The German state that evolved out of the German Wars of Unification (Danish War, Austro-Prussian, Franco-Prussian) was a peculiar entity. On one hand, it was clear both in the constitution and the pageantry surrounding the declaration of the Empire was that the new state enshrined the hegemony of the Hoehnzollerns over other royals in the Kaiserreich. The Kaiser had the power of supreme warlord in wartime and his ministers enjoyed considerable power in terms of the Empire's foreign and military policies. Nonetheless, the Kaiserreich was also a federal entity with the monarchs and rulers of most of the pre-1866 retaining their titles and a degree of domestic power. The larger German states like Bavaria retained their own armies and war ministries, and the Bundesrat nominally gave each Bundesstaaten a counterbalance to Prussian power. The Hohenzollerns' monarchical styling also stressed a sort of neo-feudal order in which they were the first among equals with their fellow German monarchs. This pomp and ceremony was never wholly successful, much like the rest of the Kaiserreich's political structures, but it does show that unification was not a simple matter of twenty-six states giving up their power. Unification was a politically messy process and one which involved a significant give and take on all sides.
The metaphor of the carrot and stick is an apt one for understanding this process. A number of the Germans states on the losing side of the Austro-Prussian War such as Bavaria recognized that joining the German Confederation was a more acceptable compromise than risking Prussia's ire. Bismarck had already demonstrated a severe form of his stick to the smaller states like the free city Frankfurt am Main, the Kingdom of Hanover, and the Schleswig Duchies, which were directly absorbed into Prussia. In the former case, Prussian not only annexed the city, but also demanded from its burghers an enormous indemnity of 25-million guilders. The Wittelsbachs and other dynasts on the losing side of the 1866 war recognized that they could not easily be absorbed like these smaller polities, but there was a danger that Bismarck could carve up significant territory from third Germany. The near-dismemberment of Saxony during the Congress of Vienna was still within living memory and set a precedent. Bismarck's foreign policy also gave him a chip in that it denied Third Germany their traditional great power patrons. By defeating both Austria and France while securing the neutrality of the UK and Russia meant that the dynasts had to play on Bismarck's court.
While the threat of the stick was present, Bismarck was also able to ensure that the dynasts had a carrot. He managed to funnel various monies, expropriated from the coffers of the annexed Hanover, into the personal accounts of key dynasts, most notably the Bavarian King Ludwig II who wrote a letter to Prussian King Wilhelm I urging him to accept the imperial crown. The "Guelph fund" may have been one inducement for German monarchs to toe the line, but a number of them also recognized that Bismarck was allowing them to retain a degree of their domestic power in light of the advancing modern age. Many German dynasts might have resented Prussian overlordship, but this was also more palatable than rule, or worse, dismissal by the masses. The Revolutions of 1848 had already given a foretaste to the both possibilities and Bismarck's constitutional state offered to succor a place for the old order.
Yet the carrot and stick analogy does not explain the entirety of the unification process. For one thing, there was a burgeoning sense of German nationalism that grew throughout the nineteenth century. The desire for a single unitary national state was palpable within the pre-1871 cultural sphere and while there was significant disagreement over what form a unified German state should take, the idea of German unity was popular. For example, despite the fact that a good many of its political elites were exiled 1848ers and proponents of democracy, they managed to disassociate Bismarck's reactionary politics and Prussia's role in suppressing the 1848 revolution with the wider objective of German national unity. The 1848 emigre Carl Schurz flew the Prussian flag from his St. Louis offices during the Franco-Prussian War despite his private apprehensions about the role the Bismarck and the Hohenzollerns in the new German political order. And while German regionalism was quite strong in the unification process, so too was the desire to live in a unitary German state. This was clear in the caesura years of the twentieth century (1918, 1945, and 1989) in which regional irredentist movements could not gain traction to break up the German state (or in 1989's case, maintain its division). The success of Bismarck's wars only hastened the acceptance of German unification by removing a number of the internal and external political obstacles against resolving the German question. As such, a number of German rulers accepted the fact of unification as swimming with the tide of German development.
The dynasts' acquiescence to Prussian overlordship was Faustian bargain. Bismarck's constitutional order was one that was incredibly clunky and created a number of problems for the regular exercise of power. A good many of the now sub-national monarchs of the Kaiserreich recognized that for better or worse, their star was hitched to the Hohenzollerns' fate. The failure of the Hohenzollern monarchy meant a failure for the rest of Germany's dynasts. Much of Third Germany's monarchs attempted to craft an alternative regional monarchy that was in tune with local culture and mores. This bought some of the Kaiserreich's lesser monarchs a certain degree of local popularity, this was of little use in 1918 when it was clear that the Hohenzollerns had lost the war. Whatever soft power they possessed evaporated with the collapse of the Hohenzollern dynasty.
Sources
Berghahn, Volker R. Imperial Germany, 1871-1918: Economy, Society, Culture, and Politics. New York: Berghahn Books, 2005.
Müller, Frank Lorenz. Royal Heirs in Imperial Germany: The Future of Monarchy in Nineteenth-Century Bavaria, Saxony and Württemberg. London: Palgrave, 2017.
Steinberg, Jonathan. Bismarck: A Life. Oxford: Oxford University Press, 2013.