Using transaction cost theory, considerable research in marketing has focused on the conditions under which firms would use direct or vertically integrated versus indirect or arms length channels of distribution. Data from the field, however, indicate that channel configurations are more varied and complex, with multiple channels and composite channels being just as common as direct and indirect channels. In an attempt to explain this variety, this paper revisits the influence on channel structure of another contending variable, namely environmental complexity. We explore the role and influence of its two components, namely volatility (stability) and heterogeneity (homogeneity). Our study of 139 firms in the healthcare industry reveals that firms facing highly volatile and customer concentrated environments tend to use direct channels, and firms facing highly stable and heterogeneous environments tend to use distribution channels. Intermediate forms such as composite channels and multiple channels were favored by firms facing combinations of the environment where the intensity of one component was high and the other low. In general, firms seem to first choose a business strategy to address their external environment, and then choose a channel strategy to support that business strategy. Firms did not always adapt by making structural changes. Under certain conditions, they simply reallocated channel functions within the same structure, thus virtually deriving all the benefits of a new structure without having to create one.
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