Chapter09

Business Business Market Market

ManagementManagement

33rdrd edition edition

Sustaining Reseller Sustaining Reseller PartnershipsPartnerships

Chapter 9

Copyright © 2009 Pearson Education Publishing as Prentice Hall

Business Market Management, 3rd edition Chapter 9-2

Section IV: Section IV: Delivering ValueDelivering Value



Chapter 9: Sustaining Reseller Chapter 9: Sustaining Reseller PartnershipsPartnerships

OverviewOverview

I. Aligning Mutual Self-Interests and Complementary

Resources

II. Strengthening Partnerships in a Stable Marketplace

III. Responding Adaptively to Incremental Marketplace

Changes

IV. Transforming Channels in the Face of Disruptive

Forces

V. Summary



OverviewOverview

ResellerReseller partnership:partnership: mutual recognition

and understanding that the success of each

firm depends on the other firm

SustainingSustaining resellerreseller partnerships: partnerships:

continuing process of aligning mutual self-

interests with complementary resources of

partner firms in stable marketplaces



Strengthening Partnerships in Stable Marketplaces

Ensuring that Value is Delivered

Enhancing Interfirm

Coordination

Fulfilling Supplier Commitments

Fulfilling Reseller

Commitments

Responding Adaptively to Incremental Changes

Creating

AdaptiveChannels

Adjusting Commitments

Transforming Channels in the Face of Disruptive Forces

Establishing Integrated Multi-Channels

Skillfully Handling Relationship Transfers

Terminating Existing Partnerships

DeliveringDeliveringSuperior ValueSuperior Value

to Targetedto TargetedMarketMarket

SegmentsSegments andandCustomerCustomer FirmsFirms

Sustaining Reseller PartnershipsSustaining Reseller Partnerships



I. Aligning Mutual I. Aligning Mutual Self-Interests and Self-Interests and

Complementary ResourcesComplementary Resources


Mutual Self-Interests andMutual Self-Interests andComplementary ResourcesComplementary Resources

Business Marketing ChannelsShared goalsShared goalsDistinct individual goalsDistinct individual goals

Supplier firm and reseller firmSharing complementary resources and Sharing complementary resources and

capabilities increases likelihood that both capabilities increases likelihood that both achieve respective goalsachieve respective goals



Mutual Self-Interests andMutual Self-Interests andComplementary ResourcesComplementary Resources

Alignment: Alignment: Goal congruence exists among partner firms’ Goal congruence exists among partner firms’

self-interestsself-interests

Degree to which complementary resources and

capabilities enable partner firms to capitalize on

marketplace opportunities



Alignment DifficultiesAlignment Difficulties Law of Legitimate Law of Legitimate

Cross-Purposes: Cross-Purposes: supplier firms and reseller firms rely upon different profit models that are sometimes at odds Supplier: economies of Supplier: economies of

scalescaleResellers: economies Resellers: economies

of scopeof scope

Law of Perpetual Law of Perpetual Change: Change: evolving marketplaces may dramatically and unexpectedly alter the goals and resources of channel partners



Threat of OpportunismThreat of Opportunism

OpportunismOpportunism: : “self-interest seeking with guile”

1.1. Careful selection of honest and trustworthy partner Careful selection of honest and trustworthy partner

firmsfirms

2.2. Provision of incentives designed to thwart Provision of incentives designed to thwart

counterproductive behaviorscounterproductive behaviors

3.3. Diligent monitoring of partner firms’ activitiesDiligent monitoring of partner firms’ activities

4.4. Socialization of partner firm managers to the norms and Socialization of partner firm managers to the norms and

values associated with the pursuit of shared goalsvalues associated with the pursuit of shared goals



Ensuring AlignmentEnsuring Alignment

1. Understanding channel partners’ business models

2. Joint annual planning and periodic surveys

3. Continuously monitor the amount of conflict within

their marketing channels

4. Identify and pay attention to changes in the

marketplace that stand to misalign

the mutual self-interests of partner firms



Causes of Channel ConflictCauses of Channel Conflict Differences in goals Misunderstanding in relation to the

allocation of partnership responsibilities Differences in perceptions of the

marketplace


Conflict often masks misalignment and the Conflict often masks misalignment and the tendency of both supplier and reseller to avoid or tendency of both supplier and reseller to avoid or

““gloss over” conflicts. gloss over” conflicts. However, addressing disputes early and decisively is inHowever, addressing disputes early and decisively is in

the best interests of both parties.the best interests of both parties.


Ensuring Alignment Ensuring Alignment

Different scenarios:

Strengthening partnerships in a stable Strengthening partnerships in a stable

marketplacemarketplace

Responding adaptively to incremental Responding adaptively to incremental

marketplace changesmarketplace changes

Transforming channels in the face of disruptive Transforming channels in the face of disruptive

forcesforces Business Market Management, 3rd edition Chapter 9-13



II. Strengthening II. Strengthening Partnerships in a Stable Partnerships in a Stable

MarketplaceMarketplace


Strengthening Partnerships Strengthening Partnerships in a Stable Marketplacein a Stable Marketplace

Commitment: Commitment: captures the perceived continuity or growth in the relationship between two firmsDesire to develop stable relationsDesire to develop stable relationsWillingness to make short-term sacrifices to Willingness to make short-term sacrifices to

maintain the relationshipmaintain the relationshipConfidence in the stability of the relationshipConfidence in the stability of the relationship



Fulfilling Supplier Commitments to Fulfilling Supplier Commitments to Deliver ValueDeliver Value

Supplier Training:Supplier Training:Product knowledgeProduct knowledgeSelling skillsSelling skillsTechnical competenceTechnical competence

Reseller Courses:Reseller Courses:Customer applicationsCustomer applicationsChanging customer Changing customer

needsneedsOperational Operational

proceduresprocedures



Fulfilling Supplier Commitments to Fulfilling Supplier Commitments to Deliver ValueDeliver Value

Train and Coach Partner firmsCertification programsCertification programs

• Series of technical courses• Demonstrate competence (examinations)

Skills trainingSkills training• Courses on focused topics

CoachingCoaching• Improvement and reinforcement of

desired skills, behaviors, and performance • Strategic coaching• Skills coaching



Provide Responsive Sales and Provide Responsive Sales and Marketing ProgramsMarketing Programs

Product-Market Sales Analysis (PMSA)Analyzes the distributor’s product line by:Analyzes the distributor’s product line by:

• Geographic region• Market segment• Customer firm

Strategy includes:Strategy includes:• How to customize offerings for local customers• How to cross-sell the full line of products• Distributors given option for analyzing the data and

generating marketing development strategies Business Market Management, 3rd edition Chapter 9-18


Back Up Resellers with Back Up Resellers with Pricing SupportPricing Support

To keep reseller focused on delivering value, leading supplier firms promise pricing supportFinding cost reduction in customer’s plants Finding cost reduction in customer’s plants Large-order price discountsLarge-order price discountsInitial-use discountsInitial-use discountsDefeaturing pricingDefeaturing pricing



Furnish Operational and Furnish Operational and Technical SupportTechnical Support

Supplier firms can reduce the cost-to-serve customers by maintaining and providing operational and technical support in the form of:Inventory controlInventory controlLogisticsLogisticsCustomer service systems Customer service systems

Eliminating redundancies enablesreseller partners to offering a broader array of services at far lower costs



Fulfilling Reseller Commitments to Fulfilling Reseller Commitments to Deliver ValueDeliver Value

Reseller firms can boost their own reseller equity and enhance supplier firm’s brand equity by:Providing consistently superior service to customer firmsProviding consistently superior service to customer firms

Innovating in the local marketplaceInnovating in the local marketplace

Enhancing the supplier’s brand equityEnhancing the supplier’s brand equity• Offer new product ideas• Participate in quality improvement efforts



Strengthening Interfirm Strengthening Interfirm CoordinationCoordination

Coordination: Coordination: Customer and supplier firms synchronize their activities, resources, and capabilities to accomplish a collective set of tasksPeriodic joint annual planningPeriodic joint annual planningClarifying roles and responsibilities Clarifying roles and responsibilities

through written agreementsthrough written agreementsImproving communication through bridgingImproving communication through bridgingSynchronizing effort with Partner relationship Synchronizing effort with Partner relationship

management (PRM)management (PRM) Business Market Management, 3rd edition Chapter 9-22


Participate in Periodic Joint Participate in Periodic Joint Annual PlanningAnnual Planning

Supplier and Reseller firms participate in planning processBoth more likely to view plan as theirs and work Both more likely to view plan as theirs and work

hard to implement ithard to implement it• What do we know?• What do we want to accomplish?• How will we do it?

Reseller Marketing PlanReseller Marketing Plan• Situational analysis (SWOT)• Mutual objectives• Basic requirements• Implementation and control



Written AgreementsWritten Agreements

Equitable sales agreementsSharpen expectations and Sharpen expectations and

direct the actions of both firmsdirect the actions of both firms

Policy manualsDetailed descriptions of tasks Detailed descriptions of tasks

each member should performeach member should perform

Policy statementsDetailed statement of changes and Detailed statement of changes and

modifications in a specific policymodifications in a specific policy



Improve Communications Improve Communications Through BridgingThrough Bridging

Communication: Communication: formal and informal sharing of meaningful and timely information between firms

Bridging: Bridging: establishing and sustaining communication between partner firms across functions and management levelsOccasional phone callsOccasional phone callsLettersLettersOcassionally holidaying Ocassionally holidaying

togethertogether



Synchronize Efforts with aSynchronize Efforts with aPartner Relationship Management SystemPartner Relationship Management System Partner Relationship Management (PRM): Partner Relationship Management (PRM):

business regimen that enhances the ability of the supplier firm, reseller, and third-party service provider to seamlessly integrate and synchronize their:OperationsOperationsSellingSellingMarketingMarketingServicing effortsServicing efforts

Internet or Extranet Based Software Business Market Management,

3rd editionChapter 9-26


Ensuring that Value is DeliveredEnsuring that Value is Delivered

Conduct Market ResearchWas Total customer experience (TCE) Was Total customer experience (TCE)

promised to customer firm provided?promised to customer firm provided?Customer Satisfaction StudiesCustomer Satisfaction StudiesCustomer Value Assessment StudiesCustomer Value Assessment Studies

Get Equitable Return on Delivered ValueHave they received an equitable return on the Have they received an equitable return on the

value they delivered?value they delivered?



Market ResearchMarket Research

How research findings are used:1.1. Reseller and suppliers reexamine what each Reseller and suppliers reexamine what each

contributes to the delivery of TCEcontributes to the delivery of TCE

2.2. Supplier adapts its channel offering to better Supplier adapts its channel offering to better motivate and enable resellers to service motivate and enable resellers to service customerscustomers

3.3. Findings might point to needed improvement Findings might point to needed improvement in supplier and reseller coordinationin supplier and reseller coordination



Equitable Return on Delivered ValueEquitable Return on Delivered Value

Evaluate channel financial performance to determine:Have supplier and its reseller firms realized Have supplier and its reseller firms realized

the financial returns expected?the financial returns expected?New ways to achieve their cost-to-serve goalsNew ways to achieve their cost-to-serve goals



Diagnostic Measure and Diagnostic Measure and Profitability AnalysesProfitability Analyses

1. Calculate specific profitability and other performance

ratios for the firm’s channels

2. Compare each ratio to industry averages

3. Ratios are used to track performance over time, to

compare relative performance of two firms, and to

make cross-industry comparisons


Note: Suppliers and reseller rely on Note: Suppliers and reseller rely on different sets of performance ratiosdifferent sets of performance ratios



Diagnostic MeasuresDiagnostic Measures

PARsPARs

Performance Activity Reports. Performance Activity Reports. Trade associations and consulting firms commonly compile and publish industry averages.

If firm’s ratio is close to the industry average, then it is doing acceptably well on that dimension.

E/R RatiosE/R RatiosExpense-to-Revenue RatiosExpense-to-Revenue Ratios. Suppliers evaluate: 1) customer communication, 2) paperwork flows, 3) physical distribution, and 4) financial risk assumptions

Turns X Turns X earnsearns

GMROIGMROI

GMRORGMROR

Annual Inventory Turnover

X AverageGross Margin

AverageGross Margin

÷ AverageInventory

AverageGross Margin ÷

AverageAccounts

Receivables


Strategic Cost Management (SCM): Strategic Cost Management (SCM): 4-Step Approach4-Step Approach

1. Divide organization’s cost into Activity costs (order processing; selling costs)Activity costs (order processing; selling costs) Non-activity costs (advertising, trade shows)Non-activity costs (advertising, trade shows)

2. Subdivide and classify these costs as: Channel-related or Channel-related or Specific reseller-related costsSpecific reseller-related costs

3. Trace each cost back to individual channels or resellers

4. Estimate revenues channels or resellers generate and then construct direct costing income statements

These analyses enable managers to examine the profitability of channels or resellers.




Profitable AnalysesProfitable Analyses

SCMSCMStrategic Cost Management: Strategic Cost Management: Recasts the direct costing income statement around distribution-related activities

ContributionContribution

MarginMarginSales – Variables Costs

Net Net Marketing Marketing

ContributionContribution

ContributionMargin

_ Controllable Marketing Fixed Costs



III. Responding Adaptively to III. Responding Adaptively to Incremental Marketplace Incremental Marketplace

ChangesChanges


Adjusting CommitmentsAdjusting Commitments

Establish a Reseller Advisory CouncilReseller Advisory Council Reformulate channel partners’ “Gives & Gets”“Gives & Gets” Make responsive adjustments to the Joint Joint

Annual PlanAnnual Plan Seek influence among channel partner firms Establish a process and procedures for conflict conflict

resolutionresolution



Reseller Advisory CouncilReseller Advisory Council Consultative forum composed of key managers from

supplier and 10-15 reseller firms Advisory group offers counsel to supplier Functions as a means of incremental channel

improvement Council improves:

Market responseMarket response New product and service marketingNew product and service marketing Channel management Channel management

(domestic & international)(domestic & international)



Gives & GetsGives & Gets GivesGives: : specific

investments and resources a firm contributesKnowledgeKnowledgePersonnelPersonnelFixed assetsFixed assetsCashCash

Gets: Gets: specific gains a firm receivesGreater expertiseGreater expertiseEnhanced capabilitiesEnhanced capabilitiesAdditional profitsAdditional profits


Disconnects between partner firms can occur here;Disconnects between partner firms can occur here;what one channel member thinks it is what one channel member thinks it is givinggiving can be can be significantly different from what the other partner significantly different from what the other partner perceives it is perceives it is gettinggetting..



Traditional Reseller Discounts and AllowancesTraditional Reseller Discounts and Allowances

Trade or Functional

Discount

Percentage reduction from a suggested resale priceHistorical industry discountsIndustry gross margin averagesTurns x earns ratios

Quantity or Volume

Discount

Designed to motivate reseller to buy in large quantities and store local inventory (box loads, truckloads, and rail carloads)

Payment Discount

Encouragement to pay for goods immediately2/10/net 30 (2% reduction of invoice price paid within 10 days)

AllowanceExtra payment designed to gain reseller participation in special programs (cooperative advertising, merchandising, etc.)


Eliminating InequitiesEliminating Inequities Evaluate both partners’ “gives & gets”

Functional AllowanceSupplier pays reseller set percent off the reseller buy Supplier pays reseller set percent off the reseller buy

priceprice

Fee-for-ServiceSupplier pays its reseller partners a prespecified Supplier pays its reseller partners a prespecified

amountamount

On RetainerAmount of technical service days/hours expected Amount of technical service days/hours expected

from distributor partner for customer service from distributor partner for customer service (paid (paid whether service is provided or not)whether service is provided or not)



Responsive Adjustment to Joint Annual PlanResponsive Adjustment to Joint Annual Plan

Reseller market plans provide a coordinated course of actionMust respond to incremental Must respond to incremental

market changes quicklymarket changes quicklyMarket conditions change Market conditions change Suppliers and resellers learn Suppliers and resellers learn

through implementing the initial through implementing the initial planplan

Progressive suppliers and Progressive suppliers and resellers adjust existing plans resellers adjust existing plans when necessarywhen necessary



Seek Influence Among Channel Seek Influence Among Channel Partner FirmsPartner Firms

Six influence strategies for gaining and using power:Information exchangeInformation exchangeRecommendationsRecommendationsPromisesPromisesThreatsThreatsLegalistic pleasLegalistic pleasRequestsRequests



Seek Influence among Channels Seek Influence among Channels Partner FirmsPartner Firms

How can the weaker firm ensure that its more powerful partner will treat it fairly?

Dependence-Balancing Dependence-Balancing Operations:Operations:Courses of action weaker Courses of action weaker

firms pursue to equalize the firms pursue to equalize the importance of the partnershipimportance of the partnership

1) Make greater investments in partnership until resources committed by both firms is roughly equal

2) Seek out other partners

3) Change non-redeployable assets into redeployable assets



Creating Adaptive ChannelsCreating Adaptive Channels Adaptive Channels: Adaptive Channels: Flexible and responsive

to changing marketplace requirementsWebs of capabilities embedded in an Webs of capabilities embedded in an

extended enterpriseextended enterpriseIdentify infrequent, yet critical customer Identify infrequent, yet critical customer

requirements that they cannot routinely fulfill requirements that they cannot routinely fulfill on their ownon their own



Adaptive Channel InitiativesAdaptive Channel Initiatives1. Design arrangements that ensure they are routinely

able to cope with unpredictable or unusual

demands for products or services.

2. Focus on meeting customers’ growing demands for

broader market offerings.

3. Objective is to improve the quality of service

throughout the distribution channel.



Provide Support in Extraordinary SituationsProvide Support in Extraordinary Situations

Auxiliary Support SystemsAuxiliary Support SystemsDistribution channel members cope withDistribution channel members cope with

• Unexpected or unusual demands for products/services by sharing inventory and support services

Information technology monitors the availability of:– offerings– processes – orders– integrated logistics systems




Resolving Reseller-Supplier ConflictResolving Reseller-Supplier ConflictBoundary-Boundary-Spanning Spanning PersonnelPersonnel

Individuals who are in contact with the partner firm regularly; sensitive to inherent trouble spots

Employee Employee Exchange Exchange

ProgramProgram

Firms assign personnel for periods time to channel partner operations

Trade Trade Association Association MembershipMembership

Both the supplier firm and channel partners can learn how the other operates and what problems they must routinely address

OmbudsmanOmbudsmanTypically a retired reseller manager or principal employed by the supplier who has credibility with both parties

MediationMediation A third party is brought in to help resolve a dispute by either refocusing discussion on key issues or suggesting viable solutions

ArbitrationArbitrationFirms legally agree to have a third party settle the disagreement. Decision is final and binding.


Responsively Broaden the Responsively Broaden the Market OfferingMarket Offering

Companies outsource supply management function

Reseller AlliancesMembers agree to pool resources and capabilities Members agree to pool resources and capabilities

and broaden one another's market offeringand broaden one another's market offering

Consortium: resellers of complementary lines Consortium: resellers of complementary lines contribute equity and create a separate corporationcontribute equity and create a separate corporation



Share Capabilities with Other Share Capabilities with Other Channel MembersChannel Members

Companies tend to do an outstanding job with some services and a mediocre job with others

To overcome discrepancies, suppliers and resellers adopt:

Capabilities-Sharing AgreementsCapabilities-Sharing Agreements• Superior service of one channel member substitutes for the

sub par service of another• Channel members receive appropriate compensation for

sharing their superior service capabilities




IV. Transforming Channels IV. Transforming Channels in the Face of Disruptive in the Face of Disruptive

ForcesForces


Transforming Channels in the Transforming Channels in the Face of Disruptive ForcesFace of Disruptive Forces

Major structural changes within the marketplace Growth of the internet and mobile telephonesGrowth of the internet and mobile telephonesShift in power from supplier firm to customer and Shift in power from supplier firm to customer and

reseller firmreseller firmCommodization or technological obsolescence of Commodization or technological obsolescence of

many productsmany productsGrowing importance of service as Growing importance of service as

the primary source of customer valuethe primary source of customer value



Creating Integrated Multi-ChannelsCreating Integrated Multi-Channels

Customer firms routinely search and patronize multiple channelsWhose customer is it?Whose customer is it?

• Both supplier and reseller managers should integrate and synchronize their efforts at serving their mutual customers

• Channel StewardChannel Steward– coordinates activities for mutual benefit



Integrated Multi-ChannelsIntegrated Multi-Channels

Routine arrangements that address all sales and fulfillment tasks

Provide business market managers with numerous alternative channel configurationsAble to quickly respond to changing customer Able to quickly respond to changing customer

requirementsrequirements



Handling Relationship TransfersHandling Relationship Transfers Delineate Relationship Transfer Criteria

Economies of scaleEconomies of scaleKey for both channel partners is to identify the Key for both channel partners is to identify the

relevant sales breakpoint, at which relevant sales breakpoint, at which relationship transfers from one to the other (to relationship transfers from one to the other (to supplier if sales per time period is above the supplier if sales per time period is above the breakpoint and to reseller if below)breakpoint and to reseller if below)

Changes in customer TCE requirements may Changes in customer TCE requirements may also indicate the need to transfer relationshipsalso indicate the need to transfer relationships

Establish Equitable Compensation for Relationship Transfers



Terminating PartnershipsTerminating Partnerships Suppliers, reseller, and third-party service provider

managers should enter into the relationship with the sober realization that arrangements are not likely to last foreverContract renewal clauseContract renewal clauseConditions under which partnership termination are likely Conditions under which partnership termination are likely

should be addressed in the agreementshould be addressed in the agreementProcedures for termination should be delineatedProcedures for termination should be delineatedTermination should be civil Termination should be civil

and courteousand courteous




V. SummaryV. Summary



SummarySummary To sustain reseller partnerships, supplier and reseller managers

must continuously align their mutual self-interests and

complementary resources Strengthen partnerships in stable marketplaces

Respond adaptively to incremental marketplace changes

Transform channels in the face of disruptive forces

The nature and extent of realignment efforts varies as a function of

marketplace conditions

The principle managerial tasks are: Fulfilling commitment to one another

Ensuring customer value is delivered

Enhancing interfirm coordination

When marketplace changes are disruptive, the channel steward

must act to transform the channel network



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means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the

United States of America.

Copyright © 2009 Pearson Education, Inc. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice HallPublishing as Prentice Hall

Chapter09

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