Performance impact of distribution expansion: a review and research agenda

Abstract

The emergence of new technologies, shifting consumer needs and growth in competition have made the expansion of distribution a business imperative for many firms. In this chapter, we review the empirical marketing literature on the performance consequences of distribution expansion and offer an agenda for future research. In doing so, we consider two dimensions of distribution expansion – increases in the intensity of distribution in extant channels and the addition of a new distribution channel. Further, we organize our review of the literature around three approaches towards measuring organizational performance – factual measures of operational performance, perceptual measures of performance and factual, forward-looking measures of firm value. We note some common patterns as well as variations in the distribution expansion – firm performance relationship, across the dimensions of distribution expansion and types of performance measures. These insights form the basis for our agenda for future research on this increasingly important substantive topic. Valuation Insight: The paper provides a review of the literature and considers directions for future research regarding the relevance for company value of an expansion in distribution channels along the intensive and the extensive margins. In terms of factual measures of firm value the paper finds that the effects of distribution expansion are most clearly positive for firm value measured by shareholder value (as opposed to Tobin’s Q). The positive effects on firm value appear to be stronger for the addition of new channels than for the increase in distribution intensity.