Choosing the right multiple channel system to minimize transaction costs

Abstract

This paper proposes that firms can use a transaction cost approach to make multiple channel system design related decisions. The author differentiates between two types of multiple channel systems and hypothesizes that transaction asset specificity, behavioral uncertainty and environmental uncertainty lead manufacturers to adopt either a dual channel system or a multiple independent channel system. Furthermore, the author proposes that when all three transaction cost variables match with the type of multiple channel system used, firms can minimize their transaction costs and eventually increase their channel system performance in terms of contribution to firm profitability. The author tests the hypotheses with survey data collected from 229 firms. The results support that the fit between the type of multiple channel mix and the three transaction-cost theory variables results in lower transaction costs and higher contribution to profit. The author presents theoretical and managerial implications.