sources of Power

Power equals influence. Everymember in marketing channelwanting to enhance his influenceshould consider the five sourcesof power available atorganizations. Three come withposition. The other two areavailable to anyone. The fivebases of power were identified byJohn French and Bertram Raven inthe early 1960’s through a studythey had conducted on power inleadership roles.

The five bases of power are divided in two categories: Formal(Organizational) and Informal (Personal) power.

Formal Power

Formal power, or organizational power, may refer to position inthe marketing channel. The channel captain of the channel, forexample, has decision-making power in many areas. Even if thechannel system is not strictly organized, other members caneasily recognize formal power within the channel because ofutility provided, titles, functions and interdepartmentalrelationships. Formal power can be: coercive, reward andlegitimate.

Informal Power

The most powerful member in the channel is not necessarily themanufacturer. Instead, the member with the most influence, whocan lead others to achieve a goal or accomplish a certain task,may enjoy that position of power. Informal power in a marketing

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channel refers to the ability to lead, direct or achieve withoutan official leadership title. It is derived from therelationships that channel members build with each other.Organizations with informal power may be the most experienced orknowledgeable in a certain area or the most respected because ofperceived notions displayed through certain actions. Informalpower can be: expert and referent.

Benefits

All forms of power within a marketing channel are beneficial whenused appropriately. Formal power is necessary to achievestrategic goals and company initiatives. Informal power can beequally useful, particularly when those in official leadershiproles recognize and use informal power to further goals. Thetargeted members may be more apt to accept criticism or takedirection when they receive guidance from someone at their levelthat they respect and trust. It is often easier to get others“buy-in” when suggestions come from within the ranks.

Considerations

The formal power is used to drive goals further by enlisting thehelp of those with informal power. It is needed to be consideredthe fact that while someone may have the authority, other memberswith informal power have earned respect of the rest of thechannel members that the first organization was trying to lead.Challenging informal power that does not have a negative impacton your leadership or the company should be avoided.

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Formal Power

Coercive power

Coercive power derives from the B’s expectations of punishment byA, if B does not succeed to obey A’s influence attempt. Coercioninvolves any negative sanction or punishment of which anorganization is perceived to be capable of. Coercive power isconveyed through fear of losing one’s position, reduction inmargins, withdrawal of previously granted rewards, slowing down ashipment, etc.

This source of power is also problematic, and can be subject toabuse. What's more, it can cause unhealthy behavior anddissatisfaction in the channel.

Threats and punishment are common tools of coercion. Implying orthreatening that someone will be dropped out of the channel is anexample of using coercive power. While the position may give the

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POWER

Formal

Coercive Reward Legitim

ate

Informal

Expert Referent

capability to coerce others, it doesn't automatically mean thatthe organization has the will or the justification to do so. As alast resort, you may sometimes need to punish people. However,extensive use of coercive power is rarely appropriate in anorganizational setting.

Technically, the coercive power can be considered as a negativereward power, a reverse of reward power (a reward that iswithheld, that does not materialize). That is because the channelmembers do not see this just as a step below giving a low levelof reward. In the absence of reward, the channel members seenegative sanctions. They view coercion as an attack on themselvesand their business. When organizations perceive low rewards, theyreact by withdrawal or indifference, but when they perceivecoercion; their reaction is counterattack, or at leastconsidering ‘fighting’ back, because the coercion provokesaggression and self-defense.

The influencer, i.e. the operator of the coercion may besurprised of the intension of the target’s reaction, as thisreaction can be delayed till the target organization composes itscounterattack. However, the act of defense itself is an act ofcoercion.

The use of coercion destroys the dyad relationship in many waysan sometimes it can be so slowly that the influencer does notrealize what it is losing. In general when the targetorganization perceives threats by the influencer, it will lowerits estimation of the value of the influencer’s business. In theshort run, the connection will be broken in three ways:

1. The target organization is less satisfied with thefinancial returns it derives from the influencer (this ispart perception, part reality)

2. The target organization will be less satisfied with thenonfinancial part of the relationship

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3. The target organization will sense the relationship hasbecome more conflictual.

The influencer need to be concerned about target organization’sdisappointment, because what it gains from the coercion might belost later. In short term, the target is less cooperative, inmedium run the target is less trusting, and in the long run thetarget feels less committed to the relationship.

After all, this does not mean that channel members should neverengage coercion. Sometimes the benefits may be worth the cost,but if the coerced channel member does not benefit or does notperceive a benefit, the relationship will be seriously damaged.

Reward power

Reward power is based on B’s belief that A can grant rewards toB. The effective use of reward power lies in A’s possession ofsome resource that B values and believes that he can obtain byconforming to A’s request. In fact, reward is a benefit (orreturn) given as a compensation to a channel member for alteringits behavior.

Of course, the ability to grant reward is not enough: B must alsoperceive that A will grant rewards. This means convincing B that:

1. What A desires really will create benefits2. B will get a fair share of those benefits

Channel members in power are often able to give out rewards.Reward power is conveyed through rewarding downstreamorganization for compliance with influencers’ wishes. This may bedone through giving bonuses, extra time, desirable assignmentsand even simple compliments. If channel members expect thatsomeone will reward them for doing what it is desired, there is ahigh probability that they will do it. Producers gain the ability

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to alter downstream members’ behavior by increasing rewards fordoing what they wanted in a first place.

Reward power can be used when: 

Some marketing channel action needs to get done quickly The channel needs a motivation boost When the influencer is asking the target organization to go

above and beyond their duty When the producer wants to create a friendly competition

 Reward power should not be used when: 

Resources are scarce, so when someone wins, someone lose The influencer has doubts about its ability to provide the

reward They are targeted towards channel members in situations

where there are petty jealousies exhibited in the marketingchannel

The problem with this basis of power is that the organizationthat possesses the power does not have as much control overrewards as it needs. And, when organizations use up availablerewards, or the rewards do not have enough perceived value toothers, their power weakens. One of the frustrations of usingrewards is that they often need to be bigger each time if they'reto have the same motivational impact. Even then, if rewards aregiven frequently, some channel members can become too satisfiedby the reward, such that it loses its effectiveness.

As a common problem for he producer is if there is a seriousdeficiency on basic elements, no amount of reward offered to thechannel will compensate. Specifically the producer must pass fivethresholds:5

5 Narus, James A. and James C. Anderson (1988, Strengthen Distributor Performance though channel Positioning)

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A product/ service that offers a quality level that meets the need of a segment of end-users

At a price the end-user will consider paying That is saleable enough that the terms of trade offered to

the channel member allow to earn minimum acceptable financial returns given the price the end-user

Backed by a minimally acceptable producer reputation And a delivered reliably, meaning the producer will honor

the delays it has negotiated with the channel members or their customers

These five thresholds are fundamental because without them thedownstream channel member has limited ability to create demand,or limited reason to bother to try to do so. In one way oranother, many channel initiatives come back to create rewardpower.

Legitimate power

Legitimate power appears from the target organization’s sensethat it is in some way obligated to fulfill the requests of theinfluencer. He has legitimate power whenever the target feels asense of duty, of being bound to carry out the influencer’srequest; the target company often feels compliance is right andproper by normal and established standards. Legitimate power isgranted through the organizational hierarchy and comes fromhaving a position of power in the channel member, such as beingthe manufacturer or a key member of a marketing channel. Thispower comes when members in the channel recognize the authorityof one member. For example, the producer who determines theoverall direction of the marketing strategy and the resourceneeds of the company.

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The key feature of legitimate power is that the decision makersfeels constrained morally, socially or legally to go along withthe influencer. This sense of responsibility or duty comes fromtwo sources:

The law – Legal legitimate power The norms and value – Traditional legitimate power

The Legal legitimate power is conferred by governments, comingfrom the nation’s law of contracts and the laws of commerce. Amajor source of legal legitimate power is the contract thatchannel members write each other, but in practice, thesecontracts does not carry the force one would expect to have. Thelegal legitimate authority exists objectively: the influencer canremind the target organization of its presence. In contrast,traditional legitimate authority is based on valuesinternationalized by the target; he believes that the influencershould or has a right to exert power and the target is obligatedto accept it. A major source of the traditional legitimate poweris not the hierarchy authority, but the norms, values andbeliefs.

Norms (expectations of normal behavior) that arise in a channeldefine roles and effectively confer legitimate power on certainchannel member. Solidarity, role integrity and mutuality arenorms that once created; they give the channel member the abilityto exert legitimate power over the other by appealing to thenorms as a reason to comply with a request.

This type of power, however, can be unpredictable and unstable.If one loses the position, legitimate power can instantlydisappear – since others were influenced by the position, not bythe channel member itself. Also, their scope of power is limitedto situations that others believe the influencer has a right tocontrol. Therefore, relying on legitimate power as the only wayto influence others is not enough.

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Personal Power

Expert

Expert power (or expertise) comes from one’s experiences, skillsor knowledge, and is based on the target’s perception that theinfluencer has special knowledge, expertise that is useful andthat the target organization do not possess it itself. As theorganizations gain experience in particular areas, and becomethought leaders in those areas, they begin to gather expert powerthat can be utilized to get others to help them meet theirgoals.  Hence, the expertise do not exists automatically; it mustbe built via patient investments.

When one organization has knowledge and skills that enablesitself to understand a situation, suggests solutions, uses solidjudgment, and generally outperforms others, other channel memberswill probably listen to it. When they demonstrate expertise,others tend to trust them and respect what they say. As a subjectmatter expert, their ideas will have more value, and others willlook to them for leadership in that area.

But the durability of expert power presents a problem in themarketing channel management. Once given expert advice enablesthe recipient to operate without further assistance which meansthe expertise has been transferred, and the power of the originalexpert is reduced. If an organization wants to retain expertpower over a long period in a given channel has three options:

1. It can dole out its expertise in small portions, alwaysretaining enough vital data so the other channel member willremain dependent on it.

2. It can continually invest in learning and thereby alwayshave new and important information to offer to its channelpartners.

3. It can transmit only customized information.

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Some authors subdivide the expert power source, referring toexpertise as the provision of good judgments (forecasts) andinformation as the provision of data. A good example that theinformation is not identical to expertise comes from thesupermarket industry in North America. Supermarkets receive hugeamounts of consumer purchase data from their checkout scanners.To turn this information into insight, they give the data foreach product category to select suppliers (category captains),who use their knowledge of type of products to see the patternsin millions of transactions. Supermarkets have information powerover the suppliers, who then invest in converting this intoexpertise power over supermarkets. In this case both sides viewthis exchange of information as an investment in building astrategic alliance.

Using expert power is not as easy as it sounds and there arethree difficulties in exerting expert power:

1. Channel member must be trusted to use expert power2. Experts should wield high status3. Independent entrepreneurs often believe that they are the

experts and do not want to be told what to do by others. Itis easier when the target needs the influencer, i.e. whenthe target is dependent.

And furthermore, organizations can take confidence, decisiveness,and reputation for rational thinking – and expand them to othersubjects and issues. This is a good way to build and maintainexpert power. It does not require positional power, so channelmembers can use it to go beyond that.

Referent power

Referent power exists when B views A as a standard of referenceand therefore wishes to identify publicity with A. In a marketingchannel, the reason why one company wants to be associated with

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another is prestige. Downstream channel members would like tocarry high-status brands to benefit their own image. Upstreammembers would like to “rent” the reputation of prestigiousdownstream firms.

This type of power comes from being trusted and respected. Organizations can gain referent power when others trust what theydo and respect them for how they handle situations. This issometimes thought of as admiration or appeal. Referent powercomes from one organization respecting another, and stronglyidentifying with it in some way. Famous brands have referentpower, which is why they can influence everyone in the channelsystem.

Referent power can be a big responsibility, because companies donot necessarily have to do anything to earn it. Therefore, it canbe abused quite easily. Someone who is likable, but lacksintegrity and honesty, may rise to power – and use that power tohurt and alienate other channel members as well as gainadvantage.

Segregation of the five sources of power

The separation between one source of power and another is notalways clear. But there are two popular grouping methods.

1. Coercive vs. non-coercive power

Separating out coercive power and add up all the others as non-coercive power. This approach classifies coercive power as theremoval of something a channel member already has; all the otherpowers are non-coercive and no further explanations.

2. Mediated vs. unmediated power

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Power is considered as mediated when it can be demonstrated tothe target. The influencer can oblige the target to acknowledgethese power bases. They are the formal powers i.e. reward,coercion and legal legitimate. Unmediated bases are those thatwould not exist without the perception of the target. These areexpert, referent and traditional legitimate power.

Mediated power for the influencer is much easier to use, and theunmediated is more subtle and builds more slowly. Also, theunmediated power, once acquired, is very difficult for competitorto duplicate because even the influencer is not entirely sure howit acquired its unmediated power.

If the organization uses bad sources of power, such as coercion,that would have a huge negative impact on the relationship andeven on the whole marketing channel system.

Balance of Power

The power is not a property of the organization, but it is aproperty of the relationship. In declaring a power relationship,it is very important to mention that even though A is powerful in

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Coercive

Legitimate

Reward

ExpertReferent

relation to B; A may be weak in relation to some other company.Also, in the dyad relationship, both parties have sources (ofPower) of their own. However, when taking a record of A’s rewardpower, it is important to:

Focus on only one relationship at the time, rather thanmaking general statements about power

Count up not only A’s ability to reward B, but also B’scountervailing power, its ability to bestow reward upon A.

Despite the fact we consider B as the dependent party to A, veryoften there are cases when A is dependent to B. As we mentionedin the beginning of the project, A and B are interdependent. Highmutual dependence is synonymous with high mutual power. Thissituation gives channel members the ability to create very highlevel of value added. Each party has leverage over the other, butcountervailing power must be assessed and net dependencecalculated. Usually, the decision maker is the one (a) making theconsideration about the relationship with one channel member and(b) calculating the net dependence in pairing. Single channelmembers can fundamentally change calculation by approachingtogether in combination, and as a result the counterpart isfacing a coalition, which usually raises the benefits and theirreplaceability of the other side.

High mutual dependence is conductive to creating and maintainingstrategic channel alliances. More commonly, high and balancedpower is an effective way to achieve coordination. A channel iscoordinated when every channel member does what a single,vertically integrated firm would do: maximize the overall channelprofit. High and balanced power coordinates channel for tworeasons: First, the two sides can drive each other to craft andimplement creative, win-win solutions and second, symmetricdependence encourage cooperation by blocking exploitation. Thereis no weaker party in the relationship.

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Symmetric dependence promotes bilateral functioning by increasingeach side’s willingness to adapt in dealing with the other.Symmetry in dependence also means that both parties havecountervailing power, which can be used for self-protection andusually occurs when mutual dependence is low. Neither side hasmuch need of the other. This low-low combination is very commonin marketing channel systems. Channels with this kind ofsituation of dependence, when each side is dispensable, tend tooperate closely along the lines of classic economicrelationships.

Imbalanced dependence

Asymmetric relationships tend to be more confrontational, lesstrusting and less committed then interdependent relationships.The balance of power favors the less dependent member, and themore dependent channel member is open to exploitation, suffers ineconomic terms as well as in terms of non-economic benefits.

When B is dependent on A, but A is not dependent on B, then B cancope with its hazardous situation by reducing its dependence on Aby taking some of the three available types of countermeasures:

1. Developing alternatives to A

Fear of exploitation drives channel members to developcountervailing power as their dependences increases. Addingalternative it is necessary. Many channel members keep adiversified portfolio of counterparts to allow them to reactimmediately if any one organization exploits the imbalance ofpower.

2. Organizing coalition to attack A

Creating coalitions means involves the strategy of bringing inthird parties; they can be private arbitrators or a government

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body. Coalitions are sometimes created when channel members bandinto trade associations.

3. Withdraw from the business

Exiting the situation, removing itself from danger by no longerseeking the benefits that A provides is the strategy of ceasingto value what A can give. Exiting the business and putting theresources elsewhere is a strategy for many channel membersconsider unthinkable. But this is certainly the most conclusiveway to escape dependence on A

There is one more way of managing the dependence, but this timeinstead of trying to reduce its own dependence, the weaker partytries to raise the other party’s dependence.

Imbalanced dependence is not always harmful and damaging to oneparty in the dyad relationship. It can work well, particularly instable environments, which do not put much tension on thechannel. In general, imbalanced power relationships work wellwhen the less dependent party voluntarily refrains from abusingits position of power.

For example6: Department stores employ buyers to pick merchandisefor each department. Some manufacturers come to dominate thesebuyers: The buyers depend on them to supply appealing merchandisewith strong brand name, but the suppliers do not depend on thestore as a major outlet. In spite of this imbalance of power,department stores in the United States have been demonstrated abenefit from dominant-supplies relationship when the marketenvironment is stable (predictable) Department stores are able tominimize price reductions by working closely with a dominantsupplier when demand is predictable. This outcome is common,because supplier usually refrain from exploiting thevulnerability of their department store’s buyers. 6 Buchnan, Laurine (1992, Vertical trade relationships)

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In unpredictable settings, however, dominant suppliers become aliability. The store do not have the power to oblige a dominantsupplier to react flexibly to fluctuating demand. In highlyuncertain market environments, high mutual dependence ispreferable: both suppliers and buyers are motivated to findcommon solutions to the complex problem. In general when marketis diverse and unpredictable, one-sided dependence is dangerous.Stores are better off with either high balanced dependence (tooblige accommodation) or low dependence (to enable switchingsuppliers.

Strategies of Influence

Latent power is rapidly converted to exercised power. Changingthe potential for influence into real changes in the otherparty’s behavior requires communication. The nature of thiscommunication has an impact on channel relationships; the most ofthis communications can be classified into six categories:Promise strategy, Threat strategy, Legalistic strategy, Requeststrategy, Information exchange strategy and Recommendationstrategy. For every influence strategy there is a power sourcenecessary for it to work. From the Figure below you can see whichpower is used to exert influence:

30Figure 3 Using power to exert influence

Influence strategy1. Promise2. Threat

3. Legalistic4. Request

5. Information exchange

6. Recommendation

Power source1. Reward

2. Coercion3. Legitimacy

4. Referent, Reward, Coercion

5. Expertise, Reward6. Expertise, Reward

1. Promise strategy

The promise strategy it is perceived as heavy-handed, highpressure techniques and the promise strategy can be perceived asa bribe, as insulting and unprofessional, something of a forcingtechnique. Promises cause more promises: using this strategyencourages the counterpart to respond with its own promises, thissets off a spiral of bargaining. Anyway, the promise strategyover the long term causes mixed effects. No matter that is self-perpetuating, the promise strategy is an effective way to changechannel member’s behavior even though it raises interpersonaltension.

2. Threat strategy

The threat strategy also is perceived as heavy handed and highpressure technique and the use of threats provokes conflict anddamages the counterpart’s sense of satisfaction both economicallyand physiologically. It is really effective in short run, but inlong terms have really damaging effect on the dyad relationship.

3. Legalistic strategy

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If you do what we want, we will rewardyou

If you do not do what we want, we will punish you

The legalistic strategy, same as the promise and threat strategy,has been perceived as a high pressure technique. The counterpartsoften resent these techniques and usually tend to respond reactwith the same strategy as a defensive action.

4. Request strategy

The request strategy is more subtle and more discerning then theprevious three. It increases counterpart’s satisfactioneconomically and interpersonally. A pure request, no reasongiven, is so low pressure that it is almost surprising that thisstrategy is common. The request strategy as light-handedstrategies is very oft used.

5. Information exchange strategy

The information exchange strategy does not provoke the impressionof high pressure or heavy-handedness, even when the influencer’sobjective is the same with the promises, threats or legalism.Information exchange is so subtle form of persuasion that it isin some way risky and the counterpart is left to draw aconclusion as to what it should do. This strategy will not work

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You should do what we want because in some way you agreed to do it

Please do what we want(No further specifications)

Without mentioning what we want, suggesting themost profitable ways for the counterpart to do its

business.

if the counterpart does not even think of the desired behaviorbecause the objective is to change the counterpart’s perceptionof what is effective in a way that favors the objectives of theinfluence.

6. Recommendation strategy

The recommendation strategy as well as the request andinformation exchange strategies is more subtle then the promise,threat and legalistic strategies. In fact, when using therecommendation strategy the counterparts do not feel offended andwhat is more, their economic and interpersonal satisfaction isincreased. This strategy, as well as the information exchangestrategy, does not provoke the impression of high pressure, andthe risk does not occur. Recommendation, while more obvious(desired behavior is stated), does not threaten the counterpart’sautonomy. This is because the desired action is presented asbeing the counterpart’s own overall business interest.

As a general rule, the organizations eventually come to use allsix strategies in each of their relationships. The predominantstyle (the influence strategy used most often) influences howwell the organization converts its power into actual behaviorchanges. This is because channel members interpret the sixstrategies differently. As stated earlier, recommendation andrequest are the most often used light-handed strategies, and ofthe heavy-handed the threats and legalisms are the least oftenused strategies. But in long run, the pattern is somewhat

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Same as the Information exchange strategy, but here theinfluencer makes the conclusion that the target should have

made.

different. Recommendations, information exchange and promises aredominant influence strategies.

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Conclusion

In short, power is an infiltrated part of the marketing channels.There are five sources of power: Reward power, Coercive power,Legitimate power, Expert power and Referent power; and each ofthese have a different impact on the target organization. Whichof the strategies one organization will use depends of itsposition and what goals it wants to achieve.

Who in the dyad relationship holds the power depends on how muchone party in dependent on the other, which means the higher thedependence the lower the power and the other way around, thelower the dependence the higher the power. When the dependence isimbalanced, the stronger party can readily exploit or ignore theweaker one. The more dependent party can take countermeasuresincluding diversifying, forming a coalitions, bringing arbitrage,or exiting the business. There are many cases when the imbalancedrelationship works well; the key is restrained on the strongerparty.

Additionally, there are six influence strategies – strategies ofcommunications: promise, threat, legalisms, request, informationexchange and recommendations; and in the end, the organizationseventually come to use all six strategies in each of theirrelationships.

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References

Lewis (1968)

Bert Rosenbloom (Management Marketing Channels, 1999)

Coughlan et al. (2002)

Anne T.Coughlan, Erin Anderson, Louis W. Stern, Adel I. El-Ansary(Marketing Channels, 2006)

Shelby D. Hunt and John R. Nevin Journal of Marketing Research(1974)

Sudhir H. Kale, 1986,

Holly Buchanan, 1992

Buchnan, Laurine (1992, Vertical trade relationships)

http://en.wikipedia.org/wiki/Marketing_channel

http://en.wikipedia.org/wiki/French_and_Raven's_five_bases_of_power

http://www.businessdictionary.com/

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