An emerging trend in the study of relationships is how dependent the parties are on one another for success. When there is a good balance of power, there is a greater likelihood of success in the relationship. However, when one party holds the upper hand, the door opens for issues related to trust, conflict resolution, and unfairness to creep into the relationship.
Dependency has been seen to take a couple of forms in channel relationships. The first is a cost-based dependency. For the partner, this comprises the margins made on a supplier’s products, the costs for becoming and maintaining the level of partnership, as well as any potential switching costs to move business to another provider. The higher these are, the more that power favors the supplier, with the supplier being more dependent on the provider than vice versa.
The second type of dependency is more benefits based. Again, in the partner’s eyes, this would be types of things like brand awareness, promotional consideration, innovation, and the ability to add value to existing products provided by a supplier. This could also be exclusivity to sell certain products, early access to product announcements, trainings, and networking opportunities/lead generation, among other things. The higher these factors are again raises the level of dependency the partner has on the provider.
To mitigate this dependency, partners also have some tools to rely upon. First, they can develop a services-orientation approach, to help to implement and support products from a provider, often times doing so in competition with the provider (with lower overhead costs associated with it). Secondly, they can diversify their own portfolio, maintaining a relatively level of status with several providers to be able to offer many options to the end consumer, focusing more on breadth and flexibility, rather than low cost and depth with one provider.
When power is evenly distributed, there is much greater likelihood that the relationship will be more collaborative, with flexibility demonstrated by both parties to achieve a mutually successful outcome, and less likelihood that contracts provide the foundation and boundaries for the relationship, which can cause strife between parties. At the end of the day, reviewing relationships in light of the distribution of power may be essential to determining the best pathway to growth, increased market share, and enhanced profitability, for both the partner and the supplier.
VP, Consulting Services