Channel Management Through Selective Announcement of Reward and Punishment Decisions

Abstract

Purpose: Although channel influence strategies such as reward and punishment are useful for firms to manage certain channel partners, the social effect of these strategies has not been examined in the literature. In practice, firms selectively announce their reward and punishment decisions, hoping that these announcements can help encourage or prevent the channel behaviors of other channel members. The main purpose of this article is to provide a theoretical understanding of this business practice in channel management. Methodology: The authors conducted interviews and a scenario experiment with sales managers. The experiment is a 2 (degree of institutionalization: high vs. low) × 2 (power of distributors: powerful vs. less powerful) × 2 (influence strategy: punishment vs. reward) design. Findings: The authors found that firms are more likely to announce their reward decisions than punishment decisions. Also, when institutionalization of marketing channel is low, firms tend to announce all their reward decisions, but they are reluctant to announce their punishment decisions regarding powerful channel members. When institutionalization of marketing channel is high, we find that firms are more likely to announce rewards and punishments regarding less powerful channel members. Contribution: An important contribution of this research is that we are among the first to explore the social effects of power exercise in channel management. We extend the channel power literature by arguing that selective announcements of power exercise (reward and punishment) can influence more channel members. In addition, we combine institutional theory and channel power theory to explain the underlying mechanisms. That is, the degree of institutionalization in marketing channel influences how firms make selective public announcements of their channel decisions.