Marketing channels and business networks have been referred to, by Achrol & Kotler [3] as: “Interdependent systems of organizations and relations that are involved in carrying out all of the production and marketing activities involved in creating and delivering value in the form of products and services to intermediate and final customers.”Achrol & Kotler [3] stated that networks are not accepting of traditional mechanisms, such as authority and control.
With respect to marketing, much of the creation of theories around systems, structure, and the management of business networks, can arguably be attributed to early economists such as John Common, Ronald Coase, and Joseph Schumpter.
[1] John Commons, in 1934, took ideas from the fields of law, economics, and psychology, and focused on transactions as a rudimentary unit of analysis.
He showed how the battle for survival among various types of businesses and networks, vying to serve the needs of society, fashioned the change of the industrial sector.
His research signified the development of ideas about exchange and more specifically the cost of securing agreements as well as coordinating, controlling and implementing them.
These previously mentioned studies and pieces of literature demonstrate the creation of various ideas and thought surrounding networks in marketing.
[1] A significant study was that by Cox, Goodman, and Fichandler, which built upon previous research conducted by Stewart, Dewhurst and Field (1939) and examined the distribution in a high level economy.
He drew from previous literature by Schumpter and Coase, bringing together research and ideas from a number of behavioural sciences exploring the processes of change occurring in channel systems.
[1] Research around this time looked more at the behavioral dimensions of channels, somewhat the result of Wroe Alderson's earlier writings.
[16] Researchers also started to explore additional facets of inter-organization relations, combining them with more extensive models of relationships (e.g. Anderson and Narus[17]).
As well as this work by Oliver Williamsons in 1975 on transaction cost and the nature and price of inter-firm governance, sparked interest again on economic theories.
There was also more of a focus on cooperation as opposed to competing relations, which caused in an eruption of interest in the region of relationships and networks.
Furthermore, Researchers began directing more effort to network dimensions, as opposed to isolated dyadic relationship.
[1] The developments made in the last several decades, demonstrate the evolution of pre-existing concepts and models in relation to networks in marketing, first proposed in the 1950s and 60's.
Wilkinson stated that what is needed now is the application of modeling techniques to portray networks in marketing, in order to strengthen current theories with empirical evidence.
[18] One such study conducted by Aino Halinen, & Jan-Åke Törnroos, looked at how networks are constructed and how they function in the modern day world.
[20] Alternatively a study by Lorenzo Bizzi & Ann Langley (2012) considered the key choices, with regard to methodology, met by researchers, when looking at network dynamics.
[24] A vertical network comprises a groups of resource firms specializing in the various product, technologies, or services that constitute the inputs of particular industry, organized around a focal company that focusing on monitoring and managing the critical contingencies faced by the network participants in that market.
Watt's and Strogatz's used graph theory to create three models depicting varying amounts connectedness, these were named Small world network.
‘Hubs’ or ‘connectors’ are important aspects to analyze when examining any system or network and marketing is no exception to this.
[26] One of the first empirical observations of hubs or connectors in social sciences experimentation came about in Stanley Milgram's Small world experiments, the first of which taking place in 1967.
[29][30] The links involved with hubs exhibit small world properties of a number of short paths between actors which are clustered due to similarities.
[31] The concepts of weak and strong ties in a marketing and social sciences context relates to the intensity of the relationships between members of a network.
The results of the survey showed that those rated one or two were a small minority of the students, where those who were seen as more associates canvassed a vast majority of the sample.
Marketers also need to be aware that just because their advertisements are targeted specifically at a segment where they believe it will go down well or be acceptable such an adult advertisement on a billboard in a ‘suitable location’ or a giveaway on a beer bottle, due to weak links it has potential to be able to affect those outside the target audience or group who would find it appropriate.
It is very sensitive to initial conditions and small alterations to these can result in dramatically different outcomes as chaos theory suggests, there are a number of pathways and evolutions which the 'butterfly's wings' are able to affect.
[34] It is important in a marketing environment to recognize that there are many levels of complex systems at play and that targeting individual parts of production, advertising or other aspects will not often result in proportional outputs.
[36] Marketing systems are identified as being nonlinear in nature because they fail to satisfy the superposition principle (outputs are not directly proportional to inputs).
Chaos theory also offers alternative explanations for the existence of various types of marketing institutions as 'disequilibrium mechanisms' designed to buffer or reduce the effects of complex dynamics.
[37] The transition from order to chaos can be demonstrated in this simple nonlinear equation, representing market evolution, under plausible assumptions of interdependence of actions and/or variables: