Legal and Ethical Issues in Channel Relations
For the most part, companies are legally free to develop whatever channel arrangements suit them. In fact, the law seeks to prevent companies from using exclusionary tactics that might keep competitors from using a channel. Here we briefly consider the legality of certain practices, including exclusive dealing, exclusive territories, tying agreements, and dealers' rights.
^ Exclusive dealing. A strategy in which the seller allows only certain outlets to carry its products is called exclusive distribution, and when the seller requires that these dealers not handle competitors' products, this is called exclusive dealing. Both parties benefit from exclusive arrangements: The seller obtains more loyal and dependable outlets, and the dealers obtain a steady source of supply of special products and stronger seller support. Exclusive arrangements are legal as long as (1) they do not substantially lessen competition or tend to create a monopoly, and (2) both parties have voluntarily entered into the agreement.
^ Exclusive territories. Exclusive dealing often includes exclusive territorial agreements. The producer may agree not to sell to other dealers in a given area, or the dealer may agree to sell only in its own territory. The first practice increases dealer enthusiasm and commitment and is perfectly legal—a seller has no legal obligation to sell through more outlets than it wishes. The second practice, whereby the producer tries to keep a dealer from selling outside its territory, is a major legal issue.
^ Tying agreements. The producer of a strong brand sometimes sells it to dealers only if they will take some or all of the rest of the line. This practice is called full-line forcing. Such tying agreements are not necessarily illegal, but they do violate U.S. law if they tend to lessen competition substantially.
^ Dealers' rights. Producers are free to select their dealers, but their right to terminate dealers is somewhat restricted. In general, sellers can drop dealers "for cause." But they cannot drop dealers if, for example, the dealers refuse to cooperate in a doubtful legal arrangement, such as exclusive dealing or tying agreements.
The next chapter examines the marketing strategies and challenges of retailers and wholesalers as channel members.
EXECUTIVE SUMMARY
Most producers do not sell their goods directly to final users. Between producers and final users stands one or more marketing channels, a set of marketing intermediaries performing a variety of functions. Companies use intermediaries when they lack the financial resources to carry out direct marketing, when direct marketing is not feasible, and when they can earn more by going through intermediaries. The use of intermediaries largely boils down to their superior efficiency in making goods widely available and accessible to target markets. The most important functions performed by intermediaries are gathering information, handling promotion, handling negotiation, placing orders, arranging financing, taking risks, and facilitating physical possession, payment, and title.
Manufacturers have many alternatives for reaching a market. They can sell direct through a zero-level channel or use one-, two-, or three-level channels. Deciding which type(s) of channel to use calls for analyzing customer needs, establishing channel objectives, and identifying and evaluating the major alternatives. The company must also determine whether to distribute its product exclusively, selectively, or intensively, and it must clearly spell out the terms and responsibilities of each channel member.
Effective channel management calls for selecting intermediaries, then training and motivating them. The goal is to build a long-term partnership that will be profitable for all channel members. Individual members must be evaluated periodically against preestablished standards, and overall channel arrangements may need to be modified over time. Three of the most important trends in channel dynamics are the growth of vertical marketing systems, horizontal marketing systems, and multichannel marketing systems.
All marketing channels have the potential for conflict and competition resulting from such sources as goal incompatibility, poorly defined roles and rights, perceptual differences, and interdependent relationships. Companies can manage conflict by striving for superordinate goals, exchanging people among two or more channel levels, coopting the support of leaders in different parts of the channel, and through diplomacy, mediation, or arbitration to resolve chronic or acute conflict.
Channel arrangements are up to the company, but there are certain legal and ethical issues to be considered with regard to practices such as exclusive dealing or territories, tying agreements, and dealers' rights.
Continue reading here: Step 6 Developing and Managing the Marketing Communications Mix
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