Journal of Marketing Channels

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An Empirically Derived Taxonomy of

Manufacturer–Retailer Channel Structures

Mert Tokman, George D. Deitz & R. Glenn Richey

To cite this article: Mert Tokman, George D. Deitz & R. Glenn Richey (2015) An Empirically
Derived Taxonomy of Manufacturer–Retailer Channel Structures, Journal of Marketing
Channels, 22:4, 279-298, DOI: 10.1080/1046669X.2015.1113492

To link to this article: http://dx.doi.org/10.1080/1046669X.2015.1113492

Published online: 23 Dec 2015.

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 Journal of Marketing Channels, 22:279–298, 2015
Copyright # Taylor & Francis Group, LLC
ISSN: 1046-669X print=1540-7039 online
DOI: 10.1080/1046669X.2015.1113492

An Empirically Derived Taxonomy of Manufacturer–Retailer

Channel Structures
Mert Tokman
Department of Marketing, College of Business, James Madison University,
Harrisonburg, Virginia, USA

George D. Deitz
Department of Marketing & Supply Chain Management, Fogelman College of Business and
Economics, University of Memphis, Memphis, Tennessee, USA
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R. Glenn Richey
Department of Aviation and Supply Chain Management, Raymond J. Harbert College of
Business, Auburn University, Auburn, Alabama, USA

Despite efforts at channels theory integration, observers note that this literature lacks a
systematic taxonomy of channel systems that reflects the literature’s diversity. This study
advances a framework that depicts channel structure as being composed of two dimensions:
operational integration and joint decision-making. It also illustrates the sociopolitical,
economic, and strategic antecedents to channel structure. Using finite mixture regression,
differences in various types of manufacturer–retailer channel structure are explored. Based
on this analysis, six classes of manufacturer–retailer channel structures are identified.

Keywords: finite mixture regression, political economy, shared decision-making,

taxonomy of manufacturer–retailer channels, United States

The management of channel relationships is widely
recognized as a defining aspect of business policy, one
that influences strategic decision-making across the
breadth of the organization and whose importance is
heightened by its inherent long-term consequences
(Dwyer & Welsh, 1985). By skillfully managing channel
relationships and fitting exchange patterns and roles,
firms are better able to take advantage of emergent
opportunities and deflect threats (Ganesan et al., 2009).
Address correspondence to Mert Tokman, PhD, Department of
Marketing, College of Business, James Madison University, MSC
0205 - ZSH 522, Harrisonburg, VA 22807, USA. E-mail: tokmanmx@
jmu.edu
Color versions of one or more of the figures in the article can be
found online at www.tandfonline.com/wjmc.
As these channel relationships may take varied forms
and evolve along dissimilar trajectories, it is not surpris-
ing to note that scholars have employed a variety of per-
spectives in defining and classifying channel structures.
In general, classification schemes help researchers
organize and process data more efficiently (Vanderstrae-
ten & Matthyssens, 2008). Moreover, classifying concepts
helps theoreticians develop contingency models where the
relationship between variables may vary based on the
class membership (Hunt, 2002; Mathieu, 2001). There-
fore, the purpose of this study is the development of an
empirically derived classification of manufacturer–
retailer channel structures.
Early research classified channels based upon the func-
tional task assignments of constituent members and physi-
cal attributes of the channel (e.g., Clark, 1937). In
proposing the principle of postponement speculation,
 280 M. TOKMAN ET AL.
Bucklin (1966) later defined channel structure more
strictly in terms of length, with indirect (direct) chan-
nels providing shorter (longer) lead times. Warren
(1967) later proposed a typology based upon the level
and type of power employed to secure trading-partner
compliance, with constituent types including corporate,
contractual, administered, and conventional channels.
These early attempts at marketing channel classification
schemes not only played a critical role in theory devel-
opment but also helped channel managers better under-
stand the differences among various channel types and
develop unique solutions for each type.
Later research extended these traditional views, empha-
sizing perspectives such as political economy (Marshall
et al., 1998; Stern & Reve, 1980), transaction costs (M.-
S. Chen et al., 2006; Williamson, 1985), relationship mar-
keting (Dwyer et al., 1987; Li & Dant, 1999; Morgan &
Hunt, 1994), multichannel utilization (Payne & Frow,
2004; Rosenbloom, 2007), and size asymmetry (Johnsen
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& Ford, 2008) in depicting the nature of channel dyads
along with the antecedents and outcomes of channel struc-
ture. Although the understanding of channel relationships
has been deepened by these diverse perspectives, the litera-
ture largely remains balkanized.
This is not to say that there have not been a number of
laudable efforts made to integrate the various strands of
marketing channel theory. For instance, Weitz and Jap
(1995) classified channel relationship management
research based on the mechanism used to control and
coordinate channel activities performed within ongoing
relationships. Cannon and Perreault (1999) developed
an empirical taxonomy that categorized buyer–seller
relationships in terms of six underlying relationship
‘‘connectors.’’ Auh and Menguc (2009) incorporated
the resource-based view of the firm with such insti-
tutional factors as societal and political issues to explore
resource utilization in business markets. These typolo-
gies have been very helpful for suppliers to develop an
understanding of managing relationships with various
types of buyers.
Still lacking, however, is an empirically derived taxo-
nomic framework that integrates not only the relational
aspects of the buyer–supplier channels but also the polit-
ical economy and transaction cost aspects. For instance,
Frazier (1999) lamented the absence of a well-defined
marketing channel typology, suggesting that existing
models commonly fail to take into account the role of
context. As a result, ‘‘sweeping generalizations are often
made, with the possibility that the predictions and
empirical results may hold only in certain channel
systems left unaddressed’’ (Frazier, 1999, p. 238). More-
over, Brown and Dant (2009) observed that previous
studies on retail channel issues have focused mostly on
social exchange theory and relational views with almost
no utilization of analytical modeling tools. Both Frazier
and Brown and Dant suggested that efforts to develop
improved marketing channels classification schemes
could have significant benefits to the literature and
greatly aid the maturation of the field.
In an ambitious attempt at integration of diverse
perspectives, Robicheaux and Coleman (1994) intro-
duced a framework of channel structure grounded in
political economy, transaction costs, and relational
views. Examining concepts from multiple perspectives
provides complementary rationale and enriches the
theoretical explanation of the phenomena in hand
(Hoskisson et al., 1999). For instance, relationship-based
views determine the channel structure factors whereas
political economy and transaction cost perspectives help
in identifying the key environmental, economic, and
sociopolitical antecedents and outcomes of the channel
structure for the members of the channel. However, the
Robicheaux and Coleman typology is developed
conceptually (a priori) and therefore possesses inherent
weaknesses in theory development (cf. DeSarbo et al.,
2006). Also, this framework was developed as a general
model for a variety of marketing channel relationships
and did not take the role of context into account. There-
fore, it endures the limitations articulated by Frazier
(1999).
This study extends the Robicheaux and Coleman
(1994) framework by addressing generalization issues
regarding previous studies on marketing channel
typologies (cf. Frazier, 1999). It also sheds light on the
complexities of the issues specific to manufacturer–
retailer channels (H. Chen et al., 2011; Yan, 2011). Our
primary research questions are as follows:
Research Question 1: Is there a meaningful num-
ber of manufacturer–retailer channel classes
based on the various levels of association
between channel structure variables and their
economic, sociopolitical, and strategic
antecedents?
Research Question 2: Do significant differences
exist across identified classes of manufac-
turer–retailer channels in terms of economic
and polity performance?
Using survey data from retail managers, we explored
these questions through the application of a finite
mixture regression model. In this model, variables repre-
senting two key dimensions of channel structure, joint
decision-making authority and operational integration
(Robicheaux & Coleman, 1994), were regressed upon a
set of theory-supported predictors that correspond to
internal=external economy and polity factors and to
the retailer’s product-market positioning. The
covariance between the two channel structure variables
 TAXONOMY OF MANUFACTURER–RETAILER CHANNELS
was allowed to vary across classes as was their intercepts
and variances. Thus, manufacturer–retailer channel
classes were identified based upon differences in the
covariation between the channel structure dimensions
and the extent that each dimension was driven by each
of the independent variables (i.e., betas).
This article first provides conceptual grounding for
our taxonomy through a discussion of the literature on
channel structure and performance. Next, we introduce
the variables that outline the taxonomic model intro-
duced in this study. We then provide an overview of
study methods, including sampling, measurement, and
a description of our finite mixture regression analysis.
Following a summary of results, we conclude with a dis-
cussion of the theoretical and managerial implications of
the findings along with study limitations and future
research recommendations.
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CONCEPTUAL DEVELOPMENT
Channel Structure: A Modified Political Economy
Framework
The political economy paradigm (PEP) views social
systems as comprising interacting sets of economic and
sociopolitical forces that affect behavior and perfor-
mance at both the firm and environmental levels. Within
a marketing context, Stern and Reve (1980) extended the
PEP by adapting it to ‘‘superorganizations’’ of market-
ing channel dyads. Most often, channels scholars have
categorized political economy variables along two axes:
political-economy and internal-external. Subsequent
FIGURE 1 Conceptual model. Manufacturer–retailer channel classes
are identified based upon differences in the strength of the relation-
ships between the antecedent variables and channel structure variables
as well as the covariation between the channel structure dimensions.
Differences in channel performance are expected between classes.
281
studies have analyzed political economies as the
structure, processes, and interaction of the following
four broad fields: internal economy, internal polity,
external economic environment, and external political
environment (Arndt, 1983; Marshall et al., 1998).
Robicheaux and Coleman (1994) advanced a framework
that artfully integrated PEP with transaction costs and
relationship marketing perspectives. Their article makes
two key contributions to the literature. First, the article
draws much needed conceptual distinctions between channel
structure, its antecedents, and its outcomes. Second, it more
narrowly defines channel structure in terms of two dimen-
sions: decision-making structure and operational inte-
gration. The present study adapts this framework, also
incorporating retailers’ product-market strategy, in present-
ing a taxonomic model of supplier–retailer channel relation-
ships. Over the following sections, we introduce variables
used in deriving manufacturer–retailer channel classes begin-
ning with the dimensions of channel structure. Figure 1
depicts our full conceptual model.
Dimensions of Channel Structure
Channel structure refers to the patterned, regularized
aspects of relationships between channel partners.
Robicheaux and Coleman (1994) described the structure
of an exchange relationship on the basis of the levels of
operational integration and decision-making structure.
Drawing from Noordewier et al.’s (1990) relational-
syndrome concept, Robicheaux and Coleman pointed
to information exchange as a key measure of operational
integration. Information exchange is defined as expecta-
tions of open sharing of information that may be useful
to both parties (Cannon & Perreault, 1999). More open
information sharing is indicated by channel members’
willingness to share important and proprietary infor-
mation as well as further cooperation (Kalafatis, 2002).
Within a manufacturer–retailer context, this might
include sharing cost information, developing exclusive
or private label product lines, and jointly providing
supply and demand forecasts.
With regard to decision-making (polity) structure,
Robicheaux and Coleman (1994) placed particular
emphasis on parties holding ‘‘a shared paradigm’’ as a
critical element of governance. When channel members
hold a shared paradigm, each is more likely to subordi-
nate its own short-term, self-interests to those of the
channel. In this study, we focus on shared problem-
solving by channel members as indicating the extent the
parties share responsibility for maintaining the relation-
ship itself and for solving problems that arise as time
goes on. As opposed to one party acquiescing to the
other, in shared problem-solving the exchange parties
work together to achieve mutual and individual goals
jointly (Cannon & Perreault, 1999).
 282 M. TOKMAN ET AL.
Although it would be reasonable to expect a moderate
to strong correlation between information exchange and
shared problem-solving, the two need not go hand in
hand for all dyads. The strength of the association
between the two dimensions may evolve over time as
the strategic interests of the parties become more deeply
intertwined (Holden & O’Toole, 2004; Kalafatis, 2002).
Previous research on strategic alliances suggests that
communication (information exchange) and joint actions
(shared problem-solving) are important aspects of
alliance management capability (Schreiner et al., 2009).
Resource-based theorists explain the difference between
capabilities and resources by suggesting that resources
are static assets and can be traded (e.g., financial, human,
and physical resources), whereas capabilities are dynamic
assets that are used to deploy static resources (Amit &
Schoemaker, 1993; Ethiraj et al., 2005; Grant, 1991).
Channel management is a complex interorganizational
coordination activity that requires appropriate levels of
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capabilities such as information exchange and shared
problem-solving between the channel members. There-
fore, it would not be surprising to find that levels of infor-
mation exchange and shared problem-solving may differ
in various types of channels. For instance, it would not be
unusual for channel members to develop relatively high
levels of operational integration with decision-making
authority resting primarily in the hands of a dominant
channel member (e.g., Walmart). Alternatively, channel
systems may persist without a strong emphasis on either
approach. For instance, manufacturers and retailers may
not wish to share sensitive information, fearing that
proprietary information will reach rivals (Weitz & Jap,
1995). Hence, the manufacturer–retailer relationships
can be placed from low to high levels on a spectrum of
information exchange and=or shared problem-solving.
Antecedents to Channel Structure
Within this study, we examine internal=external econ-
omy and polity, as well as product-market strategy, as
antecedents to channel structure. The internal economy
is described by decision mechanisms used to determine
terms of trade. Internal polity is most deeply influenced
by the distribution of power within the channel. The
external economy generally is held to involve factors
such as market variability and abundance of supply or
demand states. External polity is represented by competi-
tive intensity. We also examine product-market strategy
as a driver of channel structure, with the thought that
retailers will seek to configure their channels in support
of a distinct strategic position (Hughes & Morgan, 2007).
At this point, it is important to note that this study
views the relationship between each antecedent and
channel structure dimension as a contingent one; that
is, for some channels the relationship may be positive,
for some neutral, and for others negative. This is the
notion that allows this study to develop a classification
scheme rather than formally hypothesizing and confirm-
ing a directional association between each antecedent
and channel structure variable.
Internal Economy
The internal economy of a distribution channel may
be divided into two components: structure and process
(Stern & Reve, 1980). The internal economic structure
refers to the vertical arrangement or transactional form
of the channel. Operating within each internal economic
structure, however, are also certain processes or decision
mechanisms (Lancioni et al., 2005). In this study, we
focus upon channel volume as a key facet of channel
structure. As channel volume increases, parties are moti-
vated to integrate more closely to enjoy the benefits of
scale economies (Robicheaux & Coleman, 1994). Con-
versely, minor relationships do not warrant the time,
effort, and costs of extensive communication exchange,
nor do less important counterparts warrant extensive
consideration in strategic decision-making (Anderson
& Weitz, 1992).
In an empirical study, Klein et al. (1990) found that
channel volume exhibited a strong positive effect on
the level of channel integration. In addition, both John
and Weitz (1988) and McNaughton (1996) found that
channel sales volume has a significant impact on direct
versus indirect channel structure choice and on the use
of shared-control modes. Similarly, Lai (2009) found
that higher channel volume led to higher levels of
cooperation in buyer–supplier relationships. All of these
studies based their arguments on transaction cost eco-
nomics suggesting that higher channel volume indicates
greater economies of scale internally for the firms,
increasing the motivation for further cooperation, infor-
mation exchange, and shared utilization of resources
between the firms.
Alternatively in a business-to-business marketing
study, Chandrashekaran et al. (2007) suggested that
higher levels of business volume leads to increased
loyalty between the buyer and supplier based on an
increased switching cost argument that is a resource-
dependency perspective. Therefore, channel volume
may play an integral role in the level of information
exchange and shared problem-solving between manufac-
turers and retailers.
The extended absence of major contractual changes in
a manufacturer–retailer relationship suggests that the
channel partners have achieved some level of stability
in terms of their relationship management structures
and routines. Heide and Miner (1992) proposed that rou-
tinized interactions over time may lead parties to develop
relationship-specific assets, such as partners’ knowledge
 TAXONOMY OF MANUFACTURER–RETAILER CHANNELS
of each other’s procedures and values (Levinthal &
Fichman, 1988). Such knowledge is useless if the
relationship is terminated. Thus, the presence of
relationship-specific assets should lead to greater use of
shared problem-solving approaches within the channel.
Further, as transaction cost economics theory
suggests that firms with extensive relationship-specific
assets will seek to safeguard their investment, these par-
ties will communicate more readily (Williamson, 1985).
Although it is true that retailers are unlikely to retain
manufacturing suppliers if they have demonstrated a
lack of integrity or capability, the effects of channel
age upon structure need not be monotonic. For instance,
partner opportunism or ineptitude may only reveal itself
over time. Thus, in failing relationships the levels of
information exchange and joint problem-solving may
deteriorate until the relationship is dissolved.
For instance, in an empirical study exploring strategic
integration in industrial distribution channels, Johnson
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(1999) established a link between relationship age and
the level of integration between buyers and suppliers
based on arguments regarding familiarity, stability, and
adjustability developed over time. Similarly, Lin and
Germain (1998) found that relationship age has a sig-
nificant positive impact on shared problem-solving in
international joint venture relationships. They attributed
this finding to greater mutual understanding developed
over time.
From the relational-exchange perspective, Palmatier
et al. (2006) found that relationship age is an antecedent
to relationship quality in a meta-analysis of factors influ-
encing the effectiveness of relationship marketing. Heide
and Miner (1992) suggested that firms may learn about
each other over time but adopt stable patterns of either
cooperation or defection, so that relationship length
would have no simple main effect on channel structure.
Overall, it appears that relationship length plays an
important role in the amount of information shared by
manufacturers and retailers and in the amount of effort
they exert to solve problems together.
Internal Polity
The internal sociopolitical structure of a marketing
channel is defined by the pattern of power-dependence
relations that exist among its members (Stern & Reve,
1980). In terms of internal polity, the most frequently
discussed factor involves control within the relationship
(Weitz & Jap, 1995) or dependence asymmetry. Within a
channel setting, dependence is defined as the firm’s need
to maintain a relationship with its partner to achieve its
own goals (Frazier, 1983; Heide & John, 1990). It is
based on the extent value received by a firm through
its relationship with a partner is irreplaceable (Frazier
& Rody, 1991).
283
Some research has taken the position that dependent
partners are more vulnerable to exploitation through
the frequent use of coercive strategies by their partner
(Kale, 1986). When power imbalance exists within a
channel relationship, the stronger partner may be
tempted to exploit its advantage as fear of retaliation is
low (Kumar et al., 1998). Thus, unbalanced channel
relationships can be characterized by less cooperation
and greater conflict (Dwyer et al., 1987). Under such
conditions, communication frequency is typically lower
(Dwyer & Walker, 1981) with primarily unidirectional
flows (Mohr & Nevin, 1990). Thus, the stronger party
may demand information and seek to solve its own prob-
lems but not reciprocate in kind. From the dominant
member’s perspective, the role of the subordinate partner
is simply to implement decisions rather than to partici-
pate in shaping them (Jablin, 1987).
A second line of reasoning suggests that as a channel
member’s dependence increases, its partner will have less
need to rely on coercive tactics (Brown & Frazier, 1978).
In a meta-analytic study, Geyskens et al. (1999) found
that channel member dependence was positively
associated with partners’ use of noncoercive compliance
strategies, such as information exchange. Further,
bilateral dependence may in fact lead to enhanced
relational behavior by channel members (Lusch &
Brown, 1996), leading to greater shared decision-making
and increased information exchange. Either way,
dependence in manufacturer–retailer relationships may
play a key role in the level of information exchange
and shared problem-solving.
External Economy and Polity
Organizational behavior theories have underscored
the reliance of organizations upon their environments
for key resources (Barney, 1986; Pfeffer & Salancik,
1978). Some evidence suggests that volatility in the firm’s
output environment contributes to more extensive use of
relational-channel strategies (Dwyer & Welsh, 1985;
John & Weitz, 1988). On the other hand, Klein et al.
(1990) found that complex, diverse environments
promoted greater reliance on nonintegrated channel
coordination mechanisms. Thus, the effects of the
environment upon channel operational integration and
shared decision-making remain unclear (Frazier, 1999).
The diverse environments faced by channel members
require the adoption of a variety of strategies to address
the demands and constraints presented by their environ-
ments (Dwyer & Welsh, 1985). Given the incompatibility
that can accompany competing requirements, environ-
mental heterogeneity promotes the development of
specialized structures aimed at enhancing channel
members’ adaptive capacity. In the present study,
we incorporate the effects of two sources of
 284 M. TOKMAN ET AL.

uncertainty: demand sector munificence (i.e., external Product-Market Strategy

economy) and competitive intensity (i.e., external polity).
Because the utmost concern in downstream channels
Munificence pertains to the relative availability and abun-
is to satisfy customer needs at a profit, joint action in
dance of critical resources. Competitive intensity refers to
manufacturer–retailer relationships should also be
the degree of competition a firm is facing.
understood in the context of the retailer’s strategic mar-
Studies have shown that as uncertainty increases, chan-
ketplace approach (Kim, 1999). Although different
nel members are more prone to withhold information and
typologies of product-market strategy exist (DeSarbo
behave opportunistically (Klein et al., 1990). With respect
et al., 2006; Mottner et al., 2002), most center on a differ-
specifically to munificence=hostility, empirical studies
entiation versus cost focus (Kumar et al., 2010). Adop-
suggest that hostile-demand environments contribute to
tion of a distinct product-market position holds strong
greater vertical integration in marketing channels (e.g.,
implications for resource acquisition and deployment
John & Weitz, 1988). For instance, Dong et al. (2007)
across the extended organization (Hughes & Morgan,
found that retailers’ adoption of efficient replenishment
2007).
systems works best in a vertically integrated distribution
A retailer adopting a low-cost position must not only
channel because of shared goals between the supplier
be efficient in its own operations, it also must seek out
and buyer organizations and lack of hostility. Dwyer
suppliers that can efficiently match target market demand
et al.’s (1987) examination of supplier–dealer relation-
for undifferentiated goods and services. Suppliers that
ships found that varying levels of demand environments
are committed to cost efficiency can develop service inno-
led to decentralization and more participatory decision-
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vations through collaborative efforts with their channel

making. Similarly, Geyskens et al.’s (1999) meta-analysis
partners that provide solutions such as just-in-time inven-
linked munificence with the use of noncoercive influence
tory systems and=or electronic data exchange systems to
strategies, such as information exchange. Therefore, it is
improve the operational efficiency of the retailers (Grawe
safe to expect that the presence of high or low levels of
et al., 2009; Richey et al., 2010). Therefore, the adoption
munificence in manufacturer–retailer relationships would
of cost efficiency as a strategic goal between the channel
have an impact on the levels of information sharing and
partners leads to higher levels of integrated behavior
joint problem-solving.
involving, for example, information exchange and shared
In competitively intense settings, successive changes
problem-solving (Olavarrieta & Ellinger, 1997).
to rival offerings and marketing tactics compel firms to
The same is true for retailers employing a strong dif-
react in kind (Myers et al., 2000). In the absence of strong
ferentiation strategy based upon high-margin, branded
competition, a given retail channel may perform well
market-offerings (Etgar & Rachman-Moore, 2010).
simply because customers have few options. For
Berman and Evans (2004) reported that retailers that
example, if a retailer is the only grocery in a small, rural
adopt a differentiation orientation deemphasize price in
town, there may be little incentive for the store or its
their marketing efforts and focus more on locational
suppliers to invest resources into developing relational-
convenience, value-added services, merchandise avail-
channel structures. As competitive intensity increases,
ability, and uniqueness of brand image. For instance,
however, many retailers may seek to enact varying chan-
Davis and Mentzer (2008) found that a manufacturer’s
nel strategies to improve adaptiveness and profitability
highly popular brands strengthen the effect of its trade
(Draganska & Klapper, 2007; Moorman & Miner, 1998).
equity on the retailer’s dependence on the supplier. Also
At the same time, several contemporary perspectives
from a resource-dependency perspective, Ernst and
have converged to suggest that some forms of uncertainty
Powell (1998) suggested that retailers’ dependence on
might be better managed through cooperative responses
manufacturer partners for merchandise availability
from interdependent organizations (Kim, 1999). Thorelli
increases the level of cooperative behaviors between the
(1986) discussed the implications of internetwork compe-
firms. Therefore, the retailer’s low-cost or differentiation
tition wherein the long-term success of each firm is
positioning strategy may have a large role in the level of
greatly impacted by the success of the overall network.
information exchange and shared problem-solving
Such competition is readily seen in the case of compe-
between the manufacturers and retailers.
tition between different vertical distribution systems
(e.g., between Best Buy’s supplier networks and eBay’s
networks). In competitive settings characterized by rapid
METHODS
technological change, modularized product designs, and
fragmented demand markets, retail firms increasingly
Sampling and Data Collection
compete by aligning themselves with desirable channel
partners. Overall, previous studies have discussed both To assure generalizability, we set out to secure a sample of
the positive and the negative impacts of competitive retailers of various sizes, locations, product assortments,
intensity on the channel members’ cooperative behaviors. and ownership structures. The sample was obtained
 TAXONOMY OF MANUFACTURER–RETAILER CHANNELS
through the Zoomerang online panel and all respondents
are from the United States (U.S.).1
Zoomerang recruits respondents online and through
semiannual direct-mail surveys, providing a more
representative panel than online recruitment alone.
Previous research has demonstrated that the use of
online panels does not significantly dampen data quality
or significantly influence structural model results (e.g.,
Dennis, 2001; Pollard, 2002).
Panel participants were limited to key decision
makers (e.g., director, vice president, president, owner)
in the areas of marketing, purchasing, and supply chain
management. An initial query resulted in a sample frame
of 2,639 potential respondents, with 584 used to pretest
the survey.
Following our preliminary measurement assessment,
an e-mail message was sent to the remaining 2,055
potential respondents inviting them to click through to
the online survey. The message informed sample mem-
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bers that the subject of the survey was manufacturer–
retailer relationships and that continuity program points
would be awarded for survey completion.
A number of controls were employed to ensure that
only invitees participated in the survey and that respon-
dents only completed the survey once. Further screening
of responses eliminated respondents that marked the
same scale point throughout the survey (cf. Schwab,
1999). Following this procedure, 306 observations
remained to yield a 14.9% usable response rate.
Measurement
All study measures were drawn from previous research,
with minor modifications for the retail context (cf. Figure
1, Table 1, Appendix B). Relationship length (‘‘How long
since there have been major contractual changes to the
relationship?’’) and channel sales volume (‘‘What is
the approximate annual revenue generated by selling the
products of your primary manufacturing supplier?’’) were
assessed using the single-item measures in parentheses.
Measures for shared problem-solving, information
exchange, and flexibility were drawn from Heide and
Miner (1992). The measure for dependence was taken from
Lusch and Brown (1996). The retail managers answered
the shared problem-solving, information exchange, flexi-
bility, and dependence questions with regard to their
relationship with their primary manufacturing supplier.
The measures for low cost and brand differentiation
positioning were drawn from Smith et al. (1995). Munifi-
cence and competitive intensity were adapted from
1 common method variance. Taking a more conservative
Zoomerang (http://info.zoomerang.com) has been purchased by
Surveymonkey since the data collection for this study was completed.
Surveymonkey information can be found at https://www.surveymonkey.
com/mp/audience/our-survey-respondents/.
285
Covin and Slevin (1989). Finally, the channel’s financial
growth was measured using items taken from Nijssen
(1999).
Nonresponse bias was assessed by comparing the
responses of early respondents with those of later respon-
dents (Armstrong & Overton, 1977). The first, middle,
and last 10% of respondents were tested for nonresponse
bias using a battery of study measures. Multivariate
Analysis of Variance results exhibited no significant
difference in means across the three groups, suggesting
nonresponse bias is unlikely to present a major threat
to findings.
Measurement Model Results
Prior to segmenting firms, we evaluated the psychometric
properties of all multi-item constructs by estimating a
Confirmatory Factor Analysis (CFA) that included nine
latent constructs (cf. Bunn, 1993). We restricted each
item’s loading to its a priori factor and allowed each
factor to correlate with all other factors. Items failing
to load well or cross-loading strongly on another factor
were eliminated.
Fit indices for the measurement model were acceptable
in light of commonly accepted standards. Although the
model chi-square statistic was significant (v2 ð167Þ ¼ 302:2,
p < .01), the chi-square-to-degrees of freedom ratio was
below 2:1. Other model goodness-of-fit indices met com-
monly accepted cutoff criteria (cf. Hu & Bentler, 1999):
Root Mean Square Error of Approximation ¼ .051 (90%
confidence interval [.041, .061]), Comparative Fit
Index ¼ .96, Tucker-Lewis Index ¼ .95, Standardized Root
Mean Square Residual ¼ .04. Table 1 presents the items
and CFA results.
All factor loadings were significant (p < .001) and
loaded highly (above .65) on its expected construct,
supporting convergent validity. The average variance
extracted (AVE) for each construct exceeded its shared
variance with another factor, providing evidence of dis-
criminant validity (Fornell & Larcker, 1981). Composite
reliabilities all exceeded .70. Thus, we concluded that our
measures were valid and sufficiently reliable. Descriptive
statistics, composite reliabilities, AVEs, and correlations
for all study variables are provided in Table 2.
Additional tests were conducted to assess the poten-
tial for common method bias. If the self-report survey
itself is a method introducing shared measurement bias,
a baseline level of correlation should exist among the
latent variables (Spector, 2006). Lindell and Whitney
(2001) proposed that the smallest correlation among
manifest variables provides a reasonable proxy for
approach, we examined the lowest (.01) and second
lowest (.05) interfactor correlations as a range estimate
for the potential influence of common method bias.
 286 M. TOKMAN ET AL.

TABLE 1
Measurement Model

Measure Loading t

Information exchange (Source: Heide & Miner, 1992)

In this relationship, it is expected that any information that might help the other party will be provided to .88 50.28
them.
Exchange of information in this relationship takes place frequently and informally and not only according to a .82 36.07
pre-specified agreement.
It is expected that the parties will provide proprietary information if it can help the other party. .80 33.27
It is expected that we keep each other informed about events or changes that may affect the other party. .85 43.52
Shared problem-solving (Source: Heide & Miner, 1992)
In most aspects of this relationship, the parties are jointly responsible for getting things done. .74 23.70
Problems that arise in the course of this relationship are treated by the parties as joint rather than individual .77 26.71
responsibilities.
The responsibility for making sure the relationship works for both partners is shared jointly. .90 44.06
Dependence (Source: Lusch & Brown, 1996)
We are afraid of what might happen if we severed our relationship with this manufacturer. .70 21.02
Leaving this relationship right now would be very difficult for us economically. .91 38.80
Even if the contract allowed it, our core business would be greatly disrupted if we decided to terminate this .84 31.98
relationship.
Demand market munificence (hostility) (Source: Covin & Slevin, 1989)
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Many new opportunities are available for my company in existing and=or new markets. .81 31.75
There are many opportunities available to my company in the form of existing and=or new products. .89 42.93
The potential for growth in the markets served by my company is substantial. .83 35.01
Competitive intensity (Source: Covin & Slevin, 1989)
Competition in the markets served by my company is intense. .75 7.95
In the markets served by my company, the firm that eases up usually loses markets=customers to its competitors. .69 7.75
Low-cost strategy (Source: Smith et al., 1995)
We depend on everyday low prices. .72 17.41
Competitors must meet or beat our price. .70 16.10
We are one of the price leaders in our area. .94 22.87
Differentiation strategy (Source: Smith et al., 1995)
We display all models we carry. .65 15.35
We are among the first stores to get a new item in the lines we carry. .77 20.66
We always look for new and different merchandise. .70 17.59
Flexibility (Source: Heide & Miner, 1992)
Flexibility in response to requests for changes is a characteristic of our relationship. .83 18.56
When some unexpected situation arises, the parties would rather work out a new deal than hold each other to .95 28.58
original terms.
It is expected that the parties will be open to modifying their agreements if unexpected events occur. .85 19.43
Changes in ‘‘fixed’’ prices are not ruled out by the parties, if it is considered necessary. .80 16.45
Financial growth (Source: Nijssen, 1999)
Gross profit achieved by the relationship .88 24.81
Sales revenue achieved by the relationship .90 35.01
Production economies achieved by the relationship .95 27.42
Effects of the relationship on your market share .86 23.17
Effects of the relationship on the number of retail store locations .82 21.16
Overall economic benefits of the relationship .92 25.19

Note: Relationship length (i.e., the age of the relationship between manufacturer and retailer) and channel volume (i.e., annual sales volume
between manufacturer and retailer) are both single-item measures and therefore do not appear in the measurement model statistics.

Taking into account the results of prior simulation
studies, it was deemed unlikely that bias in this range
significantly influenced results (cf. Malhotra et al., 2005).
Finite Mixture Regression Taxonomy
To account for unobserved firm heterogeneity in firm
resource management strategies, we applied a finite
mixture regression approach that simultaneously classi-
fies observations into latent segments and estimates
regression models within each segment (Wedel &
Kamakura, 2000). In mixture models, it is assumed that
sample observations arise from two or more unobserved
classes, in unknown proportions, that are mixed. The
purpose is to ‘‘unmix’’ the sample and identify the
underlying classes.
Compared with traditional K-means cluster analyses,
finite mixture models result in tighter groupings around
each cluster and dominant patterns in the data are cov-
ered by latent constructs (Celeux, 2007). Finite mixture
 TAXONOMY OF MANUFACTURER–RETAILER CHANNELS 287

TABLE 2
Correlation Matrix, Full Sample

Variable Mean SDa CRb AVEc X1 X2 X3 X4 X5 X6 X7 X8 X9 X10 X11

X1 Info exchange 4.74 1.25 .90 .70 .84

X2 Shared problem 4.76 1.09 .85 .65 .66 .81
X3 Dependence 4.75 1.20 .86 .68 .26 .33 .82
X4 Low-cost strategy 4.59 1.33 .83 .63 .17 .21 .01 .79
X5 Differentiation 5.04 1.07 .75 .50 .25 .33 .10 .40 .71
X6 Munificence 4.94 1.10 .88 .71 .23 .25 .05 .27 .39 .84
X7 Comp. intensity 4.80 1.10 .68 .52 .19 .15 .13 .32 .16 .22 .72
X8 Flexibility 4.48 1.17 .80 .62 .76 .59 .15 .19 .27 .21 .12 .76
X9 Financial growth 4.66 1.20 .94 .71 .54 .51 .31 .21 .38 .38 .17 .47 .87
X10 Channel scaled 3.79 3.15 n=a n=a .11 .08 .18 .09 .06 .02 .18 .05 .19 n=a
X11 Channel stabilitye 1.80 0.91 n=a n=a .22 .16 .15 .02 .10 .11 .02 .13 .40 .26 n=a

Note: The diagonal contains the square root of the average variance extracted.
a
SD indicates standard deviation.
b
CR indicates composite reliabilities.
c
AVE indicates average variance extracted.
d
Channel scale is the log of channel sales volume divided by 10 million.
e
Channel stability is the log of number of relationship years since last major change in contractual relationship plus one.
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models also allow researchers to estimate a regression
model simultaneously with the classification analysis to
test for differences among the identified classes on
specific variables (Muthén & Muthén, 1998). Therefore,
finite mixture models are generally accepted as better
performers than traditional cluster analyses for empirical
classification purposes (Celeux, 2007; Vermunt &
Magidson, 2003).
Our model identified latent segments on the basis of
the inferred relationship between the channel structure
variables (information exchange and shared problem-
solving) and the explanatory variables (internal
economy, external economy, internal polity, and
product-market positioning) within each homogeneous
group. In addition, the covariance between the two struc-
ture variables was freed across groups. An outline of
latent class regression models appears in Appendix A.
on shared problem-solving (joint decision-making).
Munificence was marginally related (p < .10) to both
dimensions.
Conclusions drawn from the aggregate solution
ignore heterogeneity and the possibility of strategic
types; that is, they leave unaddressed the issue of whether
different aspects of the channel members’ internal and
external environments differentially influence channel
structure. To investigate this possibility, we analyzed
the data using our proposed methodology that explicitly
models observed relationships between our theorized
antecedents and channel structure dimensions, as well
as the mean levels of each, and choose the best solution
based upon objective fit statistics.
TABLE 3
The Aggregate Complete Sample Solution

IEa SPSb

RESULTS Intercept 0 0
Channel scale .104 .064
Channel age .015 .013
We begin by estimating the overall relationships between
Dependence .131 .188
our theorized antecedent variables and the two selected Munificence .087
y
.095
y

dimensions of channel structure for the full sample. This Competitive intensity .071 .015
analysis is equivalent to estimating an ordinary least Low-cost strategy .051 .054
squares regression model. Table 3 shows that two of the Differentiation strategy .103 .107
Error variance .834 .779
seven antecedent variables were significantly related
Error covariancec .558
(p < .05) to information exchange and two were related
to shared problem-solving. Overall, dependence appears Note: All variables are standardized to zero mean and unit
to be the most critical factor in that it was significantly variance.
a
IE indicates information exchange.
related to each channel structure dimension. In addition, b
SPS indicates shared problem-solving.
channel scale was positively associated with information c
Denotes the covariance between the information exchange and
exchange (operational integration) and differentiation shared problem-solving error terms.
y
strategy was closely related to channel members’ emphasis Bold indicates significant at p < .05; indicates significant at p < .10.
 288 M. TOKMAN ET AL.

An iterative series of models were run to identify the

best fitting segmentation approach using full
information maximum likelihood (FIML). Given the
unbalanced data, the use of FIML negates the potential
for biased parameter estimates resulting from nonran-
dom missing data (Graham, 2003; Heckman, 1979).
The effects of each of the antecedent variables were
freed to vary across classes as was the error covariance
between the channel structure measures. To determine
the number of latent segments, we evaluated the results
of a panel of fit statistics to compare a model with s
segments with a model with s þ 1 segments given
there exists s ¼ 1, 2, . . . , S, until model fit stopped
improving. FIGURE 2 Sample size adjusted Bayesian information criterion, 1-
Taken in sum, comparative fit statistics favor the 6- class through 7-class models.
class solution (see Table 4). Figure 2 illustrates the saddle
point that emerged around the 6-class solution.
Chi-square difference tests were significant (a < .001) in the model’s ability to discriminate dyads on the basis
for all models considered, although there was a diminish- of channel structure differences.
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ment in the magnitude of the test statistic beginning with The meaningfulness of the taxonomy was affirmed by
the 5-class model. The Akaike information criterion examining whether differences existed across classes in
(AIC) and the sample-size adjusted Bayesian infor- terms of channel economic and polity performance. In
mation criterion (BIC) statistics that take into account this study, we examine channel growth (i.e., economic
model parsimony dropped steadily before leveling off performance) and relationship flexibility (i.e., polity
at the 6-class solution. performance) as indicators of channel structure perfor-
The sample-size adjusted Lo-Mendell-Rubin likeli- mance. Channel financial growth was operationalized
hood ratio test compares the estimated model with a in terms of increased sales, higher profits, greater market
model with one less class than the estimated model (Lo share, lower costs, and overall economic benefit result-
et al., 2001). For this test, a low p value means that the ing from the retailer’s relationship with its primary sup-
estimated model is preferable. Results for this test were plier and measured with six items adopted and modified
significant (a < .10) for the 2-class (p < .001), 3-class from Nijssen (1999). The specific items are shown in
(p ¼ .074), and 4-class (p ¼ .030) models. The p value Table 1.
jumped to .282 for the 5-class model and remains at Flexibility refers to the degree that a retailer and its
around that level for the 6-class and 7-class models. main supplier partner adjust their own behavior to
The meaningfulness of the classes can be observed in accommodate the needs of the other and was measured
Table 5 as it provides class-specific regression results. with four items borrowed from Heide and Miner (1992).
The smallest class included 18 retailers, accounting for Heide (1994) suggested that flexibility allows channel
approximately 7% of the sample. The entropy value of partners to forgo contractual terms and solve problems
.911 for the 6-class model (Table 4) boosts confidence in a mutually beneficial manner. Therefore from a polity
perspective, this study views flexibility as the ultimate
indicator of channel members working well together to
TABLE 4 the point where they would forgo contractual terms in
Comparative Model Fit Statistics favor of mutually beneficial solutions. The specific items
for flexibility are shown in Table 1.
Model Loglikelihood df Dv2a AICb BICc Entropy
Table 6 provides the results of the simultaneously run
1-class 887.0 19 n=a 1811.9 1822.3 1.000 multinomial logistic regression allowing differences in
2-class 782.1 41 126.8 1646.2 1668.4 0.782 channel economic growth and flexibility means to be
3-class 706.9 63 314.3 1539.8 1574.0 0.848
examined across the six classes. For instance, the Class
4-class 662.0 85 72.3 1493.9 1540.0 0.821
5-class 609.6 107 103.7 1433.1 1491.2 0.935 1 mean for growth is smaller than that of Class 2 by
6-class 572.3 129 92.3 1402.6 1472.5 0.911 0.17 and the Class 1 mean for flexibility is greater than
7-class 546.1 151 83.6 1394.3 1476.2 0.888 that of Class 2 by 6.38. The numbers in parentheses
a indicate the parameter estimate for the mean differences.
Satorra-Bentler chi-square statistic.
b
Akaike information criterion. Significant differences in performance were exhibited
c
Bayesian information criterion. across classes, with Class 6 channel systems outperform-

p < .001. ing all other classes on both dimensions of performance.
 TAXONOMY OF MANUFACTURER–RETAILER CHANNELS 289

TABLE 5
Class-Specific Regressions

Class 1 Class 2 Class 3 Class 4 Class 5 Class 6

Relationship
a b
IE SPS IE SPS IE SPS IE SPS IE SPS IE SPS

Intercept .51 .09 1.48 .42 .82 .75 .33 1.03 .66 .92 1.96 2.00
Channel scale .24 .12 .18 .05 .09 .12 .91 .01 .04 .13 .00 .05
Channel age .40 .30 .08 .11 .21 .24 .13y .06 .00 .02 .22 .06
y
Retailer dependence .21 .04 .24 .08 .02 .29 .92 .87 .46 .23 .47 .27
y y
Low-cost positioning .40 .01 .14 .24 .85 .58 .18 .63 .02 .26 .23 .10
Differentiation positioning .32 .36 .24 .05 .20y .06 .21 .57 .04 .06 .50 .70
Munificence .14 .30 .15 .23 .32 .32 .80 .56 .12 .08 .08 .15
Competitive intensity .31 .09 .49 .32 .18 .14 .31 .06 .40 .22 .06 .07
a
IE indicates information exchange.
b
SPS indicates shared problem-solving.
y
Bold indicates significant at p < .05; indicates significant at p < .10.

Post Hoc Analysis: Comparison to Existing Retailer class-specific regressions depicted in Table 5 suggest that
Typologies the six classes of manufacturer–retailer channel structures
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identified in this study can be first grouped in high-

To assure that our taxonomy provides additional explana-
dependency and low-dependency categories. The results
tory power relative to pre-existing categorization schemes,
further suggest that for Classes 1, 2, and 3, the relation-
we compared the fit of the 6-class solution with those of
ship between retailer dependence and information
models whose firms were constrained to membership in
exchange is not statistically significant. Similarly for the
classes depicted by two existing retailer typologies: owner-
same classes, the relationship between retailer depen-
ship and merchandise mix. Coughlan et al. (2001) classified
dence and shared problem-solving is not significant or
retailers based on ownership structure, such as franchises,
in some cases (i.e., Class 3) retailer dependence has a
independents, and manufacturer-owned retailers. This
negative impact on shared problem-solving. But for
framework roughly aligns retail channels in terms of the
Classes 4, 5, and 6, it can be observed that the relationship
level of vertical integration.
between retailer dependence and channel structure
A second commonly utilized typology is based upon
variables is significant in the positive direction.
the assortment offered by the retailer (Bucklin, 1966).
Therefore, the initial step in profiling involved
Retailer product mix categories include category killers,
separating the high-dependency channel structures from
mass merchandisers, specialty stores, limited-line stores,
the low-dependency ones. Then, we focused on the other
and department stores. Chi-square difference tests and
relationships between the antecedents and channel struc-
comparative fit indices suggest that the empirically
ture as well as the channel structure and channel perfor-
derived 6-class model was objectively superior to the
mance to create a profile for each of the six classes.
constrained models (Ownership type: Dv2ð66Þ ¼ 1000:9,
This discussion is supplemented by Table 7 that
p < .001; AIC ¼ 2351; BIC ¼ 2385; Merchandise Mix:
provides class means for a series of profiling variables
Dv2ð24Þ ¼ 936:2; AIC ¼ 2586.1; BIC ¼ 2643.1).
such as manufacturer-supplier trust, supplier commit-
ment, satisfaction with financial performance, market=
customer orientation (with three combined dimensions:
DISCUSSION customer intelligence generation, customer intelligence
dissemination, and responsiveness), and common goals.
Profiles of Taxonomic Classes The measurement items for the five profiling variables
The management of distribution channel activities offers were all adapted from previous studies and are presented
significant opportunities for retailers and suppliers to in Appendix B.
create strategic advantage and achieve superior financial
performance (Morgan & Hunt, 1994; Weitz & Jap,
1995). To develop a richer understanding of the channel Low-Dependency Channel Structures
structure, we examine the defining characteristics of
Class 1–Differentiation-Driven Low-Dependency
each class.
Channels
The aggregate sample solution (see Table 3) suggests
that retailers’ dependence on their supplier is the stron- Class 1 is the second largest segment, making up
gest antecedent of channel structure. Moreover, the approximately 26% of the overall sample. Compared with
 Downloaded by [162.247.72.216] at 19:56 14 March 2016

TABLE 6
Economic and Polity Performance Differences Across Classes

Reference class

Class 1 Class 2 Class 3 Class 4 Class 5 Class 6

Firm
class Growth Flexible Growth Flexible Growth Flexible Growth Flexible Growth Flexible Growth Flexible

Class 1 0.17 (0.15) 6.38 (15.60) 4.59 (2.33) 4.35 (9.14) 3.58 (1.16) 1.62 (0.78) 4.28 (1.96) 5.28 (10.12) 3.34 (1.43) 3.54 (1.65)

290
Class 2 0.17 (0.15) 6.38 (15.60) 3.02 (2.48) 3.52 (6.46) 1.46 (1.31) 6.04 (14.82) 2.60 (2.08) 3.28 (5.47) 1.34 (1.28) 6.96 (17.24)
Class 3 4.59 (2.33) 4.35 (9.14) 3.02 (2.48) 3.52 (6.46) 2.16 (1.18) 3.99 (8.36) 1.49 (0.40) 1.30 (0.98) 5.86 (3.76) 5.03 (10.79)
Class 4 3.58 (1.16) 1.62 (0.78) 1.46 (1.31) 6.04 (14.82) 2.16 (1.18) 3.99 (8.36) 1.57 (0.78) 4.90 (9.35) 5.06 (2.59) 3.84 (2.42)
Class 5 4.28 (1.96) 5.28 (10.12) 2.60 (2.08) 3.28 (5.47) 1.49 (0.40) 1.30 (0.98) 1.57 (0.78) 4.90 (9.35) 5.62 (3.37) 6.01 (11.77)
Class 6 3.34 (1.43) 3.54 (1.65) 1.34 (1.28) 6.96 (17.24) 5.86 (3.76) 5.03 (10.79) 5.06 (2.59) 3.84 (2.48) 5.62 (3.37) 6.01 (11.77)

Note: Numbers in parentheses are parameter estimates for the mean difference.
Bold indicates significant at p < .05.
 TAXONOMY OF MANUFACTURER–RETAILER CHANNELS
TABLE 7
Profiling Variables Class Means
Manufacturer-supplier Supplier
Class N trust commitment
Class 1 81 5.57 5.57
Class 2 30 5.24 4.67
Class 3 18 4.93 4.32
Class 4 28 5.55 5.58
Class 5 86 4.89 4.76
Class 6 59 6.25 6.08
Note: Bold indicates highest value. Underline indicates lowest value.
Class 2 and Class 3, channel systems of this type are most
strongly characterized by the fact that information
exchange and shared problem-solving are significantly
associated with retailers’ differentiation positioning.
Additionally, the level of information exchange between
channel members is very high. That information flow is
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driven most strongly by channel age is one of the aspects
that differentiates this channel structure from most others.
The trust levels between the retailers and their suppli-
ers for this class is higher than most other classes as well.
This may suggest that more information exchange comes
with more trust built over time in this type of channel
that does not rely on dependency.
In terms of performance, these channels have experi-
enced higher levels of flexibility compared with most
other types. Given the lack of dependency, this finding
is expected. Moreover, the managers of this type of chan-
nel reported high levels of financial performance satisfac-
tion. Retail management also holds most strongly of all
classes that their channel partner shared their goals.
Essentially, integrative operational routines for this class
are well established and aimed at relieving competitive
pressures. Shared problem-solving for class members is
a function of taking advantage of emergent opportu-
nities in a healthy demand environment, particularly
those aimed at differentiating retailer offerings within
highly competitive markets.
Class 2–Benign Competition Channels
Channel systems of this type made up approximately
9% of the overall sample. These established channel
systems are contractually stable but generate relatively
small sales volume. Membership in this class is character-
ized by an exceedingly low level of competitive intensity
in the retailer’s market. It can be argued that the lack of
competitive intensity has a major impact on the levels of
information exchange and shared problem-solving with
manufacturers. This may also explain the low levels of
dependency between the channel members.
In terms of polity performance, these channels are
the least flexible. In terms of economic performance,
291
Satisfaction with Market=customer Common
financial performance orientation goals
6.71 3.51 6.71
6.23 3.42 3.44
5.44 3.52 4.19
6.77 3.44 5.30
5.81 3.74 4.22
7.62 3.00 6.14
however, these channel systems experienced stronger
economic growth than some of the other channel
systems, on par with the highest performing firm class
(i.e., Class 6). Hence, structure within these channels is
highly transactional, but channel members are none-
theless successful due to relatively munificent and
noncompetitive market environments.
Class 3–Low-Cost-Driven Channels
Class 3 channel members represented approximately
6% of the overall sample. Compared with the other
classes, retailer dependence on the supplier is extremely
low. Class 3 is most strongly characterized by the fact
that information exchange and shared problem-solving
are significantly associated with retailers’ low-cost
orientation. With moderately low levels of information
exchange and shared problem-solving, Class 3 members
along with those from Class 5 were the poorest per-
formers in terms of channel economic growth and
relationship flexibility.
These channel partnerships were relatively small in
terms of sales volume. Retailers within this channel type
exhibited the lowest levels of satisfaction with financial
performance and attitudinal commitment to the
supplier. Given the lack of competitive intensity and
low channel sales volume reported by retail managers,
this suggests that the retail managers may not be moti-
vated to commit extensive resources to the channel
relationship other than a desire to lower their costs.
High-Dependency Channel Structures
Class 4–Growth-Opportunity-Driven Channels
Class 4 members make up approximately 9% of the
overall sample. Members of this class demonstrated
moderately high levels of information exchange and even
stronger levels of shared problem-solving. Channel struc-
ture decisions for both dimensions were driven strongly
by retailer dependence and the munificence of the
demand environment. Further, retailers’ maintenance
 292 M. TOKMAN ET AL.
of a strong low-cost position was a significant predictor
of shared problem-solving and a marginally significant
predictor of information exchange. Overall, channel
structure decisions for these class members appear to
be motivated by the attractiveness of the market oppor-
tunities for low-cost goods and the retailer’s dependence
on the supplier’s resources in lowering merchandise
costs.
Although channel relationships are not well estab-
lished and sales volume is relatively low, retail managers
reported the second highest level of financial perfor-
mance satisfaction with the channel along with strong
trust and commitment toward the supplier. In many
ways, Class 3 and Class 4 are similar in their market
strategies, especially with regard to low-cost orientation.
The difference in financial performance satisfaction is
mainly a result of Class 4 retailers’ willingness to risk a
dependent relationship with manufacturers to whom
they can trust and commit.
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Class 5–Intense Competition Channels
Class 5 is the largest group, representing 28% of the
overall sample. This class of manufacturer–retailer rela-
tionships offers relatively low levels of information
exchange and the absolute lowest levels of shared
problem-solving. Competitive intensity was positively
related to each of these dimensions of channel structure,
demonstrating that the competitive external environment
was by far the strongest influence on channel decision-
making. In addition, low-cost position was negatively
related to shared problem-solving.
Class 5 channels had the lowest level of retailer trust in
the supplier and the highest level of market orientation.
Thus, although the retailers placed a strong emphasis
on the acquisition and response to competitor and cus-
tomer information, they shared information with their
supplier only when they were compelled to do so.
In addition, retailers in this class registered low marks
for both low cost and differentiation, indicative of the
lack of a distinctive positioning strategy. This may also
suggest that the retailers in this class take more of a
short-term, reactive approach to strategic planning.
Not surprisingly, the absence of strategic focus and trust
within its key channel relationship results in poor perfor-
mance both in terms of growth and relational flexibility.
Class 6–Differentiation-Driven High-Dependency
Channels
Class 6 channel systems exhibited the highest levels of
information exchange and shared problem-solving,
representing approximately 20% of the overall sample.
Differentiation-based positioning was the strongest
driver of each of the two channel structure dimensions.
In addition, there is a moderately strong (p < .10)
relationship between low-cost positioning and infor-
mation exchange. This suggests that retailers with a dis-
tinctive product-market position in this class, whether it
is based upon differentiation or low cost, are prone to
extensive information exchange with their main supplier.
Class 6 channel systems were the most well established
as well as the largest scale. Levels of trust, commitment,
and satisfaction with channel financial performance
satisfaction were the highest for all classes. In terms of
performance, these channels were superior to all other
channels in terms of relationship flexibility and were
significantly stronger than all other classes (with the
exception of Class 2) in terms of economic growth.
Theory Implications
In introducing the new taxonomy, we hope to provide a
basis for future theory-building as well as offer channels
managers a valuable tool. As demonstrated by our post
hoc analysis, it can be said that the classification scheme
developed in this article provides information about
retail channel structure that is not inherent within two
predominant retailer typologies. In addition, the
regression mixture methods utilized in our study rep-
resent an advance over those used in previous empirical
channel taxonomies (e.g., Cannon & Perreault, 1999) in
that segments were identified based not only upon mean
levels of channel structure dimensions but also upon the
extent that the level of those variables were driven by
theoretically justified antecedents. Through application
of the mixture regression approach, the present
taxonomy extends these earlier efforts.
Another key theoretical contribution of this study is its
inclusion of product-market positioning as a driver of
channel structure. The development of a product-market
strategy indicates that the firm has made important
decisions regarding organizational goals (Vorhies et al.,
2009). Prior channels research, largely based in the
PEP, transaction costs, and relational paradigms, has
paid insufficient attention to strategic considerations
implied by a firm’s product-market position. It is our view
that many retailers will seek to structure their channel
portfolios and individual channel relationships in support
of the strategic approach they are utilizing to build closer
relationships with their own customers and enhance their
perceptions of value-in-use. By including low-cost-based
and differentiation-based positioning as factors within
our regression mixture model we were better able to
assess the importance of these variables relative to other
characteristics of the channel and the market.
Finally, this study addresses two key problems raised
with regard to previous research on marketing channel
structures: broadly made generalizations without paying
attention to the role that context plays on channel
 TAXONOMY OF MANUFACTURER–RETAILER CHANNELS
transactions (Frazier, 1999) and the lack of contingency
models in research that examines the organizational
alignment and strategic-planning processes (Powell,
1992). In this study, the research questions mainly
focused on the context of manufacturer–retailer relation-
ships under various internal and external environment
conditions. Therefore future studies can utilize the results
of this study as base point to further develop theories on
manufacturer–retailer channel structures.
Also, the six manufacturer–retailer channel structure
classes developed in this study can be used in future
studies as a moderator variable to develop contingency
frameworks. Researchers can test if there are differences
among the classes with regard to relational factors,
logistics operations factors, governance factors, supply
management factors, and other factors. These types of
contingency models would be very useful to identify
optimal retailer relationships for manufacturers in their
strategic-planning process.
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Managerial Implications
Our taxonomy also has important prescriptive implica-
tions for management, consistent with contingency-
driven strategic thinking. In line with our first research
question, we identified meaningful differences in the
manner that retailers and their key suppliers manage
channel relationship structure. Specifically, it is clear
from our data that levels of operational integration
and joint decision-making vary independently across
retail channels. Based upon patterns of these differences,
six distinct classes of retail channels were identified.
In terms of Research Question 2, our examination
revealed statistically significant effects between each of
the internal=external polity and positioning antecedents
and both channel structure dimensions. This finding
bolsters the parsimony of our framework.
It also appears that more relational-channel structures
generally outperformed more transactional structures.
Specifically, the most relational class outperformed all
other classes.
Class 4 and Class 6 demonstrated comparatively more
relational-channel structures with the remaining three
demonstrating more transactional approaches. Class 6,
with the highest levels of information exchange and
shared problem-solving, enjoyed significantly higher
economic and polity performance compared with all
other classes. In addition, retailers reported higher com-
mitment to the relationship and satisfaction with channel
performance. Thus, retailers that develop close ties with
their most important supplier stand to make strong gains.
Interestingly, however, these retailers also exhibited
significantly lower levels of market orientation compared
with all other groups. It seems possible that an elevated
emphasis by retailers in this class upon building closer
293
operational and relational ties with key suppliers may
come at the expense of gathering and acting on pertinent
customer information. Certainly, in more mature and
stable demand markets, this may not be especially harm-
ful for channel performance: the retailer and supplier
may view themselves as operating within a zero-sum
game and seek to act in ways that stabilize their profits.
At the same time, a lack of retailer awareness of demand
shifts can result in these same channels losing customers
with the emergence of new competition.
Although Class 4 was relatively more dependency
oriented than Class 1, Class 1 placed a strong emphasis
on information exchange. Information exchange within
Class 1 was mainly driven by channel age, that is, its
membership was composed of relatively more estab-
lished channel partners operating with high levels of trust
and commitment. It can be said that retailers and suppli-
ers within this setting turn to operational integration as a
strategy for lowering internal costs and keeping pace
with rivals.
Shared problem-solving and information exchange
within Class 4 was driven by retailer dependence on sup-
plier resources in maintaining a strong low-cost market
position for the retailer that is operating within a munifi-
cent demand environment. In addition, Class 4 channels
were lower in sales volume. Although relationship flexi-
bility was significantly higher for Class 4 in comparison
to Class 1, channel economic growth was only margin-
ally higher. Interestingly, retailers in this class reported
nearly identical performance satisfaction scores, indica-
tive of the equifinality of these strategic channel manage-
ment approaches.
In examining the more transactional channel systems
(i.e., Class 2, Class 3, and Class 5), each exhibited signifi-
cantly less relationship flexibility. This finding is not sur-
prising, given that the respondents were asked about
their channel relationship with their most important sup-
plier. It does suggest that although it may be inappropri-
ate to implement close operational integration and joint
decision-making with most suppliers, there are clear
polity benefits to doing so for a retailer’s most strategic
channel relationships.
On the other hand, economic growth in Class 2 was
not significantly less than that of their more relational
counterparts and was significantly stronger than that
found in Classes 3 and 5. In examining the profile
variables, retailers within Class 2 channel systems
reported financial performance satisfaction levels nearly
on par with their more relational counterparts. At the
same time, Class 2 channels exhibited the absolute
lowest levels of flexibility and common goals. Thus, it
is possible that economic performance for some trans-
actional channel systems may approach the same levels
as more relational systems when the competition is
benign.
 294 M. TOKMAN ET AL.
Overall, study findings suggest that firms need to
consider their overall portfolio and identify specific
types of channel relationships that may exist within it.
Using this information, managers may better align
partnership goals and governance structures, set specific
service performance quotas, and even adjust their
approach to interaction and negotiation between firms.
The typology also may assist in making better strategic
choices important to long-term planning and forecasting.
Managers may evaluate each relationship class to better
estimate the quality of shared data, better pinpoint the
need and extent that they should commit resources,
and=or estimate the likelihood of relationship survival
in the near- and long-term. Retailers that are concerned
about their growth and performance may be able to
pinpoint where they land in terms of partnership class
and make appropriate changes to adjust their position.
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Limitations and Future Research
As with any research project, findings from this study
should be viewed in light of several limitations. Some
limitations are inherent to taxonomies although others
are the result of choices made by the researchers. For
instance, taxonomic segments are commonly not viewed
as generalizable beyond the sample used to derive
classes. Thus, it is possible that our segments may not
replicate precisely in a study of other types of channel
systems. Further, as our sample frame was drawn from
a wide range of domestic retailers, this research could
be extended by acquiring data from non-U.S.-based
retailers.
Although many of the items referenced behavior by
both channel members, data for this research was based
on the retail manager’s perspective. It is entirely possible
that the number and nature of identified classes could
differ were the data based upon supplier responses.
Future research using multilevel analysis of dyadic data
would aid greatly in interpreting the results of this study.
Similarly, as channel systems may evolve over time,
identifying channel classes on the basis of differences
in relationship trajectories would represent a major
breakthrough within this research stream. Thus, the
cross-sectional nature of this data set represents another
limitation.
We also note that this study employs perceptual data
that has the tendency to create some key informant bias.
Findings could be augmented by incorporating financial
data and data from other types of secondary sources
(e.g., shareholder letters) to help validate the perceptual
measures.
As firms maintain a portfolio of relationships, future
research could examine the makeup of a retailer’s
relationship portfolio by using the classifying approach
developed in this article. Researchers may address
important portfolio management-related questions such
as (a) what causes firms to include more of certain types
of relationships in their portfolios than others, (b) is this a
strategic choice or a simple reaction to market dynamics,
(c) how do different environmental conditions impact
portfolio decisions, and (d) how does overall portfolio
performance vary with different portfolio structures?
Further, researchers should examine how key constructs
such as opportunism differ across classes and how fac-
tors such as a supplier’s logistics service quality affect
channel structure.
Future research can also extend the method used
in this study to examine contingency approaches to
relationship management between various other channel
partners. These pairs may include suppliers and manu-
facturers; manufacturers and wholesalers=distributors;
distributors and retailers; third-party logistics companies
and manufacturers or distributors; and outsourcers
such as advertising agencies, market research agencies,
consulting firms, and so on.
A redesign of this study to force respondents to make
trade-off decisions between possible strategic orienta-
tions may also help to expand understanding of these
relationships. A conjoint-type choice model design
may provide future researchers with even more realistic
findings. We hope that in addition to providing a con-
tingency framework for manufacturer–retailer channel
management, this article will stimulate other researchers
to seek further understanding of the use of contingency
approaches for studying buyer–supplier relationships.
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X
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S
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latent class regression estimation is to estimate the
parameter vector w = (p, h) using the maximum
likelihood method, so that the likelihood for w is
F Y
Y T
APPENDIX A Lðw; YÞ ¼ f ðYft jwÞ ðA5Þ
f ¼1 t¼1
Outline of Mixture (Latent Class) Regression
Models2 For a prespecified value of the number of segments s,
an estimate of w (w0) can be obtained by maximizing
Let f ¼ 1, . . ., F index the software firms; t ¼ 1, . . ., Tf index the likelihood Equation A5, so that the parameter vector
the year of software firm; s ¼ 1, . . ., S index the number of w could have produced the observed vector Y. To obtain
the parameter estimates, we used the expectation-
2
The outline for this model was formed based on Srinivasan’s maximization algorithm to maximize the natural
(2006) model of franchised restaurant segmentation. logarithm of the likelihood function specified in Equation
 298 M. TOKMAN ET AL.

A5. We used 100 randomly selected starting values for
each of the models to ensure convergence.
To obtain the standard errors for the parameters, the
information matrix for the final parameter estimates is
inverted. After an estimate of w has been obtained,
estimates of the posterior probability Pfs, a probabilistic
allocation of the firm to the latent segments, are obtained
using Bayes’ Theorem:
, value.
  XS  
Pfs ¼ ps fs yf jhs ps fs yf jhs ðA6Þ
s¼1
APPENDIX B
Measurement Instruments for Profiling Variables
Trust in Manufacturer Supplier (Source: Morgan &
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Market=Customer Orientation (1 ¼ strongly disagree to
7 ¼ strongly agree)
Customer Intelligence Generation (Source: Jaworski &
Kohli, 1993; Narver & Slater, 1990)
1. We encourage customer comments and complaints
because they help us do a better job.
2. We are always looking at ways to create customer
3. We measure customer satisfaction on a regular basis.
4. Our most important job is to identify and help
meet the needs of our customers.
5. Our staff interact directly with customers to see
how we can serve them better.
6. We do a lot of research to assess customer percep-
tions of our products=services.
Customer Intelligence Dissemination (Source:
Jaworski & Kohli, 1993)

Hunt, 1994) (1 ¼ strongly disagree to 7 ¼ strongly

agree)
1. We regularly have meetings to discuss market
Given our experience, ________ (the manufacturer): trends and developments.
2. We spend time discussing customers’ future needs
1. is very honest and truthful. with other functional departments and suppliers.
2. has high integrity. 3. We periodically circulate documents that provide
3. can be trusted completely. information on our customers.
4. can be counted on to do what is right. 4. When something important happens to a major
5. keeps promises it makes to our firm. customer segment or market, all of our employees
6. is genuinely concerned that our business succeeds. and suppliers know about it in a short period.
7. keeps our best interest in mind. 5. Data on customer satisfaction are distributed at
all levels in this business unit on a regular basis.
Commitment to Manufacturer (Source: Morgan & Hunt,
1994) (1 ¼ strongly disagree to 7 ¼ strongly agree) Responsiveness (Source: Jaworski & Kohli, 1993)
Our relationship with ________ (the manufacturer) is:
1. Principles of market segmentation drive service
development efforts in this business unit.
1. one that we are very committed to. 2. We always respond to our customers’ service needs.
2. very important to us. 3. We periodically review our service development
3. one that we really care about. efforts to ensure that they are in line with what
4. worth our maximum effort to maintain. customers want.
5. something they intend to maintain indefinitely. 4. Our business plans are driven by market research.
5. We meet periodically to plan a response for
Common Goals (Source: Morgan & Hunt, 1994) changes taking place in our business environment.
(1 ¼ strongly disagree to 7 ¼ strongly agree)
Satisfaction with Financial Performance (1 ¼ very
1. We work together with our manufacturer supplier dissatisfied to 9 ¼ very satisfied)
to develop new ideas. Please indicate the extent to which you are currently sat-
2. We work together with our manufacturer supplier isfied with the profitability of your relationship with
toward common goals. your primary manufacturer supplier.