Paper

MIT

Massachusetts

Institute of Technology

Summer 1997

Volume 38

Number 4

Erin Anderson,

George S. Day &

V. Kasturi Rangan

Strategic Channel Design

Reprint 3845

This document is authorized for use only by Huilin Wang in Channel & Distribution Strategy taught by Christine

Schaaf from January 2013 to March 2013.

For the exclusive use of H. WANG

Strategic Channel Design

Erin Anderson • George S. Day • V. Kasturi Rangan

When choosing distribution channels,

companies need to rely on design

principles that are aligned with their

overall competitive strategy and

performance objectives.

A

ccelerating technological change, heightened

marketplace demands, more aggressive global

competition, and shifts in the workforce and

population demographics are affecting distribution

channels, forcing companies to reconsider fundamental assumptions about how they reach their markets.

The magnitude of change demands a strategic perspective that views channel decisions as choices from a

continually changing array of alternatives for achieving

market coverage and competitive advantage — subject,

of course, to the constraints of cost, investment, and

flexibility. Tactical responses, based on maintaining

power balances, managing conflicts, and minimizing

transaction costs to pursue greater efficiency, will not

suffice.

Changes in distribution channels come slowly, partly because the inherent complexity of the many links

that connect value-adding functions in a channel obscures the need for change. Distribution channels are

also dauntingly rigid and stable because of powerful,

persistent inertia. Faint-hearted managers, unwilling to

disrupt existing channels and incur predictable shortrun costs for less certain gains from a new configuration or approach, may become discouraged, resulting

in a growing mismatch between the firm’s overall strategy and its means of distribution. Our main premise is

that the pressures for change are...