Multiple channel systems in Services - Doutor Filipe Coelho

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Multiple channel systemsin services: pros, cons andissuesFilipe J. Coelho Assistant Professor a & ChrisEasingwood Professor of Marketing ba Faculdade de Economia da Universidade deCoimbra , Av. Dias da Silva, 165, 3004-512,Coimbra, Portugalb Head of Marketing and Strategy , ManchesterBusiness School , Manchester, M15 6PB, EnglandPublished online: 25 Jan 2007.

To cite this article: Filipe J. Coelho Assistant Professor & Chris EasingwoodProfessor of Marketing (2004) Multiple channel systems in services:pros, cons and issues, The Service Industries Journal, 24:5, 1-29, DOI:10.1080/0264206042000276810

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Multiple Channel Systems in Services:Pros, Cons and Issues

FILIPE J . COELHO and CHRIS EASINGWOOD

The number of companies in the services sector making use of two

or more channels of distribution to market their products is

increasing steadily, and this strategy is expected to become the

dominant channel design. Nonetheless, research on the design of

multiple channel systems is decidedly sparse. This article attempts

to make a contribution to this topic by discussing the possible

benefits of a multi-channel distribution strategy, the possible

drawbacks and by discussing a number of issues that emerge.

Finally the potential contribution of a number of research perspec-

tives to a better understanding of the drivers of a multiple channel

system is discussed.

Distribution channels have been defined as ‘sets of interdependent

organisations involved in the process of making a product or service available

for consumption or use’ [Stern, El-Ansary and Coughlan, 1996: 1]. When

making channel choices, firms can choose from a wide variety of alternatives.

The two extremes are: the company performs all distribution functions

itself, i.e. adopts a completely integrated channel, or the company uses

intermediaries to execute most of the distribution functions. A wide variety

of intermediate alternatives exist in between, such as joint ventures

and franchising. However, it should be noted that single channel strategies

are becoming less frequent choices.

Companies are increasingly using a multiple channel strategy for most

or all of their products – a multiple channel strategy is employed when a

firm makes a product available to the market through two or more channels

of distribution. Frazier [1999: 232] observed that multiple channels ‘are

now becoming the rule rather than the exception’. Easingwood and Storey

Filipe J. Coelho is Assistant Professor, Faculdade de Economia da Universidade de Coimbra, Av.Dias da Silva, 165, 3004-512 Coimbra, Portugal. Chris Easingwood is Professor of Marketing andHead of Marketing and Strategy, Manchester Business School, Manchester M15 6PB, England.

The Service Industries Journal, Vol.24, No.5, September 2004, pp.1–29ISSN 0264-2069 print=1743-9507 onlineDOI: 10.1080=0264206042000276810 # 2004 Taylor & Francis Ltd.

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[1996], having surveyed 153 financial products, noted that multiple channel

systems represented 85 per cent of distribution strategies.

However, the literature has not matched the practical importance of

multiple channels. In fact, there are few systematic and rigorous investigations

into the drivers of multiple channel strategies. This weakness in the literature

remains despite it being repeatedly noted by several important writers in the

area of distribution channels [see Bradach and Eccles, 1989; Dutta et al.,

1995; Frazier, 1999; Klein, Frazier and Roth, 1990]. Bradach and Eccles

[1989: 100], for example, observed that in most studies channel arrangements

have been artificially and dichotomously classified as either direct or indirect,

ignoring ‘the obvious and fascinating issue of why companies so often

both make and buy’. Dutta et al. [1995: 189] acknowledged that multiple

channels ‘have been virtually ignored’ and Frazier [1999: 226], along

similar lines, stated ‘the use and management of multiple channels have

been barely touched on’.

The seriousness of this gap becomes more evident with the observation by

Anderson and Coughlan [1987] that once a channel decision is made it tends to

be reinforced over time, regardless of whether the decision taken is actually

the right one. As one manager stated to us,

History has a strong influence on channels. There is almost a default

of what you had in the past, the baggage that you carry. Sometimes if

you were starting from scratch you would never have the same channels

that you carry because of what has happened in the past. You are

rethinking the channels you ought to be operating but part of your

decisions are constrained by the fact that the investment in infrastruc-

ture and systems has already been made in certain channels and dis-

mantling would be more expensive than keeping them going. There

are also social issues, people issues.

For the above reasons, and given the long-term character of distribution

channels, the channel decision process must be the subject of a ‘systematic

evaluation procedure’ from start to finish [Rangan 1987: 156]. This will

ensure that in the design of distribution channels the important factors are

taken into account, and that a long-term and dynamic perspective is employed.

In order to enhance the discussion on the determinants of multiple channel

systems, we review their potential benefits and drawbacks, and discuss import-

ant issues that these raise at the channel design stage. It is our reasoning that

such benefits and drawbacks provide relevant inputs into the multi channel

move decision, and therefore must be part of the research into the determinants

of multiple channel strategies. The benefits that can be obtained from such a

distribution strategy have sometimes been mentioned in the literature, but its

potential problems have been discussed less frequently. The importance of

2 THE SERVICE INDUSTRIES JOURNAL

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these factors in the design of multiple channels has seldom, if ever, been

discussed. Consequently, this article has the potential to help managers

better assess the extent to which a multiple channel strategy is worthwhile to

consider, and to alert them to related factors that should be taken into

account at the channel design stage. Furthermore, this article also provides

insights that can and should be included in empirical research into the determi-

nants of multiple channel strategies.

This work is organised as follows. Firstly, we present the major methodo-

logical choices associated with the study. This is followed by a review of the

potential benefits and drawbacks that can be generated by multiple channels.

Then we discuss and demonstrate how important are the considerations of

these potential benefits and drawbacks at the design stage of these channel

systems. This discussion is complemented with excerpts of ongoing discus-

sions we are having with some managers in the financial services industry

on the determinants of multiple channel strategies. Finally, we present some

suggestions for future research.

METHODOLOGY

The nature of this article is necessarily exploratory in nature. The first step was

to look at the available, if scarce, literature on multiple channels in order to

derive a set of potential pros and cons for multiple channels. In the same

vein, the authors have also looked at the general and financial press, searching

for supporting evidence and key issues facing those companies adopting

multiple channels. Finally, these insights have been complemented with

exploratory insights of a qualitative nature gained from interviews with

about 30 key informants in financial services organisations. Interviewed com-

panies covered different sectors of the industry, namely unit trusts, mortgages,

personal pensions and motor insurance, in order to ensure a sample with

varying channel strategies. A convenience sampling procedure was followed,

aiming to secure a sample of companies with a range of organisational

characteristics and distribution strategies.

The interviewees typically hold sales and marketing executive responsibil-

ities and senior marketing manager/business analyst positions, although there

are also some corporate marketing and strategy planners, distribution strategy

managers, a chief executive, an operations director and an assistant general

manager. Reliance on the key informant technique is widely popular in

marketing research. Campbell [1955] demonstrated that key informants are

able to provide accurate data when they are in a position that provides

them with specialised knowledge about the research interest, and when

they are able and willing to talk to the researcher. In this vein, John and

MULTIPLE CHANNEL SYSTEMS IN SERVICES 3

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Reve [1982: 522] found that information they collected from single infor-

mants on more perceptual, less concrete phenomena to have good validity

and reliability. Nonetheless, we should note that several studies have criticised

the reliance on a single informant to measure organisational characteristics,

arguing instead for the utilisation of multiple informants within organisations.

For example, Phillips [1981] observed that high-ranking people compared

to their counterparts at lower ranks, provided more reliable information

for certain issues, but not for others. This author points out that different

informants may have different information sets or may give different

weights to different events/facts or developments.

The selection of the financial services industry as the basis for obtaining

the empirical evidence was driven by the fact that multiple channels are

common in the distribution of financial services. This situation is evident

from the general and financial press, as well as from academic literature

[see, for example, Easingwood and Storey, 1996]. Examples of the channels

being used by financial services organisations include branch networks,

direct sales forces, different types of intermediaries (Independent Financial

Advisers, brokers, branded retailers), telephone, direct mail, direct response

advertising, Internet, digital TV and supermarket outlets. In addition, we

should note that the financial services industry is also characterised by increas-

ing uncertainty, due to changes in the competitive, regulatory, technological

and consumer arenas. Concomitantly, both new types of intermediaries

and direct channels are being used or experimented with. Given the limited

understanding of distribution in dynamic environments, the financial services

sector provides a rich context for conducting research.

THE POTENTIAL BENEFITS OF MULTIPLE CHANNELS

Multiple channels can deliver a number of benefits (see Table 1), in particular

a sales increase through better satisfaction of a company’s current customer

TABLE 1

THE PROS AND CONS OF MULTIPLE-CHANNEL SYSTEMS

The Pros The Cons

3 Sales increase 3 Customer resentment and confusion† Extended market coverage 3 Channel conflict† Improved satisfaction of the customer 3 Cost augmentation† Target 3 Loss of distinctiveness3 Cost reduction3 More and better information3 Reduction of Business Risks


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target and also through an extended coverage of the market, a reduction in

distributions costs, more and better information, and a reduction of business

risks.

Sales Increase

Extended Market Coverage. In general, one of the most important benefits is

the extended coverage of the marketplace, i.e. ability to access segments of the

market that were not previously reached by the company. Many markets are

becoming increasingly fragmented and demanding. Companies are facing

more experienced consumers, who are also wealthier and better educated.

Consumers are therefore becoming more demanding and the market frag-

mented. They want more finely tuned offers, i.e. they require products,

prices, communication messages and a delivery format that more precisely

serves their individual needs. The mass market is increasingly a rarity for

most products.

Each distribution channel has a specific cost structure and certain capabili-

ties that constrain the range and intensity of the goods and services it can

provide, therefore influencing the needs it can fulfil and ultimately, the sales

volume it can generate. Direct marketing channels, for example, can only

provide low levels of personal contact, therefore being of limited assistance

to some customers. These channels are not so effective at providing advice

for complex products. This is probably one of the reasons why direct

marketing channels have not made significant inroads into the distribution of

personal pensions in the UK. High personal contact channels such as tied

agents and direct sales forces still prevail in the distribution of such complex

products. Nonetheless, the limited assistance of direct marketing channels is

complemented with a very low cost structure that new entrants into the UK

financial services industry, which do not have to face the hurdles of traditional

channels, have been using to offer more competitive products. Consequently,

different channels enable a company to develop more purposely tailored

offers to access new market segments. At Wells Fargo, Internet customers

are seven years younger on average, earn 60 per cent more than the median

customer, and buy more financial services [Denton, 1997].

[Insurance company] [Developing new channels] in motor insurance is

also a way to get into another segment of the market. So the Internet

people . . . in particular Direct Line and Iron Trades are actually

targeting a different segment by offering a monthly policy.

Therefore, a company that uses multiple channels can serve the different

needs of additional segments, thereby increasing its sales volume and ensuring

a company’s growth. It has been noted that several industrial goods producers


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have been using multiple channels to target consumer segments and vice versa

[Quelch, 1987].

Improving the Satisfaction of Current Customers. Adding new channels, apart

from extending the offer to more customers in more effective ways, is also a

way to meet the evolving needs of a company’s current customer target

[Ennew, Wright and Watkins, 1989; Chandler, Goodrich and White, 1984].

Recently, consumers have become less loyal (as a result of mounting competi-

tive industry, for example) and often demand more quality and 24-hour

service. The growth in the number of partnerships in which both individuals

work has reduced the available time to spend on shopping. Consumers have

also been seeking more leisure time. Understandably, they are less willing,

for example, to visit bank branches.

Additionally, their purchasing behaviour is becoming more sophisticated.

They may use the Internet or a call centre to obtain information, and still end

up at the company’s branch, where they can find more effective information

and feel reassured enough to execute the transaction. These trends, coupled

with an increased penetration of telephones and computers, have allowed

companies to explore alternative ways to best meet the evolving needs of

their customers. Not surprisingly, banks have enabled their customers to

submit their stock exchange orders through the branch network, the telephone,

the Internet and even through home banking.

[Bank] [The telephone] was a conscious decision by us that people don’t

have the time to go around. If they see features of our product they

are more likely to phone up, just ask the details and deal with it

through the post.

Hence, the utilisation of multiple channels enables companies to improve

the satisfaction levels of their current customer targets, improving the

probability of repurchases and decreasing the probability of defection to

competitors.

Cost Reduction

Another potential benefit provided by the utilisation of multiple channels is

that companies can often increase their sales volumes while reducing their

absolute or relative distribution costs. This is the case when the company

substitutes low for high cost channels, or when the costs of distribution

actually increase but yield a smaller ratio of costs to sales, given the lower

costs of running some alternative channels.

Different distribution channels frequently imply different investment

needs and operational costs. Implementing and running a direct sales force

or branch network is much more expensive than running a call centre or


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direct mail campaigns. As transaction costs over the Internet have been esti-

mated to be one-tenth of the cost of branch transactions, the American bank

Wells Fargo is expecting a cost saving of $84 million a year as soon as its

online customers reach the one million figure. This bank is also obtaining

lower cost/sales ratios for kiosk branches that it is installing at supermarkets

[Denton, 1997].

In the UK, some estimates indicate that employing and keeping a tele-

operative involves a 40 per cent cost saving when compared to keeping a

salesperson in the field, and that a transaction over the phone is 66 per cent

more cost effective than a transaction over the counter [Reed, 1997]. Some of

the reasons why the distribution of products through remote channels can be

very cost effective is that such operations require lower investment needs and

can be settled at non-expensive locations, both in terms of land and labour

inputs. This yields much lower operational costs when compared to, for

example, branch networks.

Over recent years companies have been under pressure to cut costs,

particularly selling costs, which have been escalating at a high and unafford-

able pace. Since channels such as telemarketing cost only a small fraction of

other channels’ costs, it is not surprising to discover that companies are

increasingly replacing direct sales forces and branch networks with direct

marketing techniques.

[Pensions company] [The multi-channel move is] a bit of a cost drive.

Digital TV isn’t the cheapest distribution channel at the moment but in

time will be. There’s a [company name] pilot in [city] with some cable

TV providers . . . So it is something we are looking at. We have to

drive our costs down, we need slick administration procedures.

We need to try and push the administrative costs to the individual.

For example, we set up a web site where everyone can go and type in

their details, send it to us electronically, . . . that saves time and admin-

istrative expenses.

Finally, the increased sales volumes emanating from a higher customer

satisfaction and extended market coverage can also generate cost savings.

These savings come from larger-scale economies in production, research

and development, marketing and with inventories. These are economies that

can provide a valuable ‘strategic flexibility’ [Quelch, 1987: 52].

More and Better Information

A company that moves along the multi-channel route is increasing its means

to access the marketplace to collect information about consumers and the

market. Information is increasingly acknowledged as having a potentially

dramatic impact on competitiveness [Porter and Millar, 1985; Prahalad and


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Hamel, 1990].1 The impact of information (and of information technology)

can be seen at three different levels [Porter and Millar, 1985]:

. Information often leads to changes in the industry’s structure and thus to

changes in competition rules. In the financial services industry, the

utilisation of direct marketing techniques enabled insurance companies

to regain some channel power over intermediaries and to change

channel relationships. Entry barriers were probably heightened as a conse-

quence of the increased importance of information. But the new channel

moves also allowed customers to do more shopping around, leading to a

higher buyer power and, thus, to a lower price structure, as happened in

the airline industry [see Reuer and Kearney, 1994].. Information can be a tool to develop advantages over competitors. With an

improved marketing database, more refined customer profiles can be

developed, enabling a company to develop more customised offers

and to better define its targets. Besides providing more differentiating

possibilities, information can also be used to increase a firm’s competitive

scope and to reduce costs across value chain activities.. Information often leads to the development of new businesses, such as

selling the processing of credit card accounts’ abilities to others.

Clearly, this information advantage will be more important in more infor-

mation-intensive industries, where the ‘information content of the product’

and the ‘information intensity of the value chain’ are higher, such as the

airline and the financial service industries [Porter and Millar, 1985]. In this

context, it is important to recognise that an industry information sensitivity

can be built by companies’ efforts, as the airline industry has demonstrated

[Reuer and Kearney, 1994].

Reduction of Business Risks

Another benefit accruing from the utilisation of multiple channels is a

reduction of business risks. A company relying on a single channel, for

example intermediaries, may find itself in a vulnerable position, having to

respond to the strategies that the channel dictates. Such companies may

find it difficult to influence the prices, product mix and promotions of its

distributors, and to obtain support for the expensive activities involving new

product launches. In addition, companies might find themselves in the

hands of intermediaries because it is frequently the intermediaries who

‘own’ the customers, making the decision for them. These problems are

more likely when intermediaries can choose from a wide variety of suppliers,

who are therefore forced to compete aggressively.


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Therefore, the utilisation of multiple channels can, to some extent, enable

companies to cope with the above adverse consequences [Achrol, Reve and

Stern, 1983]. This strategy enables firms to multiply their sources of

revenue, reducing their vulnerability, vis-a-vis other more powerful actors.

The probability of being held hostage by others is reduced.

[Unit trust company] [Intermediaries] have a lot of choice in general.

Between ourselves and the intermediaries, who are in charge of the

relationship, we are the ones who are desperate for business from

the intermediaries. So they hold the balance of power. They can give

this business to somebody else. They make the decision for the consu-

mer. But it’s more and more the case that as the direct business is

growing they are losing part of it and bankassurers, big one-stop

shop factories are increasing their share of the market. So intermedi-

aries are under pressure.

The utilisation of multiple channel structures also enables companies to

reduce business risks by allowing them to serve additional segments. This

can be particularly important in the presence of volatile environments. In

these circumstances, the needs and preferences of consumers, and the

composition and size of segments change rapidly. Therefore, companies

focused on a single channel will be in a risky position, whereas those compa-

nies relying on a multi-channel system will be in a safer position, because

they have diversified their revenue sources.

[Pensions provider]We don’t know the way it will go. We can guess and

so we need to have as many distribution channels open to us as possible.

If it turns out that everybody goes to IFAs for pensions, than we ought to

make sure we can support IFAs. If it turns out suddenly that everybody

goes to building societies than we need to have that channel open. So we

must develop all these distribution channels waiting to see which one

turns out to be the right one. If you are not ready and if it turns out

that everybody buys pensions off the Internet, and you haven’t started

developing your Internet capability, than you are already 6 months

behind everybody else. And the market is just moving so quickly that

you can’t afford that.

Other Benefits

Finally, another benefit that multiple channels can potentially deliver is the

facilitation of testing and fine-tuning of marketing strategies [Quelch,

1987]. With such a channel strategy, products can first be launched for one

segment through one channel, and subsequently for others. This may enable


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the company to correct product characteristics, its price or communication

message, and therefore avoid costly mistakes and/or improve its marketing

efficiency and effectiveness.

THE PROBLEMS WITH MULTIPLE CHANNELS OF DISTRIBUTION

As has already been discussed, developing multiple channels of distribution

can help a company to increase its efficiency, effectiveness and adaptability

and to fine-tune a firm’s offer to environmental changes. However, companies

must temper these benefits with the potential disruptive effects and costs

which such systems can generate [Cespedes and Corey, 1990; Easingwood

and Storey, 1996; Moriarty and Moran, 1990]. In particular, we should

emphasise customer resentment and confusion, channel conflict and an

increase in distribution costs (see Table 1).

Customer Resentment and Confusion

With a multiple channel system, companies run the risk of creating consumer

confusion and resentment. The cause of this problem is the increased

likelihood that the product will be marketed with different prices and/or

service levels through different channels.

As has been mentioned before, different channels have different cost

structures and have different capabilities. Consequently, distinct channels

are likely to provide different levels of service and advice, and charge different

prices. In the desperate search for sales growth, some companies end up

selling the same product through different channels under very different

terms and conditions. In this context, smart buyers can attempt to use the

‘discount’ channel and end up obtaining the same product (though yielding

lower margins for the supplier) as those who buy through the more expensive

channel. The latter are likely to get upset when they find out they could get the

product cheaper. Even when products are adapted to different channels, which

therefore have a stronger rationale for charging different prices, consumer

confusion and resentment can emerge. Customers may not notice the slight

differences in such products, namely because the satisfaction of their needs

may not be significantly affected by such differences. Consequently, they

are likely to feel ‘cheated’ and to voice their complaints, generating bad

word-of-mouth and end up deserting the company.

[A multi-channel insurance company]We do get people writing in to the

chief executive saying “why is it that the price I got from my broker is

different from the price that you offered when I rang direct?” And we

have to explain it.


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Channel Conflict

A major problem that can emerge with multiple channels is conflict, either

inside or outside the organisation. Channel conflict occurs for many

reasons, one of the most important being that there are multiple units compet-

ing for the same customers, therefore reducing the sales potential of existing

channels. In addition, there is an increased likelihood that a customer will use

different channels on different occasions, therefore creating the problem of

‘who owns the customer’. This is a serious issue given that latecomer channels

might free ride on the initial channel’s efforts to win the customer.

Adding new channels to a distribution system usually implies changes in

the roles and, consequently, in the compensation of existing channels, which is

also likely to raise conflicts. Additionally, because distribution channels are

not only economic but also social systems, commitments among channel

members are also likely to generate resistance to change. Conflict can also

arise due to the channels fighting for the company’s limited resources, namely

in terms of promotional assistance or product development efforts. A further

barrier is compensation systems that may incentivise entrenched behaviours.

Channel conflict can be internal and/or external.

Internal channel conflicts are likely to arise when a company with a direct

channel adds other direct and/or indirect channels. In this situation, the pre-

existing channel will probably face a reduced sales potential, given the new

competition it encounters from other internal units or from the new interme-

diaries used by the company. Multiple channels are also likely to lead to

changes in the managerial support and resources received by internal units.

The lack of confidence in new internal units or in intermediaries’ capacities,

and the fear of losing autonomy, may cause a reduction in motivation in the

pre-existing channel and an increase in conflict. For example, managers

have reported that it can be quite difficult for a salesperson to work alongside

intermediaries who can have markedly different goals and motivations and can

even sell competitors’ products [see Cespedes and Corey, 1990].

External channel conflicts are prone to surface when a company with an

indirect channel adds other indirect and/or direct channels to its distribution

system. Dissatisfaction among existing intermediaries is likely to occur,

leading to inferior service levels and to a bias towards competitors’ products.

Some intermediaries may even terminate working relationships with the man-

ufacturer, which may be seen as a competitor, often directly or indirectly

(through other intermediaries) selling at lower prices and with lower service

levels, thus reducing their own sales potential. These conflicts are more

likely to arise and are particularly acute when a company’s previous indirect

channel is a high-cost, high-service provider [Easingwood and Storey, 1996].


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When General Electric decided to market its electrical products through com-

peting retailers, a considerable number of its distributors terminated working

relationships with the company, and relationships that had taken many years to

develop went through significant turmoil [Frazier and Antia, 1995].

For companies simultaneously adding direct and indirect channels, both

internal and external channel conflicts are likely to develop. For companies

designing their distribution systems from new, internal or external conflicts

are less likely to emerge, given that no expectations are broken, though

preventive measures are required.

With both types of conflict the likely consequences of conflict include

attrition and lack of co-operation among channel participants, lower service

levels, intermediary preference towards competing products, degradation of

communication flows and, ultimately, customer dissatisfaction and loss of

market share.

Not surprisingly, the potential for channel conflict restricts the number

of channels used by companies. Levi, which had made a great display of

selling its jeans directly through the Internet in 1998, had to stop this

channel because of strong opposition by its other retail channels [Anonymous,

2000: 16]. Life insurance companies in the UK have also been precluded

from, or at least have been delaying the introduction of other channels,

because of the effect on their direct sales forces.

[Unit trust company] If we were going to adopt direct channels in a

more committed fashion . . . we would have other concerns, because

we would set the direct channels in direct competition with brokers

and intermediaries. It can be seen as a hostile move and damage

these relationships . . . We don’t want to jeopardise the relationships

with intermediaries.

[Unit trust company] [Multiple channels can create conflict with interme-

diaries] if you are not careful with the way you market to different chan-

nels. The classical example might be that you market to a client (direct)

that is also a client of a financial adviser. You must be sure that they don’t

get mailed. Otherwise the adviser would be straight on the phone ‘Hey,

what are you doing, you are writing to my clients’. You have to be very

careful, and conflicts tend to rise. It is a possibility, but it’s something

that has not happened frequently because we are trying to be very

careful about making sure that we do not upset existing channels.

Cost Augmentation

Another problem is related to distribution costs. It was previously mentioned

that one of the advantages accruing from the utilisation of multiple channels is


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a reduction in distribution costs. For a number of reasons, however, instead of

demonstrating an absolute or relative decrease, these costs may in fact

increase.

The implementation of a multi-channel structure frequently requires

investment needs. A building society that had previously been dealing exclu-

sively through its branch network will face investment needs and an increase

in operational costs with the establishment of, for example, a call centre and/or

a sales force to deal with intermediaries. Costs will probably increase at least

in the short term given the need to hire more employees to support, monitor

and control the enlarged set of channels. These will require differentiated

products and prices, support programmes, performance evaluation mechan-

isms and compensation schemes and give rise to different conflicts. The

costs for coordinating a more complex structure are also likely to escalate.

The cost reduction may not take place as well because the replacement of

high-cost by low-cost channels may fail to attain its aims. Banks and building

societies, for example, have been investing in ATMs and call centres, hoping

to reduce branch traffic and, therefore, prune overall distribution costs.

However, these cost savings have not been forthcoming, at least not to the

degree that was expected. This outcome has two major causes.

Firstly, the implementation of additional channels often requires the

development of new capabilities, which is a difficult task to achieve. The

functioning of an organisation is stored in routines and involves tacit

knowledge, ‘not consciously known or articulatable by anyone in particular’

[Teece, 1984: 106]. Hence the development of capabilities, which involves

the process of acquisition, interpretation, evaluation, absorption and diffusion

of new information, can be very difficult and costly.

Not surprisingly, many companies end up facing an increase in costs

because the process of establishing and organising additional channels runs

into difficulties. Firms frequently lack, amongst others, appropriate routines

to: delineate the roles of each of the channels in the system; assess their indi-

vidual costs and allocate human and financial resources among channels;

appraise and reward the performance of different channels and to develop

appropriate tailored support programmes.

[Bank] We have a superb call centre . . . but it just added extra costs.

[The activities of the call centre] so far have been primarily service

banking, anticipating a reduction in customer branch traffic and hope-

fully saving money . . . What we haven’t at the moment is the selling

skills base that we need. We have very confident people operating the

telephone, but we must take salesmanship into the telephone.

Second, costs may also increase because customer behaviour may not

evolve as expected. With the development of multiple channels, companies


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frequently attempt to migrate low-value products and consumers from high-

cost/high-service channels to low-cost/low-service channels. However, this

migration often finds a serious obstacle: the behaviour of consumers. Changing

the behaviour of customers is not an easy task, particularly when it comes to

behaviour that is deeply rooted. Such changes tend to occur in a piecemeal

rather than a rapid fashion. The failure of many ‘dotcoms’ is a proof of that.

In addition, there is evidence that customers have been using these new

channels in addition to more traditional ones, and not as an alternative. So,

instead of reducing costs, a company may end up increasing its cost base.

Finally, it should be added that the possible need to adapt marketing offers

to different segments may also lead to more inventory costs and less efficient

production runs.

Other Problems

A multi-channel system enables a company to increase its sales volume

by allowing the company to serve additional segments. However, with this

development a company also runs the risk of losing its distinctiveness, diluting

its brand image.

[Pensions company] We are establishing the [company’s brand] in the

IFA channel and we will not sell direct. [The company brand] is an IFA

brand, it has a lot of brand value, and we don’t want to dilute it by trying

to do it direct.

[Insurance company] We have separated the direct from indirect

businesses. So if we keep these identities separate we can create a

brand value and communicate that personality in a specific way.

[Pensions company] That is a brand we invented to sell exclusively

through the intermediary.

DISCUSSION

Research on distribution channels can be divided into the two broad areas of

design and management [Frazier, Sawhney and Shervani 1990; Rangan,

Corey and Cespedes, 1993; Stern, El-Ansary and Coughlan, 1996]. Distri-

bution channels design is concerned with how to build distribution structures

that fulfil the essential role of creating value for consumers, involving issues

such as distribution intensity, channel integration, development of multiple

channels, intermediary structure and the allocation of work flows across

the channel. The other area of channel research is focused on the management

of channel relationships, involving questions, for example, about co-ordination

mechanisms and the concepts of power, conflict and their sources and use.


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The research on the drivers of multiple channels, which is urgently needed,

is in the broad area of channel design, whereas many of the benefits and

drawbacks of multiple channel strategies are issues of channel management.

Channel conflict, for example, may be a consequence of a company’s inability

to define appropriate roles and compensation mechanisms. Nonetheless, we

must be aware that channel design and channel management are interrelated

issues. In this context, it has been recognised that channel management

issues should be addressed at the channel design stage [Rangan, Menezes

and Maier, 1992; Stern, El-Ansary and Coughlan, 1996; Stern and Reve,

1980; Stern, Sturdivant and Getz, 1993)]

We now discuss several questions emerging from the potential benefits

and drawbacks associated with multiple channel systems, and whose scrutiny

at the channel design stage appears to be of extreme importance.

Are We Interested in Sales Growth by Extending Our Market Reach?

Multiple channels can provide extended market coverage. Consequently, this

suggests that those companies with expansionary motives will be more

likely to develop such channel strategies than those lacking ambitious

market plans. In fact, it is the case that many building societies have been

trying to expand their geographical scope through telemarketing operations,

associated with direct response advertising and direct mail, and even

through the Internet. These are channels that tend to cost a fraction of

branch costs, one of the reasons why they are a preferred option for smaller

organisations wanting to expand their geographical coverage. Similarly,

many unit trust and pension companies were highly committed to increasing

the weight given to direct marketing channels, which are predicted to have a

major role in the distribution of unit trusts and pensions, given, for example,

the level of competitive intensity, the reduction of charges that is being

imposed by the government, and the increasing sophistication of consumers.

Expansionary motives do raise other questions, such as: do we have the

capabilities to serve additional segments? The answer to this question is

frequently influenced by the business the company is in. In financial services,

for example, serving additional segments, namely through direct marketing

channels, will imply, for example, product simplification, which is not difficult

to achieve, given the nature of these services. For instance, several financial

services organisations were observed to be pursuing multiple affinity channels,

namely with hospitals, colleges, animal rights associations, football clubs,

county councils and professional associations. Product modifications were

minimal, involving at most amending the price and offering a few product

options to fit each target group. In other sectors, however, company image

and/or operational limitations might impose more restrictions on the segments

that a company can effectively serve.


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In addition, it is worth noting that many companies have established alli-

ances to enable them to pursue their expansion ambitions faster and with fewer

resources. For example, the Bank of Scotland and the Royal Bank of Scotland

established ventures with major UK supermarket chains. These new channels

proved to be highly cost effective, enabling RBS to add 400,000 new custo-

mers and Bank of Scotland 600,000 [Feuchtwanger, 1997], whilst building

their position in England outside their home base.

[A multi-channel unit trust company] Growth is more important than

profits. We can make money in the long run. Getting a critical mass is

important, initially.

[A pensions company about its investment in direct marketing channels]

There were segments of the market where we were not really penetrating

and we can do that with multiple channels.

[Building society]We are aware that competitors will also be there [in the

Internet] but we think it is an opportunity for us to slash costs and expand

out of our immediate area without the costs of developing branches.

Hence, a company’s expansionary motivations might constitute a signifi-

cant driver of the multi-channel route. In this context, companies will find it

useful to address the following questions prior to the development of multiple

channels:

. Can we achieve our desired sales growth by relying on our current targeted

customers?. What are the channels used by alternative segments?. Can such segments give us significant sales growth?. Do we have the image and competencies to reach other market segments?

Can We Significantly Improve the Satisfaction of Our Current Customer

Target through Multiple Channels?

Customer needs are evolving rapidly and competition is increasingly fierce.

This means that channel strategies that worked well in the past are less

likely to continue satisfying a company’s customer target group. Conse-

quently, it becomes important to frequently assess the extent to which the

existing channel structure still delivers the same or more value to customers

than competitors’ channels. Increasing satisfaction gaps can push the

company into the multi-channel route. If companies fail to attend to the evol-

ving needs of their customer base they put their survival at risk. In such

highly competitive environments the levels of consumer switching behaviour

tend to be higher because price competition is intense, and accessing and


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comparing information on competitors’ offers is easy and virtually costless, as is

switching between suppliers [Butaney and Wortzel, 1988; Porter, 1980]. This

competitive pressure is the result of the liberalisation of financial services, the

entrance of new players into the market, and pressure from the government to

simplify products and reduce charges.

Companies use additional channels, not just to attend to the differentiated

purchasing behaviours of their increasingly fragmented customer target, but

also to improve the level of after-sales service provided to customers.

For example, companies have been making a more extensive usage of tele-

marketing, direct mail and even electronic mail to deal with inquiries and to

extend the level of information provided to customers. Therefore, improving

the satisfaction of a company’s target base might involve developing a wider

range of channels to provide additional means with which customers can

access their suppliers as well as adding extra selling capability.

In this context, it should be noted that the trend towards consumer multi-

channel usage has been taking place in a fiercely competitive environment,

paralleled by technological developments. In competitive environments

companies must emulate the moves of its competitors. As noted by Miller

and Droge [1986], strong competition imposes the adoption of industry

norms on companies if they want to escape extinction. Hence, when compe-

titors launch new channels or service facilities, others have to follow soon.

This explains why the successful launch of eSchwab led Merrill Lynch and

many banks to establish Internet brokerage services.

[Unit trust company] There is a very broad range of needs . . . somecustomers will require advice, others will be sophisticated enough to

make decisions for themselves, or they want to have low cost and go

by discount brokers . . . some will be prepared to pay for advice, some

will want to go to discount.

[Pensions company] We use the telephone for after sales service, more

than we did 4 years ago because the IFAs were very defensive of their

customer base. They didn’t like the providers phoning the customer,

but the customer is saying we want to contact the provider direct now

and the IFAs also are having margin pressures and so some are

trying to push more of the servicing to the supplier.

In summary, trying to improve customer satisfaction may provide the

impetus to a multi-channel route. In this context, and following the above

discussion, companies should address the following issues:

. How are the needs of our customer target evolving?

. Are they still satisfied with our current distribution strategy?


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. How can new/other channels/technologies improve the way we deliver

value to our customers?. How can other channels improve our competitive position?. What new channels are competitors using and betting on?

Can Our Cost Structure Be Improved with the Utilisation of

Multiple Channels?

The fact that multiple channels can help streamline a company’s distribution

costs makes this a potent stimulus to the multi-channel route. In a highly com-

petitive world, the search for efficiency is paramount. Companies are under

pressure to compress all their sources of costs. As distribution can be a very

important source of costs, the prospect of efficiency gains in this area can

be an important stimulus to the multi-channel move. For instance, several

hotel chains have discovered the low cost of the web as a distribution

channel, and are planning to offer prices at a 10 per cent discount to the

prices customers pay through online travel agencies [Anonymous, 2002].

This potential gain raises the following question: Why are some compa-

nies not efficient at a particular point in time? One reason can be historical.

In the UK personal pensions business, many companies used to have a

direct sales force going door-to-door collecting just a few pounds a month.

The high charges enabled the utilisation of such a high cost channel, which

also provided the high levels of service expected by customers. Today,

competitive pressures have forced margins down so that a direct sales force

appears as an increasingly inefficient and inappropriate sales channel. Not

surprisingly, many companies have been downsizing and redesigning the

role of their direct sales forces, as well as devising new channels capable of

delivering the service in much more efficient ways. It is the long-term charac-

ter of distribution channels that can be a source of distribution inefficiency at a

certain point in time.

It is this potential reduction in distribution costs associated with the utilis-

ation of multiple channels that has been driving banks and building societies to

move low value-adding activities away from the branch network to channels

such as ATMs, EFTPOs, telephone and other technologically related channels.

However, and as noted before, companies must be aware that such invest-

ments may in fact add to costs, because customers may fail to adjust their

behaviours as intended, and the company may fail to appropriately manage

the increased organisational complexity.

[Insurance company] I think we are looking for less costly channels,

because out of the price you have to recover the cost of the claim, the

cost of acquiring the business, and the cost of handling the business.


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New channels, such as the Internet, have the potential to reduce costs.

Competitive pressure is so high that we have to look at new channels

to be more efficient at delivering our product.

In summary, attempting to reduce the company’s distribution costs may

constitute a powerful determinant of the multi-channel move. It would be

sensible therefore to address the following issues:

. What is our cost structure?

. What is the cost structure of alternative channels?

. Are there any other channels/technologies that could perform more

efficiently some of the functions performed by existing channels?. Can we migrate low value-added products to lower cost channels?. What will be customers’ reaction to such a change in distribution

channels?. What is the risk of cost proliferation with a multiple channel strategy?

Can We Use Information Generated through the Utilisation of

Multiple Channels to Improve Our Business Performance?

Moving into multiple channels can provide a company with valuable infor-

mation that has the potential to improve its competitive positioning. Adding

a direct channel, for example, will provide direct access to consumers.

It also provides new opportunities for cross selling, which, in turn, can

provide additional resources for investing in new channels. Hence, the

benefits associated with the acquisition of new information can provide a

significant impetus to the adoption of multiple channels.

In this respect it is relevant to note a recent trend associated with single

product direct marketing insurance companies. Lacking sufficient scope

economies, many of these have become brokers, selling the products of

other companies, making use of their information to cross-sell products.

Companies like Direct Line and Virgin have added to their product range to

enable them to increase cross-selling activity and make a more efficient use

of their databases and operational capacities.

Information, properly interpreted, can lead to new company structures,

better positioning, and to new businesses. Therefore, and in order to maximise

the returns from a multiple channel strategy, companies examining the rel-

evance of the multi-channel route should address the following key questions:

. What new information can we gain by going multi-channel?

. Can we improve our marketing proposition with this additional infor-

mation?


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. To what extent can we use this information to improve the cross selling

of our product range?. Can we use this information to market products from other companies?

How Important is it to Diversify Our Business Risks?

A multi-channel strategy can help a company reduce its dependence, and

therefore the risks, associated with the utilisation of a single channel or the

servicing of a small number of segments. To cope with this situation, an

‘organisation may develop alternative sources. By scattering its dependence,

it prevents the concentration of power over it. It need not concede power to

a single element of the task environment’ [Thompson, 1967]. Consequently,

companies may reduce risk by moving towards multi-channels. Users of a

single intermediary channel may feel particularly vulnerable, as it is the

supplier that is most in need of business from the intermediary. In addition,

the intermediary interacts with and owns the customer. The intermediary

may even make the decisions for their customers, one of the reasons the

customer may be more loyal to the intermediary than the service supplier.

Direct business, in contrast, has the advantage of giving the company more

control over its customer profile.

Another reason why multi-channel adoption can help companies reduce

their business risks concerns volatility amongst their target customers. The

financial services market is changing fast, as a result of supply and demand

drivers. Companies may find it difficult to spot the most important channels

of the future, particularly for pensions and unit trusts. This uncertainty

has been driving many companies to experiment with new channels, such as

the telephone, Internet and digital TV. These experiments are important

because they allow a company to learn about the technology, consumer beha-

viour and the environment. If the market turns in the opposite direction

expected, the firm will be able to stop its initial investments and minimise

its losses, which is essential if the company is to be in a position to make

further investments [Day and Wensley, 1988: 7]. It is these learning devices

that ensure adatability, which is key for learning organisations [Senge, 1995].

[Unit trust company] Advertising is expensive, but you can control your

distribution, the big advantage, whilst IFAs can turn off the tap; they are

not under our control. Direct gives you more comfort, more balance.

[Pension company] From an organisation perspective we wanted to

diversify distribution. In particular, the IFA market is extremely com-

petitive and intermediaries act as a controller of the manufacturer,

forcing the price down and requiring a commission. And also they are

in control of the customer, which is perhaps the biggest single issue

for us. We have about [several million customers] who technically


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don’t belong to us, because most of our business comes from IFAs. And

that is quite a risky position to be in. We decided to move from a single

channel to multiple distribution . . . The bigger reason is we wanted not

to rely on IFAs.

Hence, multiple channels can help a company reduce its dependence on

particular channels and its vulnerability towards environmental change.

Companies need to address the following issues:

. Are we too dependent on intermediaries, or on any other channel?

. What is the pace and direction of change in our customers’ needs?

. Is our focused strategy putting us in danger because of changing

customers’ needs?. What other new channels are on the horizon?

What is the Potential for Customer Confusion and Resentment?

A company that uses multiple channels risks increasing the level of intra-brand

competition. In this context, building supportive relationships with different

channels becomes more difficult. As a result, channels might start shedding

duties and ride on other channels’ efforts, namely in terms of advertising,

selling and servicing efforts. Discrepancies in prices, after-sales services

and selling efforts are therefore more likely to develop between channels.

The co-ordination of distribution activities, which is extremely important

for some products, becomes increasingly complex and difficult to ensure

[Frazier, 1999], endangering a firm’s intended position [Cespedes, 1988;

Frazier and Lassar, 1996].

In addition, when consumers are very concerned with a specific purchase,

they tend to seek out more information as well as personal sources of infor-

mation before making their purchase decisions [Bucklin, Ramaswamy and

Majumdar, 1996; Schiffman and Kanuk, 1990], in order to ensure that the

product fits their needs and that they do not lose important benefits.

Consequently, the range and quality of the output services provided by a

specific channel can strongly influence the way customers’ needs are satisfied.

Not surprisingly, many companies still bet on personal sales channels for rela-

tively complex products like pensions, whereas relatively simple products like

motor insurance sell through both personal and direct marketing channels.

Notwithstanding, there are companies selling simple products through

single channels. The reason is that they can then cultivate good relationships

with intermediaries, so that the intermediary can understand the idiosyncrasies

of the supplier. In a similar vein, some companies manage to pursue the

multi-channel route by establishing different brands to avoid confusion.


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[Building society] More complaints are coming through intermediaries

than through direct channels. We end up paying compensation for their

faults.

[Pensions company] Sales force is an expensive strategy but we need to

have them because our customers need a high level of financial advice,

they are not financially sophisticated . . .We see the telephone as

dangerous especially with the new products that they don’t understand,

like the stakeholder pension.

[Insurance company] They take time to learn our ways of doing things.

We want credit checks and also the education level . . . that is different towhat all insurers want . . . so they have to learn how to do that.

In order to avoid alienating its customers, companies considering the

multi-channel move should address issues such as:

. What is the complexity of our product?

. Does it require extensive selling and servicing efforts?

. Can we effectively adapt our offer for different channels?

. What is the risk of our product ending up being sold in different channels

with significantly different services and prices?. What is the potential for alienating our customer target?. Will we be able to adequately control the activities of the different

channels in the distribution system?

What is the Potential for Destructive Channel Conflict?

Conflict among channels can adversely affect a firm’s outcomes. In this

context, it is likely that companies anticipating seriously disruptive conflict

will avoid the development of multiple channels. Consequently, potential

channel conflict will constitute a powerful deterrent to the multi channel

move, helping to explain why some companies do not move along the

multi-channel route.

In fact, many companies were observed not to engage in multi-channel

selling as this could jeopardise their relationships with their intermediaries.

However, other companies were actively pursuing the multi-channel route,

though taking the necessary steps to avoid conflict, including differentiating

products and prices that move through different channels, charging the

same price when they sell the same product across channels, paying a

commission to intermediaries when their customers buy direct, and even creat-

ing separate companies to deal with different channels. Many suppliers

believe that intermediaries, though not liking their suppliers going


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multi-channel, are increasingly reconciled to such a move, given the level

of competitive intensity facing their suppliers in the UK financial services

industry.

In addition, recall that obstacles and resistance to the evolution of the

channel strategy may come from internal as well as external sources. A few

companies were observed to have delayed the introduction of multiple

channels, due to opposition from the channels due for downsizing.

However, it should be noted that this resistance only seemed to delay the intro-

duction of additional channels, rather than constituting a perennial obstacle to

the multi-channel route. At some point in time, companies seem to find the

determination to make the costly and painful decisions associated with such

changes in distribution strategy, including completely closing down their

direct sales force.

[Insurance company] We have separated the direct from indirect

businesses. One of the major reasons is that [company name] sells pri-

marily through brokers and . . . there is a political sensitivity that . . . ifyou sell through insurance brokers and then if you sell direct to the

public at lower prices, insurance brokers don’t like it. So, one way of

avoiding that conflict is by creating different companies to deal with

different channels.

[Pensions company] We are going from single to multi-channel. We

have people here who don’t want to change . . . By next year our sales-force will be considerably smaller than what we have now. Affects

people’s futures, so it’s real business.

A company considering the development of a multiple distribution system

should address the following questions:

. Are channels compatible with each other?

. What is the potential for destructive conflict?

. Can we manage the potential conflict?

. Is it possible to demarcate each channel’s customers or functions in such a

way that conflicts are not likely to appear?. Can we compensate channels for the economic losses they may suffer

resulting from the development of a multiple channel strategy?

Do We Have the Capabilities and Resources Required by a Multiple

Channel Strategy?

The development of a multi-channel distribution strategy tends to require

additional channel capabilities. A company adding direct marketing channels


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to its distribution structure will have, for example, to acquire expertise on build-

ing, mining and managing databases. Adding an outlet chain to a catalogue

business will require capabilities related to selecting the location of outlets,

merchandising, inventory management, sales staff training and so on.

Consequently, moving into multiple channels without the required capabilities

is likely to result in less than optimal benefits and in a higher likelihood of

the problems that can be associated with a multi-channel strategy actually

happening, namely conflict, customer resentment and cost augmentation.

It is therefore likely that a company’s perception of its channel capabilities

will influence its channel choices, therefore helping to explain why

some companies take the multi-channel route and others do not. In fact, a

number of companies have been making limited utilisation of additional

channels because they lack people with expertise in needed areas. The

lack of internal expertise isn’t a major concern, as long as a company

has the resources to obtain such expertise outside, but this was not always

the case.

The issue of financial resources is a key matter in its own right. Devel-

oping additional channels frequently brings additional investment needs,

such as in building call centres or an Internet site enabling transactions

online. Some smaller companies indicated that they were constrained by

their limited size, but others were able to make extensive utilisation of

multiple channels by organising their limited resources in very creative

ways. For instance, some smaller building societies, lacking the financial

resources to create adequate call centres, invested in direct response advertis-

ing in local newspapers, directing part of the resulting calls to their branch

networks.

[Unit trust company] The basic problem with channel strategies and the

development of a channel is that . . .we often have the ideas to develop

channels but not the system to back that up. How reliable is your client

and broker database, how easy is it for your systems to segment your

database, how reliable is that breakdown, and these are top problems

for fund managers. Our database is far more complex than we

wanted . . . So it is very difficult for us to get our database accurate.

And that is a major drawback for our marketing strategy and business

development.

[Building society] We are not doing any DRA at all. We appear in the

best buy tables and that is our advertising at the moment.

[Unit trust company]We can’t afford DRA. If you are going to do some-

thing like this as a campaign you probably have got to spend £10m a

year, and you have to have people in the office answering the phone.


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Consequently, and despite all the attractive benefits that a multiple channel

strategy can yield, companies must scrutinise issues relating to capabilities

and resources that are raised by the development of such strategies, namely:

. What are the capabilities required by other channels?

. Do we have such capabilities?

. Can we develop them in a reasonable time?

. Can we acquire them in the market at an affordable price?

. Do we have the resources to support such a channel move?

. Can we creatively mobilise our resources to address the multi-channel

challenge?

CONCLUSION AND DIRECTIONS FOR FUTURE RESEARCH

The development of multiple channel systems in services is becoming increas-

ingly popular. Despite this popularity and the significant impact of such

strategies, the drivers of these channel systems have not been examined in

sufficient depth in the existing literature on services distribution theory.

Given the embryonic state of research into the emergence of multiple chan-

nels, there is a pressing need for both theoretical developments and empirical

investigations. In particular, there is a need to develop guidelines so that

managers can make more systematic decisions on multiple channel strategies.

This article has provided a discussion of some of the most important posi-

tive and negative outcomes that can be generated by a multiple channel

strategy. A clear understanding of these issues is required in order to make

informed channel decisions. In particular, it should help companies to identify

the net benefits to be expected from such a distribution strategy and whether it

is worthwhile to pursue the strategy.

In addition, it was demonstrated that the potential benefits and drawbacks

that can be created by this channel strategy provide insights that can help

understand why some companies adopt multiple channels and others do not,

along with key managerial issues that a company should focus on and

discuss prior to developing multiple channels. Therefore, these benefits and

drawbacks should be incorporated into empirical research on the drivers of

multiple channel strategies. In a similar vein, Erramilli and Rao [1993]

have claimed that integration may have benefits and costs that have not

been appropriately incorporated into research of distribution channels

integration.

Research into multi-channels should also look at those theoretical perspec-

tives that have been used in other channel design issues, and which may there-

fore have some explanatory power vis-a-vis the adoption of multiple channels.

These include transaction cost theory, the resource-based view of the firm and

the environmental uncertainty concept from the organisational–environment


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interface literature. Transaction cost theory, with its concepts of asset speci-

ficity, behavioural uncertainty and environmental uncertainty, has been

widely applied in research into channel integration and can therefore have a

potential explanatory power over the multi-channel choice. In fact, this

theoretical perspective has already been applied, though in a limited way but

with some success, into the emerging research on multiple channels (see

Dutta et al., 1995).

A growing research trend has been an assessment of the impact of a firm’s

bundle of resources and capabilities to explain organisational performance,

governance modes and the organisation of economic activity in general.

The resource-based view of firms shifts the attention away from a perfect

market for factors assumed by transaction cost theory, to how firms develop

different bundles of resources and capabilities over time. Despite it being

at an early stage of development, and despite its measurement difficulties

[Collis, 1991; Madhoc, 1997; Yeoh and Roth, 1999; Williamson, 1999],

this perspective has already been used with some success to explain, in the

distribution area, international entry modes.

The impact of the environment on an organisations’ structures, internal

processes (e.g. information systems and decision processes) and inter-

organisational arrangements has long been acknowledged [see, for example,

Aldrich, 1979; Lawrence and Lorsh, 1967; Perrow, 1970; Thompson, 1967].

As a consequence, a substantial amount of theoretical and empirical research

has been undertaken to understand the organisation–environment interface.

The idea that the environment should affect organisational choices arises

from the observation that ‘the maintenance of organisations depends upon

some degree of exchange with outside partners’ [Child, 1972: 3]. This idea

that organisations are influenced by and influence the environment has

embedded an open systems perspective in research thinking, and can be very

useful for understanding exchanges and governance issues in a distribution

channels’ context. The concept of environmental uncertainty has in fact been

considered to be a ‘key organising concept’ for analysing channel environ-

ments. In particular, Stern and Reve [1980] and Achrol, Reve and Stern

[1983] considered environmental uncertainty to be a major dimension in

their framework for analysing the environment of marketing channels, affect-

ing issues such as channel control, co-ordination, conflict, integration and

power-dependence relations, therefore constraining strategy choice. A ques-

tion of particular importance is the impact of different types of environmental

uncertainty, e.g., environmental heterogeneity, volatility, interconnectedness

and conflict on multi-channel usage. In addition, it should be considered

that the environmental uncertainty dimensions that have been developed

within the organisational environment literature complement transaction

cost economics, which takes environmental uncertainty as one of its major


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explanatory variables. One issue that remains to be addressed is whether

environmental uncertainty has effects only when associated with asset

specificity, or has effects on its own.

Every theoretical perspective has strengths and weaknesses [Williamson,

1999], and because they offer different arguments to explain the same

phenomena, they can be seen as competing perspectives. However, none

can provide a complete account for explaining channel design issues, and

for this reason they also complement each other.

Closely related to the present paper is quantitative research into the

relationship between the number of channels and the various dimensions

of channel performance. Channel performance is intrinsically linked to the

accomplishment of organisational goals. Consequently, the potential contri-

bution of different channel arrangements to organisational goals will be a

major issue affecting choice over the number of channels in the mix.

In summary, this article has provided an overview of multi-channel design

and management and highlighted a number of issues that will hopefully help

researchers set their agendas. It is clear that there is much scope for future

research into multiple channel strategies, and that such research can be

expected to produce some valuable findings.

ACKNOWLEDGEMENT

Dr. Filipe Coelho gratefully acknowledges a research grant from Fundacao para a Ciencia eTecnologia (Portugal).

NOTE

1. For example, the knowledge acquired by airlines through computer reservation systemsallowed them to move into direct marketing distribution [Reuer and Kearney, 1994].

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Multiple channel systems in Services - Doutor Filipe Coelho