The impact of reward and coercive powers on compliance and conflict: taking Kazakhstan tobacco industry as an example

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THE IMPACT OF REWARD AND COERCIVE POWERS ON COMPLIANCE AND CONFLICT: TAKING KAZAKHSTAN TOBACCO INDUSTRY AS AN EXAMPLE

Pletenaya Y.,

Postgraduate student,

Dalian University of Technology,

Guo YanHong

Associate professor of Faculty of

Management and Economics,

Dalian University of Technology

Аннотация

В статье рассмотрены последствия влияния сильного партнера на уступчивость слабого партнера и конфликт между партнерами, путем применения власти вознаграждения и принуждения в контексте канала сбыта между табачной компанией и ритейлерами в Казахстане. Результаты исследования показали, что использование власти вознаграждения и принуждения сильным партнером оказывает негативное влияние на уступчивость и на конфликт в канале сбыта.

Ключевые слова: Власть, Казахстан, конфликт, уступчивость, результат деятельности

Abstract

This paper tests the effects of reward and punishment powers exercised by power holder on weak partner's compliance and channel conflict in the context of marketing channel in Kazakhstan in the setting of tobacco company and their retailers. In this study we found that usage of both reward and coercive powers by power holder have negative impact on compliance and on channel conflict.

Keywords: Channel power, Kazakhstan, conflict, compliance, performance

marketing tobacco retailers partner

Introduction

Over the past two decades, the phenomena of power in distribution channels has been given empirical attention in marketing literature research. Power can be defined as “the ability of one member channel to control or influence the behavior of another”[1].

With the rapid development of economy, markets have become more competitive, therefore companies trying use power to coordinate marketing channels. Empirical evidence indicates that power holder more often use reward and coercive powers these two types of power to influence the behavior of the weak partner with the purpose to control channels. At the same time the improper use of these powers will lead to conflict, reduce the efficiency of the channel. Thus, the main purpose of this thesis is to reveal the links between channel power (reward and coercion) and conflicts, between channel power and compliance in retailer-supplier relationships in Kazakhstan.

Literature review. According to the theory of channel, most of the researchers generally use the classification of French and Raven, their power sources are divided into the following five categories: reward, coercion, referent, expert, legitimate powers. Reward power is a ability of the channel member to provide certain rewards (e.g., a bonus or reward due to high sales). The promise of a reward is one of the most effective ways to influence other people. Coercive power is the opposite of reward power, it is a ability of the power holder to get something from a person or to punish them for not conforming with a request. Punishment take a variety of forms including withdrawal of privileges or termination of contract.

In channel behavior theory, Chinese and foreign scholars still inconsistent in their results regard to the consequences of power usage. For example, findings of Brown, Johnson and Koenig (1995) in the context of retail industry in U.S., showed, that usage of reward and coercion will increase the level of conflict, but no significant influence on satisfaction. Johnson (1993) with another researchers, carry on some investigations in the context of distribution channel in Japan, in their study found, that power holder's use of reward and punishment have positive effect on satisfaction, trust and commitment of weak partner. We argue that the use of reward or coercive power have different impact on behavior of channel member for several reasons, the first is determined by the power (a)symmetry in the relationship. Power (a)symmetry is a level to which one channel partner holds more, roughly equal or less power than another in a channel relationship. Another reason have cultural and political background.

Framework and hypotheses

Following Frazier and Summer, we use the term “source” to define the company, which using power and the “target” to define the firm targeted by power holder.

The main goal of target is to get benefits under cooperation with source. A source provides target the opportunity to get benefits if he act in compliance with power holder's expectations. Therefore, we hypothesize:

H1: Exercised reward power of the source is positively associated with compliance perceived by target

Some scholars argue that the channel members' use of reward power is positively affect on target company, compliance induced by using of reward power, as we hypothesized above, make a target perceive conflict less intensive.

H2: Exercised reward power of the source will reduce the intensity of conflict perceived by a target

Source through punishment changing channel partner's behavior or attitude, and if target do not compliance, he will suffer certain loss, taking it into account the weak partner would prefer to maintain long-term stable partnership with the power holder. Therefore, we hypothesize:

H3: Exercised coercive power of the Source will increase the intensity of compliance perceived by Target

The coercive power usage of source will make the target feel control and dependence to channel partner. Some scholars argue that use of coercive power increase the channel conflict, reduce channel level of trust[2]. Therefore, we hypothesize:

H4: Exercised coercive power of the source will increase the intensity of conflict perceived by a target

Target's compliance to source can ensure mutual goals, reduces the tension between partners. That will help both partners to maintain efficient cooperation and ultimately improve the channel production. Therefore, we hypothesize:

H5: Target' high level of compliance is associated with a high level of strategic performance

Conflict between members impede channel members in achievement of their goals, that can lead to difficulties in business cooperation, possible dissolution of the business relationship, and diminished business performance[3].

H6: Channel conflict in negatively related to strategic performance

All hypotheses were summarized into an analytical framework as it shown in Fig.1. The focal variable is power. It is operationalized as reward and coercive powers hypothesized to have direct impact on the compliance and conflict, and as well as perceived performance.

Fig. 1. Empirical model of source-target relationship

Experiments and analysis

This research was conducted in the retail distribution channel in Almaty, the largest city in Kazakhstan. We have taken the channel dyad of the tobacco company and their retailers as our unit of analysis. Data collection has been collected by the retailers' support and cooperation. The questionnaire survey lasted for two months, 201 copies were distributed, 160 copies were collect. A total of 152 were usable for this study, the response rate was 79. 6 %. The questionnaire included six scale and thirty questions. All items were assessed on five-point Likert-type scales anchored by 1(strongly disagree) and 5(strongly agree).

First, exploratory analyses were conducted for each set of constructs. Then, to assess the validity of each measure, we checked measure's reliability, convergent and discriminant validity. The results demonstrate that reliabilities for all measures are above 0.7. Convergent validity was assessed by estimating each scale's average variance extracted. The AVE values for all constructs were greater than 0.50. If all absolute values for construct correlation are significantly below one, then discriminant validity is supported. This results constitutes evidence of discriminant and convergent validity. Structural equation modeling in AMOS 20 was used for the data analysis based on the research framework. чІ=1.449ЃCP-value=0.00, RMSEA=0.055, TLI=0.893, CFI=0.905, IFI=0.909 achieved the suggested thresholds.

Results

The impact of reward power on compliance(-0.516, p<0.05) and channel conflict(0.142, p<0.05) are not statistically significant. Contingent use of coercive power has negative effect on compliance(0.341, p<0.05) and negative on channel conflict( 4.583, p<0.05), which is consistent with the predictions of H4. Therefore, H3 is rejected and H4 is supported. Finally, as posted in our model, compliance (1.981, p<0.05) and channel conflict(-1.992, p<0.05) has significant effect on performance. Therefore, H5 and H6 were supported.

The rejection of H1 and H2 seem to suggest that, a target is sensitive to source's exercise of reward power and it will generate some negative feeling on loosing autonomy, as a result reduced trust, increased channel conflict. The rejection of H3 is unexpected, we find that coercive power usage has a negative effect on compliance, but even can damage the interfirm relationships. The empirical results of the study show that even the low level of compliance of weak partner to power holder will positively affect on the quality of the relationship between the two parties, as they have mutual goal which therefore, help to promote the better performance. H5 received support. The result of H6 show that the conflict between suppliers and retailers will obviously destroy the relationship quality and reduce performance of the whole channel.

Conclusion

This study examined channel exchange relationship in Kazakhstan using data on tobacco company' relationship with their retailers. The study tests a model proposing the impact of power holder' use of reward, coercive powers on weak partners' compliance and conflict. The results of the study showed that the model was applicable to Kazakhstan' distributional channel, indicating the importance of using the right power sources towards channel partner to ensure their satisfaction. Our findings about the sources from which power arises, how power is perceived and impact on business relationships, can have great implications for foreign practitioners who studying the retail market in Kazakhstan .

References

1) Stem L.W, A.EI-Ansary. Power Measurement in the distribution channel [J], Journal of marketing Research, 1972, 9(2):11-18

2) Brown James R., Lusch Robert F.ЃF Conflict and Power-dependence Relations in retailer-supplier channels. [ J ]; Journal of retailing, 1983, 59 (4):53-80

3) Weitz, B. A. and S. D. Jap, Relationship Marketing and Distribution Channels, Journal of the Academy of Marketing Science, 23(4):305-320.

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