Question #1
How are manufacturer/supplier relationships governed by solidarity norms and economic incentives? Do
you think Kumar, Heide,& Wathne (2011) are correct in their conclusions about this relationship? (Do
some research to support your answer.)
Answer
Question #2
Do strong solidarity norms, in an upstream supplier relationship, affect internal incentives within a
downstream manufacturer? (Note: This is one of the findings of the Kumar et.al. (2011) paper)
Solidarity Norms and Economic Incentives
Solidarity norms and economic incentives determine relationships for
manufacturers and distributors. This is because solidarity norms govern the way distributors and
manufacturers conduct their transactions regarding fairness and equality. Solidarity norms are
expectations of behaviors and attitudes among manufacturers and distributors working
SOLIDARITY NORMS AND ECONOMIC INCENTIVES 2
comparatively together to achieve mutual and individual goals, while economic incentives ensure
favorable rewards for good behavior and the realization of successful outcomes. Thus, solidarity
norms and economic incentives enhance manufacturers and distributors pull in the same
directions in order to ensure that supply chains deliver products and services faster, efficiently
and cost-effectively. Besides, solidarity norms and economic incentives promote the process of
defining roles, responsibilities, and accountability for distributors and manufacturers as well as
coordinating actions or processes in different cultures and shared values that enhance loyalty and
motivate parties in the supply chain. Moreover, in order to induce proper relationships,
manufacturers and distributors must behave in ways that are best for all parties by creating
effective solidarity norms and economic incentives (Watson, Worm, Palmatier and Ganesan,
2015).
Manufacturers and distributors should establish efficient operations by aligning
economic incentives effectively. For instance, they should ensure costs, risks and rewards of
doing business are distributed fairly and equally across the network in order to optimize
performance. Solidarity norms and economic incentives should be aligned to ensure adequate
inventory, correct forecasts, stock-outs, adequate sales efforts and satisfactory customer services.
They also ensure the efficient operation of services by improving relationships and interlinking
members to deliver products to consumers efficiently. Solidarity norms and economic incentives
induce distributors and manufacturers to do what is best for companies and align interests,
information, and knowledge to create a competitive advantage and ensure customer satisfaction.
Watson, Worm, Palmatier, and Ganesan (2011) are correct in their conclusion
about relationships because economic and behavioral theories reveal that channel research is
affected by positive relational constructs such as trust and commitment. Besides, managers
SOLIDARITY NORMS AND ECONOMIC INCENTIVES 3
should ensure proper governance and demonstrate a strategy for vertical integration for relational
governance. This is true because norms regulate and guide standards of conduct and trade as well
as long-term relationships among partners and ensure equal costs and benefits sharing as well as
reduces opportunism. Thus, it promotes mutually beneficial and comparative behavior among
business partners. Besides, incentives help to motivate route intermediaries to employ desired
behaviors and to mitigate non-compliance risk.
Strong Solidarity Norms and Economic Incentives
It is evident that “strong solidarity norms in an upstream supplier relationship
affect internal incentives within a downstream manufacturer.” This is true because strategies for
channel governance determine the design of incentives, which induce suitable behaviors for
channel members as well as directly monitoring other channel members’ behavior to ensure their
compliance. This raises relationships and economic incentives, especially when partners prefer
different courses of actions. Therefore, companies should motivate intermediaries by engaging in
inappropriate actions and reducing the possibility of non-compliance. This should include
structuring an accord to incentivize proper behaviors such as rewarding inputs and realizing
outcomes of behaviors (Watson et al., 2015).
Many channel decisions fall on the governance range regarding transactions and
relational exchanges using formal contracts. Solidarity in upstream has positive effects on
incentives in downstream as they imply social and straightforward controls over exchanges and
defines the way in which downstream manufacturers should terminate, maintain and initiate their
exchanges. This kind of relationships depends on commitment, social support and trust, which
establish common behavioral expectations, described as solidarity norms Watson et al., 2015).
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Therefore, they result in mutuality, flexibility, and solidarity, which result in proper engagements
and cooperation among manufacturers. Suppliers should choose downstream strategies to
allocate their marketing investments between dyads, which are one step downstream or two steps
downstream in order to increase profits and create brand differentiation. Besides, logistics
managers can use social media to establish inter-firm behaviors in to spread dyadic relationships.
Thus, the upstream integration of suppliers or retailers promotes downstream integration in order
to offer cost efficiencies and rectify market failures.
SOLIDARITY NORMS AND ECONOMIC INCENTIVES 5
References
Watson, G. F., Worm, S., Palmatier, R. W., & Ganesan, S. (2011). The evolution of marketing
channels: Trends and research direction. Journal of retailing, 91(4), 546-568.
Watson IV, G. F., Worm, S., Palmatier, R. W., & Ganesan, S. (2015). The evolution of
marketing channels: Trends and research directions. Journal of Retailing, 91(4), 546-568.
