Managing Hybrid Marketing Systems in the High-TechSector

Stuart Hanmer-Lloyd Stephen MitchellReader in Marketing Lecturer in Marketing

Cheltenham and Gloucester Cheltenham and Gloucester CollegeCollege of Higher Education of Higher Education

Park Campus Park CampusThe Park The Park

Cheltenham CheltenhamGlos., GL50 2QF Glos., GL50 2QF

UK UK

Fax/Tel: +44 (0) 1179730916 Email shlloyd@chelt.ac.uk

Abstract

This study explores the nature of a Hybrid Marketing System using an example from the high-tech sector. Primary qualitative and quantitative research amongst channel members and the supplier company was conducted. Insights are derived which should aid managers' decision making about channel networks. A framework which combines the concepts of conflict, critical success factors, channel support mechanisms and channel motivation is put forward to aid effective channel management.

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INTRODUCTION

The case study presented in this working paper explores some of the issues presented by

Hybrid Marketing Systems, using an example from the high-tech sector. Within Hybrid

Marketing Systems manufacturers employ a wide variety of different channels, often

combining direct and indirect channels. Such systems have grown in popularity in recent

years and are claimed to offer significant benefits including increased coverage, lower

costs and customised approaches for different customers. Yet they also present challenges

in terms of managing the inherent overlap and conflict within the channel network.

Through studying one specific manufacturer and their related channel members a model is

developed which provides mangers with a framework to examine their own Hybrid

Marketing System to help them formulate more appropriate channel management

decisions and strategies.

The marketplace within which this research took place was the Wide Areas Networking

market and can justifiably be defined as within the high-tech sector according to the work

of Moriarty and Kosnik (1987). They state that high-tech marketing situations are defined

by the presence of both Technological Uncertainty and Market Uncertainty. Both aspects

are present in the Wide Area Networking marketplace.

There are many areas of Wide Area Networking which are open to technological

uncertainty. The technologies which are used for the network itself, and for the devices

which attach to the network are changing rapidly with, in many cases, one technology

quickly making a preceding technology obsolescent. This creates uncertainty, since very

often standards have not been agreed, and the economic advantages of different

technologies are not always well characterised, even when the potential benefits of the

technology are understood.

In terms of market uncertainty, telecommunications and wide area networking have been

subject to extensive national and European Union legislation. The general trend has been

towards the deregulation of telecomms services and the creation of competition between

different Public Telecommunications Operators (PTOs). This has created uncertainty as

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new PTOs have been created and existing PTOs have had to become more competitive.

The number of business services has increased dramatically and new services are

emerging all the time as PTOs attempt to use new technologies for competitive advantage.

Another development is the emergence of the 'Managed Service' which effectively

extends the boundary of the public network out to the equipment being on the customers

own premises. Business customers consequently have a choice between running a

'private' network through sourcing their own equipment, or linking their sites using a

public service. This has all led to the creation of great uncertainty amongst customers.

In addition, there has been an amount of speculation surrounding the concept of the

'Information Superhighway'. Building this Superhighway will involve the deployment

of new high-capacity public networks capable of transferring huge amounts of

information. This could result in blurred distinctions between the Telecommunications,

Computing and Entertainment industries enabling many new applications, many of

which are yet unknown. Such possibilities have simultaneously created both great

excitement and great uncertainty within the networking marketplace.

Finally, with these technological and market uncertainties routes to markets have become

increasingly more complicated with a number of organisations employing Hybrid

Marketing Systems. The research reported in this study examines one such system and

suggests a framework to help guide the manufacturers channel decisions to improve

overall channel performance.

RESEARCH OBJECTIVES

The case study that is discussed in this paper arose within the high-tech market where the

particular company faced rapid technological and market changes in a relatively short

period of time. This led to the formation of a complex distribution channel network

combining a direct sales channel as well as extending into a variety of overlapping

indirect channels. The formation of this Hybrid Marketing System has been fuelled by a

strong desire for growth, a prime objective of the case study organisation. Future potential

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growth for the organisation would appear to lie with improving the performance of the

channel network rather than adding still more channels. The broad management aim of

this study is to examine the channel network and identify ways in which it could be made

to work more effectively to improve overall performance. More specific research

objectives include:

To identify issues pertinent to channel network performance within a Hybrid Marketing

System

To discover the views of those involved, from both the manufacturer and the resellers'

perspective with respect to conflict, channel network performance and support

mechanisms

To identify factors which both inhibit and improve overall channel network

performance to aid managers' channel network decision making

METHODOLOGY

The methodology was broken down into a number of stages. Initially a review of relevant

literature was carried out which helped inform both the topics to be covered in the

primary research as well as the approach to collect the necessary primary data to achieve

the objectives. Exploratory interviews were then carried out within the case study

organisation and with a number of distributors within their channel network. This allowed

for a clear picture of both the relevant issues for investigation to be identified as well as

an understanding of the actual channel network to be established. As a result of the

exploratory research a questionnaire was prepared, piloted and distributed to thirty one

distributors at the manufacturers 'Partners Conference' with twenty five useable replies

being obtained. This was an 80 per cent response rate and these distributors represented

over 50 per cent of the manufacturers' key distributors and a much greater percentage in

terms of proportion of revenues. Further qualitative interviews were carried out based

upon the exploratory research with three in-depth interviews being carried out with

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channel marketing managers in the manufacturing organisation and seven in-depth

interviews being conducted with appropriate managers within the distributor

organisations. A number of specific topics were addressed within the qualitative

interviews and included:

Pre-amble to establish an interviewer-interviewee relationship

History/background to the manufacturer-distributor relationship

Friction in the relationship

Actions to reduce friction in the relationship

Other actions to improve overall performance in the relationship

Summary feedback to the interviewee

During the interviews respondents were asked to provide examples to help explain

meaning. This was particularly helpful as the distributors were from a European base and

not all respondents spoke English as their first language although all respondents were

sufficiently fluent to participate in the research.

The quantitative survey used in the research was divided into four sections, namely:

The distributors organisation and the operating environment

How the manufacturer fitted in the overall business of the distributors

Specific feedback on the manufacturers' performance against predetermined

relationship criteria

Some general feedback including the case study manufacturers performance compared to

other manufacturers supplying the distributor. Also, distributors were asked to identify

ways in which the relationship between manufacturer and distributor could be improved.

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Thus, the research methodology included both qualitative and quantitative data from a

specific manufacturer and their channel network case study situation and allowed the

research objectives to be fulfilled

DISCUSSION OF THE RESULTS

The role of this final section of the paper is two fold. First, the results emanating from the

case study are discussed and linked with previous literature in the area; and, second, a

number of insights into the topic are presented along with a proposed unified framework

which could form the basis for further research in this area. As the nature of this paper is

more towards the conceptual development of the area greater emphasis is placed on the

latter issue.

Sources of conflict in Channel Networks

The exertion of coercive power from either side was seen to have contributed to a high

level of conflict and a low level of trust as observed by Hunt and Nevin (1974). The

debate over whether the exertion of coercive power gives rise to conflict or vice-versa

was unresolved. Trust was a word often used by respondents, in a way that suggested that

it was regarded as a pre-requisite for co-operative relations, and the lack of trust being

regarded as indicative of conflict. This supports the view of Young and Wilkinson (1989)

that there is a close relationship between the three variables of trust, co-operation and

conflict. Whilst no clear relationship between relative dependency and conflict emerged

from the case study there was some evidence to suggest that high dependency by the

distributor led to conflict supporting the work of Anderson and Narus (1990).

Shipley (1987) identified six high scoring dissatisfaction issues for distributors dealing

with the producer, all these factors were mentioned by the distributors interviewed within

the study. Poor delivery service was a major source of dissatisfaction, as was the

distributor being bypassed by the supplier who went direct to the distributors customers.

The issues of price competitiveness and objections by the supplier to the distributor

carrying competitor products were not particularly significant in this case study. Further,

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not many of the factors within the Magrath and Hardy (1989) framework for diagnosing

conflict were cited as causes of conflict by respondents although this is not to imply that

the framework is invalid rather the factors did not arise in this case study. Differences in

goals did emerge as a factor, where for example OEMs were having to re-evaluate the role

of the suppliers' product line within the portfolio, due to changes in technology. Indeed,

the divergence of goals is interesting insofar as this may apply particularly to high-tech

areas due to the combinaton of technological and market uncertainty. The whole area of

manufacturer's channel policies did give rise to dissatisfaction and conflict, especially the

failure to communicate information, as did the variety and density of channels. However,

the Magrath and Hardy (1989) framework did not specifically include a number of areas

that appeared to give rise to most conflict in this case study manufacturers channel

network; namely, the exertion of coercive power, the lack of a clearly understood

marketing vision and the existence of competition between the direct and indirect

channels. Although they may argue that these issues are included in their 'Differences in

inter-personal relations', 'communications programmes' and 'channel variety'.

Hybrid Marketing Systems

This case study supports the observations of Moriarty and Moran (1990) that most

companies embark on adding new channels without an overall strategic vision for the

ideal channel network. The authors also note that '...the appearance of new channels and

methods will inevitably raise new problems of conflict and control'. In this case study the

existence of multiple overlapping channels has certainly given rise to conflict, particularly

where either a direct channel is in conflict with the indirect channel or where effective

channel density has become very high.

Motivating Distributors

The work of Jacknis and Kratz (1993) appeared relevant to the case study here where they

suggested that manufacturers 'empower' their distributors through:

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Making sure distributors understand and share the manufacturers' strategic vision

Encouraging them to educate the market

Providing tools and training to help them differentiate their offering from their

competition

Not regarding distributors as the end-user (partner not customer)

Selling through the distributor with a combination of push and pull programmes

Margrath and Hardy (1991) recommend that manufacturers 'set up only as many dealers

or retailers as can be well serviced', and the frequent references to a lack of human

resources and delays in getting responses suggest that the manufacturer in this case study

was falling into this trap.

Gassenheimer et al. (1989), found the role of boundary personnel to be vital, and the

frequent references by the respondents in this case study to, 'the personal relationship'

and its importance confirm these findings. This can be contrasted with the importance of

formal contracts, which were normally 'signed, sealed and forgotten'. Several other

motivating factors arose in the case study which supported previous literature. Technical

service and support (Moriarty and Kosnik, 1987) was found to be very important in this

high tech market. A high degree of information exchange was also identified as being

particularly important in establishing a successful relationship as Helper (1991)

suggested. The more extensive use of IT certainly seemed attractive to the respondents

within this study. There didn't appear to be concerns over the use of IT changing the

power balance in the relationship as indicated by demons and Row (1993). Tunwall and

Mount (1989) suggested that group incentives may be useful in compensating sales

people in high tech companies due to the complexity of the sales process. There was some

evidence that group working amongst sales people may enable inter-channel conflict to be

reduced, and prevent unnecessary inter-channel price wars. (The latter may have arisen as

a result of flexible discount policies for multiple channels which were not co-ordinated

within the manufacturer company).

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Some insights into Hybrid Marketing Systems

Before putting forward a potential framework to help both the understanding and

approach to Hybrid Marketing System issues a number of points that arose from the case

study analysis are worth noting. These points, together with the literature, led to the

development of the unified framework model.

As the level of conflict increased within the Hybrid Marketing System a less open

dialogue was possible

Distributor sales personnel tend to lose enthusiasm for the manufacturers product as the

level of channel conflict increases.

Where multiple channels overlap, marketing 'pull' activities need to be more channel

specific.

Where channels overlap price wars can damage manufacturer profitability unless very

well managed.

Conflict within the manufacturer-channel relationship can give rise to lost opportunities

which are impossible to measure.

Channel partners need to be chosen with great care as switching costs can be very high

and it is time consuming building new relationships

Within multiple channels members tended to follow one of four competitive strategies

these were: price cutting, differentiation, customer relationship building and leveraging

the product portfolio.

Manufacturers try to avoid channel conflict by market partitioning, however, EU law

may impact on this strategy

Manufacturers also use various 'compensation' approaches to reduce conflict in their

channels, however, this can be very costly in the long term.

There is a clear need for mutual trust and treating channels as partners if a successful

relationship between the manufacturer and the channel(s) is to be achieved.

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It is recognised that with multiple channels it is inevitable that some level of conflict will

arise, the important issue is that this conflict should not be at a level which negatively

affects the various stakeholders performance in the market place. The manufacturer has

specific responsibilities in determining the channel strategy and a framework which helps

guide decision making is felt to be beneficial. The framework below should help those

organisations who are setting up a Hybrid Marketing System as well as those who are

seeking to manage their existing one more effectively.

The model identifies four 'forces' affecting the performance of Hybrid Marketing

Systems. Conflict which has a negative impact on performance, and Critical Success

Factors, Support Mechanisms and Motivational factors, which have a positive impact.

These are depicted in Figure 1.

The model recognises that conflict is inevitable in a Hybrid Marketing System and a

number of factors give rise to this. It should be recognised that the reduction of conflict is

not in itself the overall aim, the overall aim is the improvement of the Hybrid Marketing

System. Strategies may need to change with the market and the benefits of adding extra

indirect or direct channels may outweigh the negative impact of increased conflict.

The effect of the Critical Success Factors is to enable the relationship to be successful, as

such they are necessary rather than sufficient conditions for success.

The Support Mechanisms have been identified as various means by which conflict can be

reduced and working together can be enhanced. Finally, the Motivational Factors are

intended to help the distributor sell as much of the manufacturers' product/service as is

feasible. The basic motivator is a powerful financial incentive, which means that the

activity is profitable for the distributor. This support should be flexible so that both

parties can react to market conditions. Using a combination of push and pull tactics

enables manufacturers to sell through distributors not just to them.

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It is the intention of this model to help managers to see that certain actions are likely to

lead to increased conflict. They can therefore avoid unnecessary conflict and take action

to more effectively manage increased conflict where it arises for valid reasons. Conflict

should be reduced where such action is necessary to improve overall performance. This

can be achieved by applying the positive forces in the model or by reducing the negative

forces that exist. Thus, the model should be viewed as an effective framework in helping

to manage Hybrid Marketing Systems.

References

Anderson, J. B. & Narus, J. (1990) A Model of Distributor Firm and Manufacturer

Firm Working Partnerships, Journal of Marketing. 54,1, pp.42-58

demons, E. & Row, M. (1993) Information, Power and Control of the distributor

Channel, Chief Executive. May, pp.64-67

Gassenhiemer, J., Stirling, J. & Robicheaux, R. (1989) Long Term Channel-Member

Relationships, International Journal of Physical Distribution and Materials, 10,1, pp. 15-

28

Helper, S. (1991) How much has really changed between US Automakers and their

suppliers? Sloan Management Review. 32, 4. pp. 15-28

Hunt, S. & Nevin, J. (1974) Power in a Channel of Distribution: Sources and

Consequences, Journal of Marketing Research. 11, May, pp. 186-193

Jacknis, M. & Kratz, S. (1993) The Channel Empowerment Solution, Sales and

Marketing Management. 145, 3, pp.44-49

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Magrath, A. & Hardy, K. (1989) Strategic Paradigm for Predicting Manufacturer-Reseller

Conflict, European Journal of Marketing 23, 2, pp. 94-108

Magrath, A. & Hardy, K. (1991) Six Steps to Distribution Network Design, Business

Horizons. 34,1, pp.48-52

Monmarty, R & Kosnik (1987) High-Tech vs. Low-Tech Marketing: Where's the Beef?

Harvard Business School Working Paper No.9-588-012

Monmarty, R. & Moran, V. (1990) Managing Hybrid Marketing Systems, Harvard

Business Review. 68, 6, pp. 146-155

Shipley, D. (1987) What British Distributors dislike about Manufacturers, Industrial

Marketing Management. Vol. 16, pp. 153-162

Tunwall, C. & Mount, M. (1989) Sales Compensation in High-Tech Firms, the

Motivational Issues, Compensation and Benefits Review. Jan/Feb., pp. 43-47

Young, L. & Wilkinson, I. (1989) The Role of Trust and Co-operation in Marketing Channels: A Preliminary Study, European Journal of Marketing. 32,2, pp. 109-122

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FIGURE I: Opposing Forces Model of Hybrid Marketing Systems

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