The paper "Understanding What Drives Channel Choice" is a perfect example of a Marketing Assignment. The basic underpinning of any commercials operations is the motive behind the same. The motive comes from the sense of either being benefited or being protected from any sort of punishment (Hunt & Nevin, 1974). The given statement is just the extension of the aforesaid premises. In any supply chain, the channel partners work in a dynamic state of affairs. The relationship among these partners or the entity is always governed by some or other motives as discussed above.
It may be a reward or fear of punishment (El-Ansary & Stern, 1972). The later one is formally called as the power of Coercion. It is the fear of punishment that often drives some of the channel partners to obey other entities in the supply chain. The partner exhibiting the power of coercion has the capability and power to make some other partners believe that if they do not do as expected, then there are chances that they would get punished and that would, in turn, hurt their business (Etgar, 1978). Going at the core of these issues, it is very apparent that ultimately, its power of the entities exhibiting it runs the supply chain dynamics.
In the absence of this power, the relationship will not be functional and there would be total anarchy. The power makes sure that all the partners work under mutually agreed channel dynamics. The channel relationship in the core is determined by the exhibition and the sense of power. Be it a reward or the coercion, they both represent the power dynamics.
The reward is nothing but the direct business benefit extended to any entity. On the contrary, coercion is a kind of negative reward. The one who exhibits the power of coercion makes it clear to the one being coerced that punishment is imminent if the relationship criteria are not adhered to. Now there is another aspect to this channel dynamics. The power on its own does not drive the whole channel dynamics that we are talking about. The power is ultimate runs in monetary terms in any supply chain. It is the money that ultimately decides the direction of the flow of power.
It ultimately the monetary supremacy that the partners want to establish or it is the monetary loss that the partners want to avoid. Thus it is quite apparent that though the power decides the channel dynamics, it’ s the money that decides the direction of the exhibition of power by the channel partners (Dukes, Gal-Or & Srinivasan, 2006). Let us understand the same through some examples. Let us consider the case of the Australian retail sector. If any major global consumer product company wants to enter the market, then it would definitely be obliging the retail giants of the domestic markets.
If we closely analyze this condition then it would be clear that, though the consumer goods company may be a major player in the global market, its entry into the new market would be dependent on the reaction of the retails players of the domestic market. Here the retails players will decide the terms of the trade and not the consumer goods company. The power that the retails players are exhibiting can either be reward power or coercive power.
Through reward power, the retail player will make the consumer goods company believe that it would get the rewards in terms of higher sales if they accept the terms of the trade laid down by them. On the other hand, the coercion will be in terms of dictating the consumer goods company as if it does not heed to the terms then it may be barred from selling its product through the retail stores and this would result in poor recovery or sales.
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