In cases of new channel design, where no previous channel is present in the market, the
planner may face managerial or environmental bounds that seem to prevent the establishment
of the zero-based channel. In cases where a channel already exists in the marketplace, it may
not be zero-based. In either situation, we say that one or more channel gaps exist. This
chapter’s purpose is to discuss the sources of channel gaps and the types of channel gaps that
exist, along with techniques for closing channel gaps. We use the framework in Figure 1 to
organize our discussion of channel gaps, covering sources of gaps, types of gaps, and
techniques for closing gaps.
Sources of Gaps
Gaps in channel design can come about simply because management has not thought carefully
about target end-users’ demands for service outputs or about managing the cost of running
their channel. The advice in this situation is simple: Channel managers must pay attention to
both the demand side and the supply side in designing their channel to avoid these gaps.
But gaps also can arise because of bounds placed on the best-intentioned channel manager.
That is, managers seeking to design a zero-based channel for the company’s product may face
certain constraints on their actions that prevent the establishment of the best channel design.
Before diagnosing the types of gaps, then, it is useful to discuss the bounds that create these
gaps. We concentrate on two such sources: environmental bounds and managerial bounds.
Environmental Bounds
Characteristics of the marketplace environment in which the channel operates can constrain
the establishment of a zero-based channel. These environmental bounds in turn create
channel gaps. Two key instances of environmental bounds are local legal constraints and the
sophistication of the local physical and retailing infrastructure.
Legal conditions in the marketplace affect which channel partners a company chooses, even if
they do not totally prevent the company’s access to the market.
Beyond environmental bounds due to governmental dictates, the physical and infrastructural
environment may prevent the establishment of certain types of distribution channel structures.
Similarly, even companies that want to manage returned product more efficiently may not be
able to develop the capacity to do so themselves or to find an intermediary that can handle the
company’s specific problems. One industry executive claims, “The most expensive thing we
do in our warehouse is process returns.” The legacy in the industry of allowing free returns
from retail to the publishers appears to be a hard habit to break, creating an effective
environmental bound even for those who want to change the system.
In sum, environmental bounds occur outside the boundary of the companies directly
involved in the channel and constrain channel members from establishing a zero-based
channel either because of an inability to offer an appropriate level of service outputs or
because the constraints impose unduly high costs on channel members. In contrast,
managerial bounds may also constrain channel design but emanate from within the
channel structure itself or from the orientation or culture of specific channel members.
We turn to this issue next.
