Channel Diversity, Product Diversity, and Firm Performance

Abstract

It is widely believed that the surge of online and mobile channels are revolutionizing many customer-facing businesses such as retailing, finance, entertainment, and transportation. This paper investigates the performance effects of a firm’s multi-channel and multi-product strategies. Using the U.S. credit union industry as the empirical context, the study shows that credit unions that operate a full spectrum of channels, including physical branches, ATMs, telephone banking, online banking, and mobile banking, have both higher profitability and lower profit volatility. In addition, the study finds that both the profitability enhancing and the volatility suppressing effects of multi- channels become stronger when firms also offer a diverse set of products in certain product categories. Particularly, loan product diversity enhances the influence of multi-channels on profitability, while deposit product diversity enhances the influence of multi-channels on suppressing profit volatility. These findings generate new insights on channel-based strategic differentiation as a competitive strategy.