We study a channel relationship in which manufacturer(s) use independent sales representatives (rep firms), which employ salespeople to do the actual selling. We show that commission-only payments by manufacturers to rep firms lead to suboptimal outcomes for the manufacturer, relative to those obtained under a vertically integrated channel. From the manufacturer's standpoint, these inefficiencies can be ameliorated through the use of sales incentives given to the rep firm's salespeople directly by the manufacturer (called "spiffs"). In a monopolistic environment, spiffs are shown to improve the manufacturer's profits in the face of contractual restrictions on the channel members' ability to set separate commission rates by product. For certain types of restrictions, spiffs may generate manufacturer outcomes close to the fully coordinated ones achieved under vertical integration even when compensating the rep firm through commission-only contracts. In a competitive environment, spiffs are shown to be used by a powerful manufacturer that shares a rep firm's sales efforts with the product of a weaker manufacturer (i.e., in the case of "common agency"). In this case, spiffs are used as a strategy to deter the weaker manufacturer from challenging the stronger manufacturer for the sales force's valuable selling effort.

The existing literature on channel coordination typically models markets where used goods are not sold, or are sold outside the standard channel. However, retailers routinely sell used goods for a profit in markets like textbooks, compact discs, and DVDs. We model key characteristics of these markets and show that the optimal contract form resembles those seen in the marketplace (and differs from contracts derived in prior research). Furthermore, we show conditions under which the manufacturer would choose to sell no new goods in the second period, ceding the market to the used-goods retailer. We also examine how consumer and firm characteristics affect the size of the used-good market.

This paper investigates the retailer’s problem of positioning her private label against two national brands in terms of both product quality and product features. Using a demand function derived from consumer utility, we show that the private label’s best positioning strategy depends on the nature of the national brands’ competition and its own quality. When the national brands are differentiated, a high quality private label should position closer to a stronger national brand, and a low quality private label should position closer to a weaker national brand. When the national brands are undifferentiated, the private label should differentiate from both national brands.

In this research, we investigate the behavior of Cronbach's Coefficient alpha and its new standard error. We systematically analyze the effects of sample size, scale length, strength of item inter-correlations, and scale dimensionality. The paper concludes with "Best Practices" recommendations.

Since the papers of Basu et al. (1985) and Lal and Srinivasan (1993), marketing academics have been interested in the design and implementation of optimal compensation plans. The literature has focused on agency theory as a foundation to help describe and understand this process. Although there has been much theoretical work on this topic, empirical evidence to support this theory remains sparse. Studies by Coughlan and Narasimhan (1992) and John and Weitz (1988, 1989) have found some early evidence that supports agency theory. In this paper we revisit the issue of salesforce compensation on both theoretical and empirical fronts. On the theory side we build a game theoretic model of salesforce compensation that accounts for risk aversion on the part of both the principal and the agent. We further show that accounting for firm size within the analytical framework yields new insights into the nature of compensation design. The results obtained from our model, while substantiating past findings, offer some new insights into the compensation design process. In particular we find that firm demographics play an important role in the design of the optimal compensation scheme. We then use two datasets collected ten years apart by the Dartnell Corporation to investigate and test hypotheses generated by our model and the extant literature. Our results show that the basic tenets of agency theory continue to hold over time and that our new theoretical hypotheses are consistent with the data. Using the two datasets we also find that inter-temporal changes in salesforce compensation coincide with the advent and adoption of new technologies. Our research thus adds to our substantive knowledge of the drivers of salesforce compensation, while adding to the theoretical structure through taking account of the possibility of principal risk aversion.

An important phenomenon in recent years has been the growth of low-service manufacturer-operated stores in malls located a significant distance from the shopping districts of major metropolitan areas. For the most part, these "outlet" stores offer minimial service, attractive pricing and a full product line. However, the "outlet" store phenomenon is not universal and there are a number of categories where manufacturers restrict their distribution to primary retailers. Our objective is to provide a rationale for the popularity of outlet stores in some categories and the absence of outlet stores in others. We build an analytical model with two manufacturers that distribute (a) through primary retailers or (b) with dual distribution (through primary retailers and outlet malls). The manufacturers compete in a market of buyers that are heterogeneous in terms of price and service sensitivity. The motivation for dual or segmented distribution is certainly related to differences between consumers. However, the attractiveness of retailing through outlet stores and through primary retailers is not a straightforward function of the degree to which consumers are different. It is related to how consumers are different. In particular, when the range of service sensitivity across consumers is high relative to the range of price sensitivity, manufacturers will find that single channel distribution is superior. When the opposite is true, manufacturers have higher profits in a market where dual distribution with outlet stores is utilized. This key result holds because outlet malls attract price-sensitive, non-service-sensitive consumers, leaving more service-sensitive (and less price-sensitive) consumers in the primary market. Decreasing the sensitivity of demand to price in the primary market is a welcome result if and only if the consumers who stay in the primary market are not overly sensitive to service. In sum, the model demonstrates both the value and the danger of segmentation under competitive conditions.

When competing retailers lack full information about rivals' decision processes, how will dynamic pricing behavior vary from patterns observed in more traditional static or full-information models? We investigate this question in a dynamic alternating-moves duopoly model. Retailers update (linear) conjectures about rivals' future prices in a Bayesian fashion. We show that as observed and expected prices converge, a pricing equilibrium is always achieved, whether or not the conjectured and actual values of the slope of the rival's best response function are consistent. Assuming specific parameter values, we compare equilibrium prices and associated profits in our Bayesian learning model with those obtained under the assumptions of static Nash behavior, collusive behavior and dynamically optimal behavior with full information. We apply the notions of strategic substitutability and strategic complementarity to the analysis and find that when products are strategic complements, conjectures of higher rival price responsiveness lead to higher steady-state prices and profits. The reverse is true for strategic substitutes. We also find that learning about a rival's behavior proceeds more quickly, the less intensely related in demand are products. We find, in general, that equilibrium pricing patterns and profits can vary considerably from those in full-information environments, but that even with grossly wrong beliefs about rival behavior, competing retailers are still attracted to an equilibrium. The analysis suggests not only the value of investigating less-than-full information situations but also the potential incremental value of signalling greater or less aggressiveness than truly characterizes one's behavior as a strategic option.

Pricing decisions have long been of interest to researchers in the competitive strategy area. Static game theory models of competitive pricing commonly assume that rivals act with full information and full rationality. Such models imply that rivals immediately reach a Nash equilibrium. This implication is consistent neither with experimental research results nor with casual observation of real markets. We therefore relax the assumption of full information to investigate how competitors learn and update their marketing strategies over time, as well as to identify the ultimate equilibrium they reach. This dual focus on the learning process as well as its outcome is important to understanding how rivals compete over time. We find that the ultimate equilibrium takes some time to reach, and is neither the standard Nash solution nor a collusive one. These differences from the usual static game solutions suggest the value of models that better capture the incomplete information facing a firm in a competitive marketplace.

The number of intermediary levels between a manufacturer and the final market in a distribution channel varies from industry to industry. In some cases, none are used (i.e. the distribution function is vertically integrated), while several middleman levels are used in other cases (e.g. the use of a wholesaler, a jobber, and a retailer in the distribution of meat). In this paper we examine the effect of competition on the profit-maximizing length of the distribution channel. We find that the optimal number of middleman levels increases with the substitutability of products in the market, but that there are institutional limits on the maximum number of levels in a channel. The analysis also suggests that differences in the objectives of channel members (e.g. the maximization of total channel profit versus the maximization of each member's individual profit) affect optimal channel length: a goal of total channel profit maximization produces a channel at least as long as one of individual (non-co-operative) member profit maximization. The work thus complements existing research focusing on intra-channel (e.g. cost-based) explanations of channel length, using a framework similar to those investigating competitive incentives for vertical integration in distribution.

Innovative markets are those which are undergoing rapid development due to changing customer needs or improving technological capability. Because these markets are so dynamic, new products are introduced frequently, and there is a high degree of uncertainty regarding their potential for success. We review literature relevant to firm decision-making, including such topics as timing the adoption of a technological innovation, determining optimal spending on an innovative technology, and predicting the success of a class of products which are based on a particular innovative technology. We consider these problems both at the micro (individual firm) and macro (aggregate) levels.

Several papers in the recent marketing literature have suggested that delegation in distribution (e.g., the use of independent middlemen) helps manufacturers to precommit strategically to profit-enhancing competitive actions. Further, the literature suggests that the profitability of such actions depends on market structure. We challenge these conclusions here. This is done in two steps. First, we perform an analysis of the entire class or models which have been used in the literature. Using internally consistent assumptions about market structure and contracting, the only subgame perfect equilibrium is one in which all distribution channels have infinitely many levels of delegation. Obviously, this is not what we see in the real world. Next, we relax a key hidden assumption, namely that all intra-channel agreements are observable to competitors. Without this assumption, the usual results unravel. Unless channel members can offer credible guarantees that unobservable agreements do not exist, the strategic effects of delegation disappear. Since these guarantees are virtually impossible to maintain credibly, we would expect to reject the hypothesis in the earlier literature relating channel structure to competition in an empirical study controlling for observability. We conclude that mechanisms other than strategic ones must be responsible for the existence of delegated channels, and make some suggestions about promising avenues for future theory research in channel structure.

This paper discusses recent advances in the study of salesforce motivation and compensation. Special emphasis is given to quantitative approaches from the economics, finance, and marketing literatures. The paper summarizes the findings in this analytical work in the context of some examples of compensation practice in order to illustrate the usefulness of the paradigm for the evaluation and setting of compensation systems. We consider some major issues in setting compensation, such as the firm's own objective; the salesperson's objective; and the nature of the sales response function. Variations in these factors imply significant variation in optimal compensation policy, where "optimal" takes into account the components in the plan, the parameter levels of the components, and whether or not a menu of such plans should be made available to the salesforce. By highlighting the results in the literature in light of some relevant compensation examples, we show the applicability of theory to the practical concerns of salesforce management. We close with a summary of these insights and directions for future research in the area.

In many market situations - such as in shopping centers, grocery stores, industrial-goods distributors, and ‘full-line manufacturers’ - we see the marketing and distribution of complementary products. Sometimes the distribution function is handled by the manufacturer himself, and sometimes it is spun off to an independent distributor or middleman. This paper presents an economics-based model which shows incentives for integration or non-integration of the distribution function based on economies of scale and scope in distribution; complementarity in demand across products; and customers' valuation of the benefits of ‘one-stop shopping’. Such factors explain why manufacturers of narrow product lines may choose to use independent middlemen as a distribution channel, even though that involves a loss of control over retail pricing. They also can explain why the development of a broader product line over time can be accompanied by a switch from a distributor channel to an integrated channel. The model thus extends our understanding of the forces determining distribution channel choice beyond that achieved by other models based on substitutable (rather than complementary) products.

Manufacturers introducing an industrial product to a foreign market face a difficult decision. Should the product be marketed primarily by captive agents (company salesforce and company distribution division) or by independent intermediaries (outside sates agents and distributors)? This is an issue of downstream vertical integration. The authors explore the issue through an empirical investigation of distribution channel choice in foreign markets by U.S. semiconductor companies. Using original interview data, they develop scales to measure key variables. With these measures they build a logistic regression model of what factors affect the form of the distribution channel chosen in various foreign markets. The results indicate that integration is associated with the degree of transaction specificity of assets in the distribution function and whether or not the product being introduced is highly differentiated. There is evidence that the product will be sold through whatever channel is already in place, if any. Further, American firms seem more likely to integrate the distribution channel in highly developed industrialized countries (Western Europe) than in Japan and Southeast Asia, which are more culturally dissimilar. Implications for managers faced with a channel choice are explored.

This paper discusses the problem of choosing a vertical marketing channel in a product-differentiated duopolistic market. Firms choose product price and the form of the marketing channel to maximize profits. It is shown that integration of the marketing function results in greater price competition and lower prices than does the use of independent marketing middlemen. The profitability of reducing price competition by using such middlemen is investigated. Two hypotheses--that integration is negatively associated with the products' substitutability and that symmetric channel structures are stable--are tested in a preliminary way and supported with survey data from the international semiconductor industry.

This paper investigates the internal managerial control mechanisms at the disposal of a corporation's compensation-setting board or committee. The hypotheses tested are that both compensation changes and management changes are methods used to control top management, and that the use of these control methods is motivated by changes in the firm's stock price performance. Public data from the period 1977–1980 support our hypotheses. We conclude that the firm's board creates managerial incentives consistent with those of the firm's owners, both by setting compensation and following management change policies which benefit shareholders.

Price-matching guarantees (PMGs) are offers to match a competitor’s price on a specific item. Such guarantees are extremely common in U.S. retail practice, and their impact has been studied in several published papers. The existing analytic literature models each retailer as a single-product seller; most work assumes that each retailer’s product is identical with (or completely substitutable for) the competitor’s product. But, in reality, competing retailers often sell multiple products, and these products do not always overlap, or may overlap partially but not totally. Further, retailers that offer PMGs routinely exclude certain offerings from PMG coverage. This raises the interesting question of how product variety and product-stocking factors affect retailer decisions about offering PMGs. In this paper, we simultaneously consider three factors of retailing importance that imply results consistent with PMG use and non-use: the ability to choose to stock the same product as, or a differentiated product from, one’s competitor’s offering; the possibility of shelf-space limitations on the ability to stock complete variety; and the category-demand-enhancing effect of variety. These are all sensible and realistic descriptive factors shaping retailers’ product and pricing decisions, and because they have not been considered jointly in the prior literature on PMGs, their joint consideration helps to expand our understanding of the drivers of PMG implementation and impact. In the presence of these three factors, we examine retailers’ decisions about whether or not to offer a PMG; what product(s) to stock; and how to price the product(s) stocked. Our results show that shelf-space limitations have an important influence on PMG provision: in particular, when retailers are shelf-space-constrained, and product substitutability in the category is sufficiently large, choosing to use PMGs (which by definition also requires stocking identical products) is strictly less profitable than enduring Bertrand competition but enjoying retail product differentiation. The result that PMGs can be profit-reducing relative to head-to-head retail competition is a novel one, driven in our model by the opportunity costs of stocking identical products: the inability to benefit from the demand-enhancing effects of variety, and the differential (small or large) between Bertrand pricing and PMG pricing levels. We further show that under asymmetric shelf-space availability, either product variety will be severely limited or retailers will offer different arrays of products. Weak substitution between products leads to the latter, with pricing between the differentiated-products Bertrand and monopoly levels; strong substitution leads to the former, with pricing at the monopoly level. Our results also show that with unlimited shelf space, competing retailers both offer PMGs; both stock the entire available product line; and enjoy monopoly pricing. Given our focus on product-variety issues, we also relate our results to the literature on branded variants. Our results demonstrate that the nature of product variety, the availability of retail shelf space, and the category-demand-enhancing effect of variety, are key market characteristics that jointly and strongly affect the optimality of PMGs and the resulting pricing and profitability characteristics of the market.

Two key issues in business-to-business (B2B) sales force management are 1) how much a given sales role should be compensated (pay level) and 2) how much of the compensation should be fixed versus variable (pay structure). We examine the paychecks drawn by people in over 14,000 selling jobs and over 4,000 sales management jobs in five B2B industry sectors in five European countries. We show how anticipated frictions inside the firm appear to play a major role in both pay level and pay structure. Decision makers in sales management appear to compromise between the economic imperative to connect pay to productivity and the sociological imperative that pay be seen as legitimate and fair to other employees. This compromise must be struck not only by those setting salespeople’s pay, but also by those setting the pay of first-line sales managers. We show that both the level and nature of compensation are keyed to the job’s challenge. For salespeople, more challenging jobs pay better at a decreasing rate, while for sales managers, pay increases at an increasing rate for job challenge. This suggests that sales managers make a particularly valuable contribution. We also show that the structure of pay appears to reflect decision makers’ desire to motivate high performers, but without raising governance costs to very high levels. In particular, variable pay appears to be used as a way to delegate the most contentious compensation judgments to a third party--the customer base.

This research investigates sales force diversification and the associated compensation and incentive strategies of firms that have the opportunity to deploy their sales forces to territories of different characteristics. Building on insights on financial portfolio diversification, combined with an agency theory perspective on sales force incentives and motivation, we show that allocating all salespeople to the same type of territory is not necessarily profit-maximizing, even if such a territory type has the highest expected sales productivity. Further, diversifying the sales force by allocating salespeople to territories of different types is insufficient to coordinate the sales channel. However, diversification along with the offer of a group incentive component in the pay plan can improve profitability over the homogeneous-territory allocation strategy, even when it involves allocating some salespeople to less productive territories. The logic is that the group incentive effectively diversifies the reward the salesperson accrues in return for effort in his own territory, and thus reduces the risk inherent in exerting high effort levels in a territory subject to variance in outcomes; it thereby decreases a risk-averse salesperson's optimal compensation and may increase optimal effort levels, which in turn increases the firm's sales and profits. Interestingly from a methodological point of view, the portfolio diversification insight from the Finance literature is helpful, but not sufficient, to explain our approach to the problem. This is because in the diversification of a financial portfolio, the productivity (i.e., returns) of individual stocks does not change because of their inclusion in the portfolio. In contrast, the sales force context must explicitly take account of the agency issues involved in changing the compensation plan. Specifically, the salesperson's optimal effort level can be expected to change as a result of the compensation-plan portfolio offered to him, which in turn affects sales and profitability; such outcome changes do not plague the standard Finance portfolio-optimization problem.

We consider three interesting classes of problems that arise regarding a product line. First, for a given a degree of demand interaction, what is the best way to price the line? Second, what is the relationship between the pricing policy and product-line breadth? Third, for a given pricing policy, what is the most profitable degree of product differentiation? We examine these problems from the viewpoint of manufacturer, retailer, and channel with a bilateral-monopoly model in which two demand-related goods may be produced and distributed. We allow the channel to sell (a) only the ith product, (b) only the jth product, (c) both products with non-product-line pricing (NPLP), or (d) both products with product-line pricing (PLP). For substitute goods, we prove that PLP is the profit-maximizing solution in a centralized channel. We also prove that PLP is the equilibrium solution in a decentralized channel that is organized as Vertical-Nash or as Stackelberg-Leader. By “equilibrium” we mean that it is in the manufacturer’s (retailer’s) interest for both products to be produced (distributed) using PLP, no matter what pricing policy the other channel member chooses. Hidden beneath this PLP-oriented result are four non-obvious insights. First, if products in a decentralized channel are moderately-to-highly differentiated, NPLP maximizes profits for the channel, manufacturer, and retailer. In contrast, PLP is more profitable only for minimally-differentiated products. Divergence between the profit-maximizing strategy and the equilibrium strategy occurs because the PLP vs. NPLP choice creates a prisoner’s dilemma over most parametric values: what is in a channel member’s individual interest is not in the channel’s collective interest. Second, for both centralized and decentralized channels, PLP leads to a broader product line than does NPLP when products are not too differentiated. Third, because prices are higher with PLP, consumers are worse off under PLP than under NPLP even though a PLP–product line is broader at some parametric values. Fourth, when differentiation is costly, optimal product-line differentiation is greater under NPLP than under PLP. While product-line pricing is the equilibrium pricing policy for substitutes, for a wide range of demand and cost conditions it is a channel “pessimum” relative to non-product-line pricing. We also briefly address complementary goods. While the mathematics remains the same, we show that certain key conclusions differ from the case of substitute products.

This research investigates the compensation and incentive strategies of firms that employ a salesperson that does not sell products directly to end-users, but instead, works to influence another agent, the ultimate sales-driving agent, with whom the firm cannot legally contract. We develop a hierarchical game-theoretic model in which sales effort over time influences the state of goodwill perceived by this ultimate independent downstream agent; this goodwill, which can appreciate or depreciate over time, in turn influences the likelihood that the ultimate agent will drive sales. The dynamic evolution of the state of the system (agent goodwill) thus changes the likelihood of sales, and consequently endogenously affects the salesperson’s motivation to continue (or not to continue) aggressive selling effort. One example of such a channel is a pharmaceutical firm employing a sales representative to detail physicians, who are the ultimate recommenders of a drug therapy to patients. Our results show that the salesperson’s compensation optimally increases with the stock of detailing goodwill when the salesperson is very effective at promoting the drug, and detailing has a high level of endurance. In this case, the more the salesperson details, the more expensive it is for the firm to motivate the salesperson to exert further detailing effort; the optimal pattern of detailing in this situation comprises repetitive cycles of intensive detailing and cursory detailing periods. Conversely, the salesperson’s compensation optimally decreases with the stock of detailing goodwill when the salesperson is less effective at training and the physician’s perception about the drug is not enduring. In this case, the more the salesperson details, the more affordable it is for the firm to motivate the salesperson to exert further detailing effort. Thus, detailing in this case involves an all-or-nothing decision, where it is optimal either to intensively and continuously detail the physician, or never to conduct intensive detailing.

Coefficient alpha is a frequently used index of survey reliability, reflecting the internal consistency of a measurement scale. Coefficient alpha is a function of scale length and item correlation. Its variance estimator is a function of these components and the corresponding standard error also a function of sample size. This research presents analytical results which systematically examine the influence of these components—sample size, scale length, and item correlation—on the behavior of coefficient alpha and its variance and standard error. While coefficient alpha is half a century old, these analytics have not yet been documented. The variance and standard error are newer developments, and here too, the analytics offer the first such demonstrations of the effects of the formulae components. This paper then proceeds to extend the investigation to the assessment of the difference between coefficient alphas derived from independent samples. In the generalization to two samples, we consider the differential effects of the two samples’ sizes, their comparative respective scale lengths, and the possibility that the items may be more highly correlated for one sample than the other.

Product returns cost U.S. companies over $100 billion annually. The cost and scale of returns management issues necessitate a deeper understanding of how to deal with product returns. We merge research streams from marketing and operations management by developing an analytical model that describes how consumer purchase and return decisions are affected by a firm’s pricing and restocking fee decisions. Taking into account the consumer’s behavior, we derive the optimal return policy for the firm as a function of consumer preferences, and the forward and reverse channel capability of the firm. This analysis generates testable hypotheses about how consumer-level and firm-level parameters affect the return policies observed in the marketplace. We identify the value to the firm of investing in marketing efforts to inform consumers of the best purchase decision in order to eliminate returns. We show that, to the firm, the marginal value of information is decreasing in the firm’s operational efficiency. Surprisingly, we find that informing consumers about the best purchase decision, even it were free to do so, is not always optimal for the firm.

Full list of editors: G. Cliquet, G. Kendrickse, M. Tuunanen, and J. Windsperger. ABSTRACT: Not much is known about the primary drivers of performance in franchising systems. With some notable exceptions, much of the franchising literature on performance related issues has focused on either contrasting failure rates of independent small businesses and entrepreneurs with those of franchises and/or system survival issues. The existing literature on franchising performance displays at least three other characteristic patterns. First, most studies have restricted themselves to a single sector, usually, the fast food restaurant industry, since it is often perceived and portrayed as the archetypical franchise sector. Second, existing investigations have tended to focus on a single measure of performance. Finally, with the exception of survival articles, empirical studies have typically confined themselves to cross-sectional examination of the evidence. In other words, we know very little about what fosters long term performance. Our investigation of the correlates of performance, then, contributes to the extant literature in three specific ways. Foremost, we attempt a systematic assessment of the relative effects of a series of firm decision variables on performance. Specifically, we evaluate the impact of four categories of drivers of performance. Besides three covariates, a total of eleven hypotheses focused on drivers of performance are investigated. Second, we utilize three different operationalizations of our dependent variable, performance, in our investigation. Third and finally, we estimate our empirical models using nine years of longitudinal panel data aimed at deciphering the effects associated with our set of predictor variables using cointegration analysis, a relatively new and advanced approach to modeling equilibrium or long term relationships between economic variables in panel data. The results show that seven out of eleven hypotheses were supported by the data using the system size operationalization of performance.

An academic review article on research in the channels area.

Align Inc. is a start-up company with a revolutionary, patent-protected new technology for straightening teeth, called Invisalign. Invisalign is a set of invisible plastic aligners, made to each patient's specific needs, that substitutes for metal or ceramic braces in adults (it is not sold for children's orthodontic needs). The company has created tremendous consumer awareness and affect for its product, yet sales results are dismal. The case requires the reader to analyze why sales are so poor and what should be done to remedy the problem. While the case is oriented toward distribution channel issues, it can also be used to examine the marketing mix for a new product introduction situation as well.

Mary Kay is one of the best-known direct sellers of women's cosmetics in the world. Its channel strategy is to use Independent Beauty Consultants, whoa re independent distributors, to sell directly to consumers. Its compensation plan is mult-level, providing commissions to distributors on their own sales as well as the sales of the distributors they recruit. At the time of the case, the company is grappling with a well-established change in consumer behavior - the decline of the stay-at-home mom as she returns to the workforce - combined with the opportunities offered by Internet selling. The case focuses on the company's efforts to move with consumer demand and behavior, while remaining true to its core goal of "Improving Women's Lives." It discusses ways Internet technology can be used throughout the company's channel and supply chain structure, noot just as a route to market.

Michaels Craft Stores is the largest arts and crafts retailer in the United States and in the world. Its CEO, Michael Rouleau, wants to expand the chain to 1,000 stores by 2006. The key constraint is the lack of sophistication among Michaels' supplier base, which is made up of over 1,000 suppliers, many of which are small, creative companies with little computer or logistics knowledge. This results in high costs of running Michaels' supply chain. The case describes the company's efforts to build the sophistication of its suppliers through educational "Vendor Flow Training" courses that teach suppliers how to adopt state-of-the-art practices for improved efficiency in supplying their channel.

Verklar is the leading maker of roof windows, based in Europe. In its Austrian subsidiary, it has historically dominated the Austrian market through its country-based subsidiary, with about 85 percent market share. However, at the time of the case, its market share has dropped to about 75 percent, and many of its dealers have either dropped the line entirely or are buying not from the company, but from the few remaining large dealers who still buy directly from Verklar. This has prompted Mr. Nickel, the president of the subsidiary, to devise a new way to run the distribution channel in the country in order to improve performance, called the Quota System. The case calls on the reader to examine the sources of market share decline and whether the proposed Quota System solves the channel's problems.