Investigation channel power and satisfaction in a marketing channel

Fengyi. Wu, and Yuehhua. Lee

 no longer separate firms that complete all operational Abstract—Numerous previous studies have shown that in the activities independently; instead, they are gradually becoming current complex business environment, the competition faced by a member of the marketing channel system. Furthermore, business organizations is no longer mere interfirm competition, but relationship quality is gaining increasing influence on also interchannel competition caused by adapting to industry collaboration in partner relationships. Therefore, this study globalization. Considering this trend, this study discusses the correlation between channel power theory, relationship commitment discusses number of topics including the channel power types, and channel satisfaction. This study employs the food industry as the the measurement construct for relationship quality, and the research subject. The results provide non-coercive power had a channel satisfaction types. We hoped the research would positive and significant impact on the channel firms’ communication identify the factors influencing channel satisfaction and serve and commitment, as well as the supplier communication and as a reference for organizations to allocate their resources commitment had a positive and significant impact on the economic appropriately, thereby earning long-term competitive satisfaction and non-economic satisfaction of channel firms. advantages. Keywords—Channel power, relationship quality, satisfaction. II.CHANNEL POWER, RELATIONSHIP QUALITY AND SATISFACTION I. INTRODUCTION Channel power results from channel members’ perception ELEVANT studies have demonstrated that the exertion of reward and punishment behavior, recognition, professional Rof channel power and channel relationships have a knowledge, and skills. Thus, channel power can be significant influence on relationship quality [7], [15], [16], categorized into five main types, namely rewards power, [28], [33]. The feeling experienced by channel members coercive power, legitimate power, referent power, and expert affects their organization’s decision-making behaviors; power. The five types of power all have a substantial impact, members’ perception of channel power results in the especially for channel members such as suppliers or categorization of channel power [28]. In their studies on distributors. These powers demonstrate intention, their aim is channel relationship between distributors, numerous scholars changing the other party’s decision, execution, and, on a emphasized the importance of satisfaction [4], [14]. The psychological level, their cognition [1], [3], [9], [29], [35]. satisfaction is a typical assessment criteria used in channel In numerous studies, communication is considered a factor marketing [24]. The perceived value of relationship quality involved in the successful development of long-term provides organizations the opportunity to obtain more relationships. From the people perspective, communication is customers. With the wide variety of brick and mortar, or a way of establishing and maintaining a sound relationship virtual channels, customers can now use these options, which between different groups or partners who are closely may further affect the correlation between their satisfaction connected. Communication has a positive impact on channel and loyalty. The positive or negative outcome from the power and satisfaction [1], [21], [22]. interactive relationship between buyers and sellers in modern In channel allocation, asymmetry in channel power is channels is influenced by their perception of relationship because of the inability to exercise channel power. This leads quality. In marketing relationship, commitment and trust both to the relatively more powerful channel members taking have a positive impact on factors such as compliance, advantage of other members’ fear, which has an adverse collaboration, conflict, communication, and uncertainty [5], impact on the partners’ perception and intrinsic trust of each [26], [38]. other. The use of coercive and non-coercive power in channel The complexity of the channel environment, diversity in the power affects partners’ perception of honesty and benevolence modern market, and emphasis on professional job assignment regarding trust between channel members. Asymmetric channel power causes further imbalance, instability, and and strategic alliance mean organizations in an industry are reduced trust in channel partner relationships. Therefore, asymmetry in channel power is closely related to the Fengyi Wu. is Doctoral with the Graduate Institute of Management Sciences, Tamkang University, Tamsui, Taipei. And Adjunct Instructor with deterioration of trust. Coercive power is a type of the Department of Marketing and Logistics Management, Chihlee Institute of opportunistic behavior rather than an act to offer other Technology, Bancial, Taipei (corresponding phone: +886-9-10539586; e- members expediency; the use of coercive power reduces trust mail: [email protected] ). Yuehhua Lee is Associate Professor with Tamkang University, Tamsui, between collaborating partners [1], [8], [36]. Taipei (e-mail: [email protected]) Literature discussions on commitment in organizations and buyer behavior also present very important perspectives. In this study, channel power is categorized into coercive Commitment refers to the long-term interactive behavior with power and non-coercive power. Coercive power refers to the cooperative values that partners demand, it is a promise in the power to impose punishment on people who disobey orders; tightly connected social exchange relationships between non-coercive power is further categorized into reward power, channels and organizational partners [6], [23], [25], [32], [37]. legitimate power, referent power, and expert power and used Channel power has a significant impact on strategies, to provide benefits to organizations. This study adopted the relationship commitment, and collaboration. In the current channel power scales developed to construct the questionnaire. complex and competitive marketplace, to build a long-term [10], [30], [40]. When partners work with one another to channel relationship, numerous suppliers and distributors rely achieve congruent objectives, they show relationship on the mutual commitment regarding relationship quality. commitment. Additionally, they conduct transactions with Studies have found that from the perspective of distributor, the appropriate behavior to maintain and strengthen the long-term use of coercive power by suppliers restricts and confines the collaborative relationship. The relationship commitment commitment partners have toward each other. The use of non- question items were developed from the modification of the coercive power has a positive effect on partnership by scales proposed by [28] and [31]. The channel satisfaction is strengthening the commitment, whereas coercive power has a categorized into economic satisfaction and non-economic negative effect on partnerships by weakening the commitment satisfaction. Economic satisfaction arises from the channel [16], [20], [27], [33], [34], [39]. members gaining economic benefits, whereas non-economic In marketing relationship, channel satisfaction is not one- satisfaction is achieved when members feel valued, happy, and dimensional but can also be further developed into economic satisfied. This study adopted the channel satisfaction scales satisfaction and non-economic satisfaction, or psychological proposed by [14] and [31] and categorized satisfaction into satisfaction or social satisfaction [11], [12], [15], [14]. economic satisfaction and non-economic satisfaction. This Economic satisfaction is achieved when members of the study used a seven-point Likert scale for the questionnaire channel network system value channel relationships, the items; the respondents answered the questions using a scale of objective achievement rate, partner efficiency and 1 to 7, which indicated “strongly disagree,” “disagree,” productivity, and the growth in financial resource allocations; “slightly disagree,” “neither agree nor disagree,” “slightly non-economic satisfaction arises from factors such as the agree,” “agree,” and “strongly agree.” importance members place on their interactions with partners, how strongly their missions and goals are connected, the IV. RESULT proactive sharing and discussion of their operational designs, This study used the t-value and standardized parameter and the level of respect experienced. The two types of estimates to determine whether the hypotheses are supported. satisfaction differ in that members of the distribution channels Positive standardized parameter estimation values indicate that can contribute in ways (such as stock turnover, marginal the test results have a positive correlation; conversely, profit, and transaction discounts) that lead to the economic negative standardized parameter estimation values indicate the satisfaction of commercial partners they interact with as test results have a negative correlation. Non-coercive power appropriate. However, they may be required to provide has a positive impact on the distributor’s communication. elements that can lead to further social or psychological Non-coercive power also has a positive impact on the satisfaction, such as demonstrating behaviors deemed as distributor’s commitment. Communication has a positive meaningful, which can lead to feeling naturally satisfied [14], impact on trust. Trust has a positive impact on commitment. [15], [31]. The greater the supplier’s communication, the greater the economic satisfaction of the distributor. The greater the III. RESEARCH METHODOLOGY supplier’s communication, the greater the non-economic This study employed confirmatory factor analysis (CFA) to satisfaction of the distributor. The greater the supplier’s measure the scale’s construct validity, which includes commitment to the distributor, the greater their economic convergent validity and discriminant validity. Convergent satisfaction. The greater the supplier’s commitment to the validity indicates that the measurement results of the same distributor, the greater their non-economic satisfaction. dimension are highly correlated, and this validity can be determined using the composite reliability and average V. MANAGERIAL IMPLICATIONS variance extracted. This study adopted the threshold values With information becoming increasingly transparent, suggested determined that the standardized factor loading developments in the way information is exchanged, and should exceed 0.6; the composite reliability should exceed 0.7; advancements in Internet applications and communication the average variance extracted should exceed 0.5 to indicate technologies, business organizations now enjoy a commercial that convergent validity exists [18]. The final results appear in environment with no boundaries or time constraints. In the Table I. Lastly, it is observed that the goodness of fit statistic globalized business environment, one key development area 2 is acceptable. The χ / df (2.085), GFI (0.854), AGFI (0.820), for businesses is to incorporate different local cultures, RMSEA (0.065), and NFI (0.892) achieved the suggested locations, and industry backgrounds in their organizational thresholds [2], [13], [17], [19]. management and models. Traditional business models focused TABLE I CFA RESULTS Measurement Factor Standardized Composite Latent variable t-value AVE Cronbach’s α Goodness of fit variable loading error reliability CP2 0.926 - - χ2/ df=2.085 Coercive Power CP1 0.876 0.046 20.942 0.907 0.765 0.905 GFI=0.854 CP3 0.819 0.049 18.918 AGFI=0.820, NCP3 0.887 - - RMSEA=0.065 NCP5 0.883 0.044 22.372 NFI=0.892 Non-coercive NCP4 0.860 0.048 21.151 NNFI=0.932 0.935 0.706 0.933 Power NCP2 0.844 0.050 20.356 NCP6 0.810 0.049 18.832 NCP1 0.750 0.060 16.461 CMU2 0.839 - - Communication CMU3 0.907 0.049 20.400 0.892 0.735 0.897 CMU1 0.824 0.054 17.533 TR4 0.878 - - TR2 0.865 0.051 21.076 Trust 0.923 0.751 0.926 TR3 0.862 0.045 20.924 TR1 0.861 0.047 20.864 CMM3 0.868 - - Commitment CMM2 0.895 0.046 21.819 0.909 0.768 0.908 CMM 1 0.866 0.057 20.474 ES4 0.858 - - Economic Satisfa ES3 0.883 0.046 20.676 0.918 0.738 0.919 ction ES2 0.866 0.050 19.973 ES1 0.828 0.053 18.434 NES2 0.910 - - Non-economic NES3 0.905 0.042 24.564 0.920 0.792 0.920 Satisfaction NES1 0.854 0.043 21.619 on benefits for the organization itself; suppliers and [5] G. H. V. Bruggen, M. Kacker, and C. Nieuwlaat, “The impact of channel function performance on buyer-seller relationships in marketing distributors often had conflicting relationships. Nowadays, channels,” Int. J. of Research in Marketing, vol. 22, pp. 141–158, 2005. markets worldwide are considered a single market because of [6] K. S. Cook, and R. M. Emerson, “Power, Equity and Commitment in globalization. The key to achieving critical advantages is Exchange Networks,” American Sociolo. Review, vol. 43, pp. 721–739, Oct. 1978. offering a comprehensive supply chain system. Emphasis is [7] M. Duarte, and G. Davies, “Trust as a mediator of channel power,” J. of currently on enhancing the supplier-distributor relationship to Marketing Channels, vol. 11, no. 2/3, pp. 77–102, 2004. create mutual benefits and win-win situations. [8] G. L. Frazier, and J. O. Summers, “Perceptions of Interfirm Power and This study found that in the food industry, the perception Its Use Within a Franchise Channel of Distribution,” J. of Marketing Research, vol. 23, pp. 169–176, May. 1986. that the supplier-distributor relationship is complex is reflected [9] J. French, and B. Raven, The Bases of Social Power. in D. Cartwright, in their communication and commitment. When suppliers use Eds. Studies in Social Power, Ann Arbor, Michigan: University of coercive power, distributors do not tend to display strong Michigan Press, 1959, pp. 150–167. [10] J. F. Gaski, and J. R. Nevin, “The differential effects of exercised and feelings regarding the communication and commitment, unexercised power sources in a marketing channel,” J. of Marketing whereas when suppliers use non-coercive power, distributors Research, vol. 22, no. 2, pp. 130–142, 1985. show strong feelings regarding communication and [11] J. B. Gassenheimer, R. J. Calantone, and J. I. Scully, “Supplier involvement and dealer satisfaction: Implications for enhancing channel commitment. This leads to distributors experiencing better relationships,” J. of Business and Ind. Marketing, vol. 10, no. 2, pp. 7– channel satisfaction with their suppliers and a higher 19, 1995. expectation of having a long-term collaborative relationship [12] J. B. Gassenheimer, J. U. Sterling, and R. A. Robicheaux, “Longterm channel member relationships,” Int. J. of Physical Distribution and with suppliers. Therefore, suppliers must continuously adjust Logistics Manage., vol. 26, no. 5, pp. 94–116, 1996. their strategies according to distributor needs to maximize [13] D. Gefen, “E-Commerce : The Role of Familiarity and Trust,” The Int. mutual benefits between partners. J. of Manage. Sci., vol. 28, no. 6, pp. 725–737, Sep. 2000. [14] I. Geyskens, and J-B. E. M. Steenkamp, “Economic and social satisfaction : Measurement and relevance to marketing channel REFERENCES relationships,” J. of Retailing, vol. 76, no. 1, pp. 11–32, 2000. [1] E. Anderson, and B. Weitz, “Determinants of Continuity in [15] I. Geyskens, J-B. E. M. Steenkamp, and N. Kumar, “A meta-analysis of Conventional Industrial Channel Dyads,” J. of Marketing Sci., vol. 8, no. satisfaction in marketing channel relationships,” J. of Marketing 4, pp. 310–323, 1989. Research, vol. 36, no. 2, pp. 223–238, 1999. [2] R. P. Bagozzi, and Y. Yi, “On the evaluation of structural equation [16] L. E. Goodman, and P. A. Dion, “The determinants of commitment in models,” J. of the Academy of Marketing Sci., vol. 16, no. 1, pp. 74–94, the distributor-manufacturer relationship,” J. of Marketing, vol. 30, no. 1988. 3, pp. 287–300, 2001. [3] J. R. Brown, J. L. Johnson, and H. F. Koenig, “Measuring the sources of [17] J. F. Hair, W. C. Black, B. J. Babin, R. E. Anderson, and R. L. Tatham, marketing channel power : A comparison of alternative approaches,” Multivariate Data Anal. 6th Eds. New Jersey : Prentice Hill, 2006. Int. J. of Research in Marketing, vol. 12, no. 4, pp. 333–354, 1995. [18] J. F. Hair, R. L.Tatham, R. E. Anderson, and W. Black, Multivariate [4] J. R. Brown, R. F. Lusch, and L. P. Smith, “Conflict and satisfaction in Data Anal. 7th Eds. New Jersey : Prentice Hill, 1998. an industrial channel of distribution,” Int. J. of Physical Distribution and [19] K. T. Hau, Z. Wen , Z. Chen, Structural Equation Model and Its Logistics Manage., vol. 21, no. 6, pp. 15–25, 1991. Applicat. China, Beijing : Educational Science Publishing House, 2004. [20] T. L. Hu, and J. B. Sheu, “A Fuzzy-Based Customer Classification Method for Demand-Responsive Logistical Distribution Operations,” Fuzzy Sets and Syst., vol. 139, no. 2, pp. 431–450, 2003. [21] C. Lages, C. R. Lages, and L. F. Lages, “The RELQUAL scale : a measure of relationship quality in export market ventures,” J. of Business Research, vol. 58, no. 8, pp. 1040–1048, 2005. [22] R. F. Lusch, and J. R. Brown, “Interdependency, Contracting, and Relational Behavior in Marketing Channels,” J. of Marketing, vol. 60, pp. 19–38, Oct. 1996. [23] J. P. Meyer, and N. J. Allen, “Testing the Side-Bet Theory of Organizational Commitment : Some Methodological Considerations,” J. of Applied Psychology, vol. 69, no. 3, pp. 372–378, 1984. [24] J. J. Mohr, R. J. Fisher, and J. R. Nevin, “Collaborative communication in interfirm relationships : Moderating effects of integration and control,” J. of Marketing, vol. 60, no. 3, pp. 103–115, 1996. [25] C. Moorman, R. Deshpandé, and G. Zaltman, “Factors Affecting Trust in Market Relationships,” J. of Marketing, vol. 57, no. 1, pp. 81–101, 1993. [26] R. M. Morgan, and S. D. Hunt, “The Commitment-Trust Theory of Relationship Marketing,” J. of Marketing, vol. 58, no. 3, pp. 20–38, 1994. [27] D. Narayandas, and V. K. Rangan, “Building and sustaining buyer-seller relationships in mature industrial markets,” J. of Marketing, vol. 68, no. 3, pp. 63–77, 2004. [28] B. Ramaseshan, L. S .C. Yip, and J. H. Pae, “Power, satisfaction, and relationship commitment in Chinese store-tenant relationship and their impact on performance,” J. of Retailing, vol. 82, no. 1, pp. 63–70, 2006. [29] B. H. Raven, and A. W. Kruglanski, Conflict and Power. in Paul Swingle (ed.), The Structure of Conflict. New York: Academic Press, pp. 69–109, 1970. [30] M. Y. A. Rawwas, S. J.Vitell, and J. H. Barnes, “Management of conflict using individual power sources : A retailers' perspective,” J. of Business Research, vol. 40, no. 1, pp. 9–64, 1997. [31] I. R. B. Rodríguez, J. C. Agudo, and H. S. M . Gutiérrez, “Determinants of economic and social satisfaction in manufacturer-distributor relationships,” Ind. Marketing Manage., vol. 35, pp. 666–675, 2006. [32] K. Ruyter, L. Moorman, and J. Lemmink, “Antecedents of commitment and trust in customer-supplier relationships in high technology markets,” Ind. Marketing Manage., vol. 30, no. 3, pp. 271–286, 2001. [33] M. J. Sanzo, M. L. Santos, R. Vázquez, and L. I. Álvarez, “The effect of market orientation on buyer-seller relationship satisfaction,” Ind. Marketing Manage., vol. 32, no. 4, pp. 327–345, 2003. [34] J. T. Simpson, and D. T . Mayo, “Relationship Management : A Call for Fewer Influence Attempts?,” J. of Business Research, vol. 39, pp. 209– 218, 1997. [35] L. W. Stern, A. I. El-Ansary, and A. T. Coughlan, Marketing Channels. New Jersey : Prentice Hall, 1996. [36] L. W. Stern, and T. Reve, “Distribution Channels as Political Economies : A Framework for Comparative Analysis,” J. of Marketing, vol. 44, no. 3, pp. 52–64, 1980. [37] L. Thompson, and G. B. Spanier, “The End of Marriage and Acceptance of Marital Termination,” J. of Marriage and the Family, vol. 45, pp. 103–113, Feb. 1983. [38] D. W. Wallace, J. L. Giese, and J. L. Johnson, “Customer retailer loyalty in the context of multiple channel strategies,” J. of Retailing, vol. 80, pp. 249–263, 2004. [39] B. A. Weitz, and S. D. Jap, “Relationship marketing and distribution channels,” Academy of Marketing Sci., vol. 23, no. 4, pp. 305–320, 1995. [40] G. Zhuang, Y. Xi, and A. S. L . Tsang, “Power, conflict and cooperation : The impact of guanxi in Chinese marketing channels,” Ind. Marketing Manage., vol. 39, pp. 137–149, 2010.