Term
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Definition
Role/ goal incongruity
resource scarcity
perceptual difference
communication difficulties |
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Term
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Definition
| Any exchange/ transaction arrangement |
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Term
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Definition
| an exchange relationship which results whenever one party (principal) depends on another (agent) to undertake some actions on its behalf. |
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Term
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Definition
| depend on intermediaries (dealers) to sell goods; they are managing agency relationships. |
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Term
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Definition
Problem is to observe and verify
the hidden qualities
(abilities/ motivations) of the
prospective partner (agent) |
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Term
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Definition
Problem is to ensure that the
chosen partner uses his abilities
to achieve your (principal’s) goals |
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Term
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Definition
| geographical size, distance |
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Term
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Definition
| Number of customers in market |
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Term
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Definition
| Number of buying units (consumers or industrial firms) per unit of land area |
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Term
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Definition
| Who buys, & how, when, and where |
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Term
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Definition
| The greater the capital, lower the dependence on intermediaries. |
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Term
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Definition
| Intermediaries are necessary if experience is lacking. |
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Term
| Qualitative Judgment Approach |
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Definition
| Channel Design factors are chosen based on management judgment. Various channel alternatives are compared based on these factors. |
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Term
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Definition
| Attach weights to the channel design factors |
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Term
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Definition
Ruled by customs, tradition,
honor, feelings, relations
*Works for the group/ relationship,
not for individual self.
*Dealer who will always
cooperate unquestioningly |
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Term
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Definition
Ruled by perfect reason to
maximize own payoffs
* Infinite computational
power in the brain to write
comprehensive contracts
* Simple self-interest seeking
(maximizes personal payoffs in a
“gentlemanly” way).
*Advance own interest, but will not
violate contracts or oaths/ promises |
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Term
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Definition
Mind is a scare resource; Intendedly rational, but limitedly so
*Cannot write comprehensive contracts! |
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Term
| Transaction Cost Approach |
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Definition
TCA clarifies what happens inside the firm (hierarchy) and compares it to what happens outside (markets).
TCA explains when the firm is a better choice than the market to perform channel tasks. |
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Term
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Definition
*Self interest seeking with guile: blatant form of self-seeking
*NOT everyone is opportunistic, but we do not know ex ante who is. |
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Term
| Transaction Specific Investments |
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Definition
| Some of these investments are general-purpose, but other are specialized or idiosyncratic to the focal relationship (i.e., have negligible value outside the focal relationship |
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Term
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Definition
| Even agents who are known to possess high ability and motivation (before entering the relationship) may deliberately fail to act in the principal’s interests ex post (after entering the relationship). |
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Term
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Definition
| E.g., car makers reward dealers on tangible performance outcomes such as sales volume, number of servicing complaints, customer satisfaction scores etc. |
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Term
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Definition
| When output is too complex to easily specify, you measure broader behaviors designed to accomplish those outputs. |
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Term
| Ways to deal with channel conflict |
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Definition
Third Party surveys (e.g., Magazine)
Channel Audits
Advisory Councils (Channel Committees
Arbitration |
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Term
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Definition
| Power of R over M is its ability to influence R (to get things done). |
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Term
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Definition
| M is dependent on R if it aspires to goals or interests (resources) whose achievement is facilitated by R. |
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Term
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Definition
Expert Power
Referent Power (identification with values/ reference group).
Legitimate Power (power due to a formal role, contract etc).
Reward Power
Coercive Power |
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Term
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Definition
Recognize the need for
channel design decision
Set & coordinate
distribution objectives
Specify
distribution tasks
Develop alternative
channel structures
Evaluate
relevant variables
Choose the “best”
channel structure
Select
channel members |
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Term
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Definition
-Promote on national T.V.
-Educate buyer on product features. |
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Term
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Definition
-Promote face to face
-Learn about buyer’s technical needs. |
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Term
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Definition
-Intensive
-Selective
-Exclusive |
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Term
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Definition
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Term
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Definition
| Brand available at many outlets in a given area (in saturation, every possible outlet). |
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Term
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Definition
| Brand available from only one outlet in a given area; vendor has “local monopoly”. |
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Term
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Definition
| Somewhere in between the two extremes, and more common. |
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Term
| Retailers resent intensive coverage |
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Definition
It reduces their ability to differentiate themselves with unique brands
Buyers will “free ride” on salesperson effort at one outlet and buy from a nearby cheaper outlet |
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Term
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Definition
Bulk & Weight
Perishability
Unit Value
Degree of Standardization
Technical versus Nontechnical
Newness |
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Term
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Definition
are really good at innovation (or at lowering production costs) because of high powered incentives
Innovation and cost-effective
Production, but your TSIs at risk |
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Term
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Definition
low in risk of opportunism (i.e. transaction costs are lower than in market) due to low-powered incentives and fiat.
Your TSIs protected, but
you lose innovation. |
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Term
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Definition
| Bilateral (reciprocal) exchange of specific assets can make commitments credible in business relationships. They “tie the hands” of both the partners in a relationship – the partners cannot act opportunistically each other even if they want, because by doing so they risk losing their valuable specific investments. |
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Term
| Briefly describe adverse selection problems in agency theory. Illustrate with an example (3-4 sentences). |
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Definition
| Problems that arise before parties get into a relationship. Resolved through screening and selection. |
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Term
| Power of a firm over its partner and its dependence over that partner are inversely related |
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Definition
| True– If I am more powerful relative to you, I am less dependent on you. But this also implies that you are more dependent on me). |
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Term
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Definition
| can be dysfunctional/ beneficial/ tolerable |
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Term
| Power that comes from specialized competencies |
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Definition
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Term
| Describe the concept of high-powered incentives according to transaction cost theory |
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Definition
| Simply means that in a market relationship, a firm’s outcomes are entirely dependent on their efforts. If a firm works hard, it stands to keep all incremental profits that accrue through its actions. This is unlike in hierarchy. |
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Term
| According to agency theory |
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Definition
| Contracts / incentives is one solution to resolve moral hazard problems. |
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Term
| Describe the idea of ‘bounded rationality’ as articulated in transaction cost theory |
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Definition
| Bounded rationality implies that firms (managers) have limited comprehension/ cognition, and as a result, they can be rational only within limits. Its main implication is that with bounded rationality, you cannot write perfectly foolproof contracts as you cannot perfectly imagine all future scenarios. So, your contracts will always have loopholes |
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Term
| A marketing channel audit is the best method for conflict detection |
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Definition
| False- it is one method to detect conflict but not necessarily the best one. |
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Term
| List a set of 5-6 steps (n your won words) that you would follow to design a new channel for a firm |
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Definition
1. Recognize need for channel design 2. Decide distribution objectives
3. Specify distribution tasks
4. Develop alternative channel structures
5. Evaluate relevant variables, choose the best channel configuration and so on. |
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Term
| Explain the distribution costing approach. Illustrate using a numerical example |
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Definition
Paying a distributor to help sell your product.
Ex: Giving them margin and support, paying less to sales people but selling less. |
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