Abstract
Channel restructuring is a firm's redesign and optimization of its channel system to serve markets more effectively. Restructuring demands significant investments of time, capital, and managerial attention, as firms must reconfigure processes, renegotiate agreements with channel partners, and manage the operational disruptions that inevitably accompany structural change. As even the most rigorously planned restructuring efforts can falter if partners do not buy in, it is paramount that firms secure the compliance of partners they seek to retain in the revised channel system. Prior research lacks a comprehensive and integrated conceptualization of channel restructuring, the available restructuring options, and the implications of restructuring for the firm's downstream channel partners. The authors offer a channel restructuring typology comprising six restructuring types and delineate the functional role, status, and financial implications of each type for the firm's partners. They provide theoretically grounded, testable propositions regarding the impact of restructuring on partner compliance. This article offers scholars guidance for empirical investigation. It also highlights factors that practitioners should consider when designing and implementing channel restructuring to both achieve operational efficiencies and sustain partner relationships.
Keywords
Channel restructuring involves a firm's redesign and optimization of its distribution channel system to interact more efficiently and deliver goods and services through its downstream partners to better serve the end users. 1 A channel system comprises the manufacturer and its distributors, wholesalers, retailers, and service partners, each with its own operational processes, contract terms, IT systems, performance metrics, and motivations. Channel restructuring is an inherently long and complex change process that involves simultaneous, fundamental alterations to channel system architecture, partners’ roles, and the flow of goods and information. It requires revising contractual relationships, renegotiating agreements in noncontractual relationships, and reconfiguring channel roles, all while maintaining day-to-day operations (Blackburn et al. 2011).
Although channel restructuring is the most expensive and time-consuming modification of marketing-mix elements (Chu, Chintagunta, and Vilcassim 2007), firms undertake it for two primary reasons: (1) the mounting cost pressures that affect margins and (2) the evolving consumer expectations that often result from emerging new channel structures. Rising transportation, warehousing, and labor costs, as well as trade conflicts between countries, have squeezed margins, prompting firms to reevaluate the locations where their downstream inventory is held, seek consolidation opportunities, and optimize logistics (Konuş, Neslin, and Verhoef 2014). For example, as Cisco's warehousing, logistics, and inventory costs of managing its extensive direct relationships with numerous resellers increased, it transitioned to a consolidated distribution system composed of only a handful of directly served strategic partners. This allowed Cisco to not only optimize operational costs but also effectively respond to new entrants (Leyden 2001).
Mounting cost pressures are exacerbated by new market entrants with agile distribution systems. Emerging competitors, such as omnichannel systems (Verhoef, Kannan, and Inman 2015), are changing the market landscape, altering end-customer expectations, and requiring legacy firms to restructure their channels to meet evolving customer demands. For instance, Grainger, which had long relied on its extensive network of physical branches and catalogs, expanded its electronic channels and integrated delivery across new and legacy channels to provide customers with a seamless and integrated experience (Sutherland 2019). For most firms, channel restructuring is no longer optional. It is a strategic necessity for survival (Coelho and Easingwood 2008).
When successfully implemented, channel restructuring enhances firm profitability by streamlining operations, reducing costs, improving process efficiency, and enhancing the customer experience (Sharma and Mehrotra 2007). It can provide partners with increased support and improved ease of doing business, potentially enhancing performance outcomes for the firm and for its partners (Pick 2010; Ramaswami and Arunachalam 2016). Restructuring success, however, depends on securing channel partners’ compliance (i.e., their acceptance of and effective participation in the revised channel structure). It can backfire if partners view the firm's restructuring as inconsistent with prior relationship norms (Chicago Booth Review 2006; Sa Vinhas and Anderson 2005). Apple's decision to launch a direct retail channel had a devastating impact on its distributors, as one remarked, “Every time Apple opened one of its own stores, it was potentially putting a solution provider out of business” (Moltzen 2007). Similar sentiments prevailed when Nike, Cisco, Compaq, and IBM restructured their distribution systems (Crothers 1999; Danziger 2018; Dickinson 2022; Palazzo 1999). Some firms that initiated restructuring later expended significant funds coaxing, compensating, and restoring relationships with disgruntled partners. Some ultimately reversed course (Deleersnyder et al. 2002; Pacheco 2023), such as when IBM decried its past channel mishandling: “We’re not going to disintermediate partners and we are not going to compete with them. … We have to go to the customers together and that has not always been the strategy” (Dickinson 2022). Similarly, Nike restored its terminated partnership with DSW (Keenan 2023) and Levi Strauss discontinued its new direct sales channel to avoid conflict (Emert 1999; Kumar 2021).
Given these disparate potential ramifications of channel restructuring, a thorough understanding of partners’ perspectives, their relationship outcomes, and performance implications is crucial for gaining their cooperation (Chu, Chintagunta, and Vilcassim 2007). However, channels literature offers primarily sporadic and inconclusive guidance. Certain aspects of channel restructuring, such as expanding to an online or a direct selling channel alongside an existing third-party reseller network, have received considerable scholarly attention (e.g., Van Crombrugge, Breugelmans, Gryseels, et al. 2025; Van Crombrugge et al. 2024), while others, such as discontinuing a direct relationship or eliminating a subset of partners, remain largely overlooked. Empirical findings are also mixed: Some studies document gains in sales, profits, and firm value (Geyskens, Gielens, and Dekimpe 2002; Homburg, Vollmayr, and Hahn 2014), while others reveal increased conflict, reduced cooperation, and diminished partner profitability (Sa Vinhas and Heide 2015; Zhang et al. 2023). Similarly, restructuring may enhance efficiency through competition, but it can also heighten opportunism and partner turnover (Ganesan et al. 2010; Sa Vinhas and Anderson 2005). Notably, practitioners’ initial reactions to restructuring are often short-sighted. Anand et al. (2025) show that adding an intermediary can ultimately enhance both the firm's and the partner's performance, even when the initial partner responses are skeptical.
Therefore, in an effort to provide guidance for future research, this article contributes to our knowledge on channel restructuring by (1) reviewing extant academic and practitioner literatures to offer new perspectives and highlight knowledge gaps concerning channel restructuring, (2) identifying distinct restructuring types, (3) discussing the complex implications of those types for the channel partners, and (4) offering propositions that guide firms seeking to successfully implement channel restructuring.
Understanding Channel Restructuring
Primary Decisions in a Firm's Channel Restructuring
Over time, even the most well-designed channel systems must adapt and evolve in response to changing market conditions. Given the high inherent risks in restructuring, firms are deliberate and cautious when making such changes. Channel restructuring typically involves the firm making two decisions: (1) determining whether to expand or contract the channel system, and (2) specifying the locus of changes, that is, what types of changes are required and which partners are involved in and affected by those changes.
Channel system expansion extends a firm's distribution network by increasing the number or variety of channel partners, such as making products available across new customer touchpoints (Verhoef, Kannan, and Inman 2015). Expansion can enhance partner support and streamline operations (Pick 2010; Sharma and Mehrotra 2007), but it may also cannibalize existing partners’ sales, lower their status in the channel hierarchy, and disrupt performance (Kalnins 2004; Sa Vinhas and Anderson 2005; Sa Vinhas and Heide 2015). Excessive channel proliferation can create inefficiencies, exacerbate channel conflict (Kumar 2021), and lead to redundancy (Verhoef 2021). Channel system contraction reduces a firm's distribution network by decreasing the number or variety of channel partners. By eliminating outdated channels, firms can boost profitability through cost reductions despite potential revenue declines (Konuş, Neslin, and Verhoef 2014). Channel contraction inherently involves ending or downgrading long-term relationships with partners that contributed significantly to the firm's prior success. Therefore, it entails a plethora of difficult decisions with mostly uncertain outcomes.
The locus of change may include alterations in the channel hierarchy, the business formats of channel partners, and/or specific partners. Hierarchy refers to the levels of intermediaries that facilitate the flow of goods and services from the firm to its end users, ranging from zero in direct channels (firm to end users), to one intermediary level (firm to retailers to end users), to multiple intermediary levels (firm to broad-line wholesalers to specialty distributors to retailers to end users). Format categorizes channel partners based on their business type, presentation, and operating characteristics, which define how they interact with customers. In consumer channels, for example, retail formats include mass merchandisers, specialty retailers, mega online retailers, and small online shops (Stern, El-Ansary, and Coughlan 1996). Partners refers to a set of channel partners that share specific criteria defined by the firm, such as annual purchases below $10,000 or those located in a specified geographic region.
Previous Research on Channel Restructuring
Table 1 summarizes the extant marketing literature on channel restructuring. We categorize these studies according to whether they examine channel expansion or contraction, and also whether the locus of expansion or contraction studied is primarily focused on hierarchy, format, or partner modifications.
A Literature Review of Illustrative Articles on Channel Restructuring.
Early research investigated why firms undertake restructuring, examining strategic motivations such as competitive shifts and evolving customer demands (Anderson, Day, and Rangan 1997; Coelho and Easingwood 2008). Subsequent studies analyzed the performance implications of different channel structures, noting varied outcomes associated with network design, context, and execution (Homburg, Vollmayr, and Hahn 2014). Governance research explored how contractual and relational mechanisms evolve to address opportunism and conflict during channel reconfiguration (Sa Vinhas and Anderson 2005; Sa Vinhas and Heide 2015), while power-dependence analyses highlighted the influence of relative bargaining positions on restructuring success (Pasirayi and Fennell 2021). Despite its merits, the costs of restructuring can outweigh the revenue gains, resulting in diminished profitability (Van Crombrugge et al. 2024; Zhang et al. 2023). Finally, various firm, strategy, and marketplace characteristics that moderate these outcomes have also been identified (Geyskens, Gielens, and Dekimpe 2002).
Prior research has also examined how channel restructuring affects existing partners and their ongoing relationship with the firm. While some restructuring can generate new growth opportunities and improved margins for partners, although they may initially be unaware of, doubt, or discount the potential benefits (Anand et al. 2025; Arya, Mittendorf, and Sappington 2008), others may prompt partners to disengage with the firm (Van Crombrugge, Breugelmans, Cleeren, et al. 2025; Van Crombrugge, Breugelmans, Gryseels, et al. 2025).
Furthermore, as shown in Table 1, channel expansion has garnered significantly more research attention than channel contraction, with format expansion being the primary focus. In addition, various theories have been applied to the diverse contexts in which restructuring has been examined. As prior studies have focused on specific aspects of restructuring, a comprehensive overview of restructuring types and how they uniquely affect channel partners’ outcomes has not been offered. We therefore present a comprehensive typology of channel restructuring options available to a firm and then consider how these types of restructuring impact the firm's channel partners.
A Typology of Channel Restructuring
As both channel expansion and contraction can involve changes in hierarchy, format(s), and partner(s), six channel restructuring types are possible as depicted in Table 2. A channel redesign may involve multiple restructuring types simultaneously; however, we discuss these six types in isolation to clearly identify them and examine their respective implications separately.
Channel Restructuring Typology.
Channel Hierarchy Expansion
Channel hierarchy expansion adds a new level to the firm's channel system by either (1) introducing new partners as intermediaries between previously direct vertical partners or (2) relocating existing partners to a newly created intermediary level. A manufacturer may add a new wholesaler to serve a certain category of retailers or may coordinate with an existing retailer to alter its operations to serve as an upstream supplier to other retailers. For example, Amazon Web Services recently brought a new intermediary, Ingram Micro, into its channel system to better serve its downstream partners and improve operational efficiency (Ingram 2024). In 2017, Nike maintained direct relationships with only 40 of its approximately 30,000 retailers, selecting those 40 to serve as wholesalers to the other retailers (Deng 2020). Nike undertook this restructuring to reposition itself as a niche brand, enabling retailers to better cater to their downstream customers. Many nonchosen retailers that previously dealt directly with Nike resented this action, stating, “We knew them when they had nothing. … [The retailer’s location] is not an elite place to them” (Deng 2020). Similarly, firms such as Compaq, Cisco, HP, and Dell have engaged in hierarchy expansion by aggressively reducing the number of direct distributors and relocating them to a lower level in their channel systems (Chu, Chintagunta, and Vilcassim 2007; Crothers 1999; Glickman 2024; Palazzo 1999).
Despite its prevalence and impact, channel hierarchy expansion remains understudied. Although disruptions and optimal designs in channel hierarchies have been studied in multi-echelon supply chain research (Schmitt and Singh 2012), empirical investigations of hierarchy expansion are minimal. One exception is Anand et al. (2025), who examined the effects of adding a new intermediary in between previously direct relationships. They find that this channel hierarchy expansion improved the financial performance of both the firm and its channel partners; however, some partners initially underestimated the benefits of restructuring.
Channel Format Expansion
Channel format expansion increases the variety of formats within the firm's channel system. Format expansion typically seeks to better serve specific sets of downstream customers and can be achieved by either (1) adding new partners that possess the desired format or (2) coordinating with existing partners to transition to the desired format. Technological advancements have led to the proliferation of new formats such as mobile apps and third-party e-commerce sites like Instacart (Shein 2020). In 2023, Apple launched a new type of online social media store on WeChat to address unique trends in the Chinese consumer market (Kharpal 2023). Samsung, Tesla, and Mobike, among others, have engaged in channel format expansion for similar reasons (Spadafora 2019; Stevens 2013; Zhang et al. 2023). To cater to its premium customers, Naturals Salon transitioned some existing franchisees to a new format, Page 3 Luxury Salon Studio (Ragalahari 2013).
Prior research on channel format expansion is well-documented. However, the findings are mixed. Some studies report that format expansion positively impacts sales, profits, and firm value (Arya, Mittendorf, and Sappington 2008; Geyskens, Gielens, and Dekimpe 2002; Homburg, Vollmayr, and Hahn 2014); other research suggests that it leads to conflict and reduces firm value (Pasiyari and Fennell 2021) and that firms benefit only when the new format has low operating costs (Zhang et al. 2023). Further, some research indicates that the profitability of partners with the preexisting format is undermined, increasing conflict and opportunism (Pasiyari and Fennell 2021; Sa Vinhas and Heide 2015; Zhang et al. 2023), but others find that the importance of the preexisting format can increase after format expansion (Chung, Chatterjee, and Sengupta 2012). More recent research suggests that channel format expansion prompts partners to reduce their engagement with the firm by purchasing fewer stockkeeping units (SKUs) and increasing prices (Van Crombrugge, Breugelmans, Cleeren, et al. 2025; Van Crombrugge, Breugelmans, Gryseels, et al. 2025). Given these conflicting findings, we anticipate that the success of format expansion depends on multiple contingencies that are yet to be clearly identified. Moreover, motivating and incentivizing channel partners to adopt a new format remains largely unexplored.
Channel Partner Expansion
A firm can engage in channel expansion by adding new partners to the existing channel system, holding both hierarchy and formats constant. Firms usually pursue channel partner expansion to increase distribution intensity within their currently served markets or to expand into new markets (Frazier and Lassar 1996). For example, in 2008, HP added 7,500 retailers across 1,000 cities in the Asia-Pacific region (Lim 2008). Channel partner expansion is the least disruptive restructuring type and is widely practiced. Franchising firms pursue partner expansion by enabling existing multi-unit franchisees to add new outlets or by adding new franchisees. For instance, Domino's expanded in the United States from 5,815 outlets in 2019 to 6,438 in 2022. Kumon, KFC, and Planet Fitness engaged in similar partner expansion (Franchise Chatter 2022).
Channel partner expansion is well-examined in prior research and shows that such restructuring may increase a firm's power over its partners, encouraging greater efficiency through competition (Etgar 1979; Homburg, Vollmayr, and Hahn 2014), but also may decrease partners’ cooperation and information sharing and increase partners’ opportunism and switching behavior (Ganesan et al. 2010; Sa Vinhas and Anderson 2005). Although partner expansion typically increases a firm's revenue, it can simultaneously decrease the profitability of affected channel partners (Bucklin, Siddarth, and Silva-Risso 2008). Within franchise literature, studies indicate that new franchisees cannibalize the incumbents, but they also facilitate knowledge sharing in multi-unit franchisee systems (Butt et al. 2018; Kalnins 2004). Despite prior research, mechanisms driving partners’ continued participation in or exit from the firm's channel system during partner expansion remain unclear and constitute a potent area for future research.
Channel Hierarchy Contraction
Channel hierarchy contraction eliminates one or more levels of hierarchy from a firm's channel system by either (1) discontinuing business with all partners at a specific level or (2) consolidating partners at two levels into one level by reorganizing supply relationships. Firms typically pursue hierarchy contraction to establish closer relationships with downstream customers, reduce transaction costs, and/or optimize resources. Hierarchy contraction is less common in practice, perhaps due to its controversial and reputationally risky nature. Hierarchy contraction is often a response to new competitors that have leaner direct distribution models, such as electronics and cosmetics companies that bypass intermediaries to sell directly to end users (Dublino 2025). In 2015, Chanel stopped renewing wholesale agreements with U.S. department stores, choosing instead to sell its products directly to end users through its own boutiques and website; this was implemented to control pricing, customer experience, and brand storytelling (Lockwood 2018). Although this type of restructuring can streamline distribution, prior research cautions that it may be myopic, as its success depends greatly on downstream customers’ acceptance of the new structure (Saunders et al. 2001). An empirical investigation of channel hierarchy contraction and its long-term effects on the firm and its channel partners remains largely unexplored, constituting a rich area for future research.
Channel Format Contraction
Channel format contraction reduces the variety of formats within the firm's channel system by either (1) discontinuing business with all channel partners that have the undesired format or (2) coordinating with existing partners to transition from that undesired format to another current format. Firms typically pursue format contraction to resolve interformat or intrabrand conflict among channel partners or to remove channel redundancies. Channel format contraction is common in practice. In 2019, Tesla closed all its brick-and-mortar stores to reduce operating expenses, subsequently selling only through its online store (Hawkins 2019). Sony, Best Buy, Levi's, and Bebe have also engaged in format contractions to gain efficiency or reduce conflict (Emert 1999; Picchi 2017; Thomas 2018; Xperia 2015). Similarly, firms may consolidate multiple formats into a single format, which often occurs following a merger or acquisition. In 2020, T-Mobile systematically converted all retained Sprint stores into T-Mobile outlets, thereby unifying the retail network into a single brand and eliminating the Sprint retail format (Manfredi 2020).
Despite the widespread practice, scholarly research on channel format contraction is lacking, both from the firm's perspective and that of its channel partners, providing a rich avenue for future research.
Channel Partner Contraction
A firm engages in channel partner contraction by eliminating a set of partners from its channel system while holding both hierarchy and format constant. Partner contraction reduces distribution intensity via customer divestment (Feng, Morgan, and Rego 2020) and is typically implemented to cut costs, streamline operations, and gain distribution efficiencies. 2 Channel partner contraction is also pervasive in practice. Ford eliminated 600 dealerships to consolidate and streamline its distribution system (Harris and Wilson 2006). IBM, P&G, and Chrysler have taken similar actions (Pereira 2006; Reuters 2008; Vizard 2018). Partner contraction frequently occurs in franchise systems, as their stringent operational and governance standards provide clear grounds and mechanisms for dropping underperforming channel partners. For instance, Dunkin’ and Papa Murphy's regularly review and eliminate partners that fall short of their standards (Franchise Chatter 2025).
Franchisor termination of franchisees has been well-studied (Kim and Min 2023). Eliminating weaker franchisees can increase average sales and margins for retained franchisees by reducing territorial overlap and reallocating franchisor support (Lafontaine and Morton 2010). When termination is used as an enforcement mechanism, the immediate effect on the franchisor is negative since the upfront costs of termination are greater than the benefits that unfold over time (Kim and Min 2023). Partner contraction also has been examined in research on relationship dissolution and customer divestment; retained partners are likely to benefit from reduced distribution intensity, which can free firm resources for deeper investments in those partners (Feng, Morgan, and Rego 2020; Mittal and Sarkees 2013; Yang et al. 2012; Zhang, Griffith, and Cavusgil 2006). This stream of research, however, implicitly assumes that dissolution is triggered by a negative experience and does not clearly differentiate between the source or reasons for channel partner departure. Dissolution arising from a firm's channel partner contraction has not been studied.
Implications of Restructuring for Channel Partners
Channel restructuring is a transformational event for the firm and channel partners, as it involves a significant change in the operations of many partners and creates tension within the channel system. We focus specifically on the anticipated impacts on existing partners that the firm seeks to retain in the revised channel system, as the retention of those partners is essential for the success of restructuring. What are the primary factors that affect the partners’ decision to comply with the firm's restructuring initiative? Drawing on prior literature and practitioner observation, we contend that partners’ compliance is impacted by (1) the changes in roles they are expected to perform in the firm's channel system, (2) the changes in their status within that system, and (3) their anticipated financial consequences of the required changes in the firm's channel system.
The importance of functional roles has long been recognized in channels research. Early work by Alderson and Cox (1948) emphasized that essential marketing functions, such as sorting, standardizing, and facilitating exchange, must be performed, though the responsible party may vary. Stern and El-Ansary (1977) later classified these into transactional, logistical, and facilitating roles, forming the basis for the contemporary understanding of how partners create value (Palmatier et al. 2020; Palmatier, Stern, and El-Ansary 2015). Because partners build routines, resources, and capabilities around these roles, any alteration in functional expectations can be costly and disruptive, forcing reassessment of whether continued alignment with the firm is beneficial.
Status changes are also highly relevant because they both impact the partners’ affective responses and constitute a signal to their downstream customers and other current or potential suppliers regarding their enhanced or diminished position in the firm's channel system. Recent research has found that affective or emotional responses can impact the partners’ decision-making, sometimes outweighing more objective criteria (Palmatier et al. 2006). Status promotions can motivate potential customers to do business with the partner, while status demotions can lead current customers to consider doing business elsewhere.
Both role alterations and status changes ultimately influence a partner's profitability. Adjustments in functional responsibilities often necessitate new processes, personnel realignment, and revised operating routines, each imposing switching costs and altering the partner's ongoing cost structure. While such costs can be estimated, the revenue implications of restructuring are less predictable, as they depend not only on the partner's own adaptations but also on how downstream customers respond to the restructured channel system. Even partners whose roles and status are unchanged can experience financial gains or losses stemming from shifts in competitive dynamics within the restructured system.
Impacts of Restructuring on Partners’ Functional Roles
To continue participating in the firm's restructured channel system, directly affected retained partners must be willing to cooperate with the firm's plans and assume revised roles within the system. Channel roles are the fundamental activities performed to move products or services from the point of production to the point of consumption (Palmatier, Stern, and El-Ansary 2015). The functional roles that partners perform in the channel system include physical possession of products and the facilities in which they are held; ownership, which carries the potential for obsolescence; promotion to encourage downstream parties to buy goods and services; negotiation to determine terms of trade; financing products as they flow through the channel to the end users; risk evaluation and mitigation from loss or damage; handling order and payment; and data management and information activities such as collection, storage, and analysis. These roles encompass not only the physical transfer of goods or the provision of services, but also the myriad affiliated tasks that ensure value is created and delivered by the channel system (Anderson, Lodish, and Weitz 1987).
When an existing channel is restructured, it introduces a new “configuration of functions in terms of customer service, spatial convenience, provision of information, product variety, and waiting and delivery time” (Homburg, Vollmayr, and Hahn 2014, p. 40). The reallocation of functional responsibilities creates both opportunities and risks for retained partners. As successful restructuring requires partners’ willing cooperation with the firm's initiative, it is critical that the firm clarify each retained partner's revised roles and that the firm understands partners’ concerns about the forthcoming changes.
Impacts of Restructuring on Partners’ Status
Beyond altering partners’ functional roles, restructuring also affects how retained partners perceive their status within the firm's channel system. These perceptions often shift when partners’ roles in the channel system change, but even partners whose roles are unchanged may perceive a change in status, particularly when horizontally or vertically adjacent partners are directly involved. An integral aspect of a partner's status assessment is its relational proximity to the firm (Pick 2010). This is most obvious for vertical proximity, the number of hierarchy levels between partner and firm. A partner's status within the channel system is higher when it is vertically closer to the firm. Partners also gain status from horizontal proximity, the number of other partners operating at the same level of hierarchy. A partner's status is higher when there are fewer peers at the same level. In addition, having fewer peers is often accompanied by a greater share of the firm's business. Partners often publicize their vertical proximity, such as Upway's website, which proclaims, “Upway is proud to be a direct partner of Super73” (Upway n.d.). Partners also trumpet horizontal proximity, such as SSI's proclamation that it is “proud to be certified as a Microsoft Gold Partner – only the top 1% of Microsoft Partners globally are Gold Certified” (SSI n.d.).
When restructuring occurs, partners evaluate how their status in the new system compares with their previous standing. Status changes can disrupt partners’ relational expectations, prompting them to reassess their relationship with the firm (Harmeling et al. 2015; Jap and Anderson 2007). Greater relational proximity signals a partner's elevated status within the firm's channel system, which can foster increased loyalty not only from that partner but also from its downstream customers. Higher status can also have an influence on parties outside the firm's channel system—a particularly valuable advantage for partners not bound by exclusive dealing contracts. Elevated status can enhance the partner's reputation among the firm's competitors, who may seek to work with the partner, as well as among potential customers who do not yet have a relationship with them.
Although status promotions are generally well-received, even when they involve more demanding functional roles and responsibilities, status demotions are far more problematic, as they are not only symbolic losses but also carry tangible downsides. Horizontal demotion increases intrabrand competition within the channel system. Vertical demotion involves decreased access to strategic information and decision-making forums as well as lower priority resource and inventory allocations in times of shortage. Vertical demotion, therefore, is particularly damaging, as it communicates to both the affected partner and its downstream customers that the partner is less valued, simultaneously undermining its market position, reputation, and self-esteem. Vertically demoted partners are also more prone to upward social comparisons relative to their newly promoted peers, which heightens perceptions of unfairness and triggers stronger status anxiety than comparisons among similarly ranked partners (Lee and Griffith 2019).
Impacts of Restructuring on Partners’ Financial Performance
In addition to changes in functional roles and status, restructuring also affects the expectations of retained partners regarding future financial performance. Although long-term financial outcomes vary widely and depend on future strategies, market opportunities, and competitive environments, the immediate implications of restructuring are more concrete and salient to the partners. These include shifts in intrabrand competition, the emergence of new direct or indirect competitors, and the need for costly investments or adjustments in revised functional roles.
A partner's financial motivation to remain in the restructured channel system is affected by expected changes in downstream sales opportunities, anticipated costs, and access to the firm's incentive programs. Channel restructuring can enhance or undermine a partner's expected future sales and profit performance relative to the existing system, as it alters how downstream partners and end users access the firm's products. When the firm removes certain channel partners, or when some choose to exit rather than comply with the restructuring, remaining partners may benefit by absorbing the end user demand formerly served by their counterparts. Conversely, the introduction of new channels that compete for the same customers can pose serious threats to existing partners.
Some negative effects can be mitigated through the firm's use of incentives such as rebates, cooperative advertising, market development funds, or inventory financing, to encourage partner engagement in marketing, sales, and channel-related activities. Eligibility for these incentives typically depends on a partner's role or position in the channel system. As partners assess the core financial implications of restructuring, anticipated changes in their access to incentives also influence their expectations about the net financial impact of the revised system.
Illustrations of Effects of Restructuring on Partners
In this section, we contemplate the role, status, and financial implications of each type of restructuring for the firm's channel partners. Figures 1–6 provide illustrative examples of each restructuring type for a focal manufacturer. In these figures, each box represents a set of partners in the channel system that share distinct characteristics relevant to the firm's restructuring initiative. R1 and R2 indicate retailers with distinct characteristics (e.g., high-volume vs. low-volume reseller); D indicates distributors and F indicates franchised outlets. The primary focus of the expansion or contraction strategy is shown in bold. Below each figure, we briefly summarize the anticipated impact of the restructuring on retained partners in terms of functional role alterations, status changes, and anticipated financial implications.
Illustration of Channel Hierarchy Expansion.
Illustration of Channel Hierarchy Contraction.
Illustration of Channel Format Expansion.
Illustration of Channel Format Contraction.
Illustration of Channel Partner Expansion.
Illustration of Channel Partner Contraction.
Implications of Channel Hierarchy Expansion and Contraction
As shown in Figure 1, hierarchy expansion is a highly disruptive form of restructuring that creates various negative consequences for retained channel partners, regardless of whether new or existing partners occupy the new hierarchy level. Vertically demoted retailers lose their direct connection to the manufacturer, resulting in a loss of status. The impact of this vertical status demotion is enhanced when retailers (R1 and R3) observe former peers (R2) being promoted over them. The vertical demotion is accompanied by reduced functional roles, as some functions that the nonpromoted retailers previously provided are transferred to their new suppliers (D1, D2, R2). R2 no longer interacts with downstream customers but instead assumes a wholesaling role. Although R2 retains direct ties with the manufacturer and gains elevated status, these benefits come with substantial changes to its functional roles and necessitate significant new investments. Nevertheless, its revised position is likely to yield positive net financial outcomes.
The net financial impacts of these role changes are uncertain for nonpromoted retailers, as they incur lower costs (e.g., lower inventory carrying costs, inventory financing, and faster resupply). However, these cost savings are accompanied by lower gross margins as well.
In addition, the retailers’ lower position in the channel hierarchy often provides less access to program incentives, thereby making the net financial ramifications uncertain for retailers when hierarchy expansion involves new distributors. When some current retailers are promoted (R2), however, other retailers (R1, R3) have additional positive financial benefits of capturing new customers that were formerly served by R2.
Hierarchy contraction is even more disruptive than hierarchy expansion. Whether accomplished by removing or reassigning partners, the functional roles previously performed by those partners must still be fulfilled. Typically, existing partners positioned adjacent to the eliminated ones are tasked with absorbing many of those responsibilities. As illustrated in Figure 2, retailers receive a vertical status promotion, but this comes with the added burden of taking on new functional roles to perform wholesaling activities previously handled by distributors.
When hierarchy contraction involves the removal of distributors from the channel system, retailers may benefit financially due to increased margins associated with their new, higher-tier status. However, when reassignment occurs, where retailers are elevated to become direct partners alongside existing distributors, the outcome is more complex. Although these retailers likely gain access to improved incentive structures, they simultaneously experience horizontal demotion, as their peer group expands and intrabrand competition intensifies. As a result, the financial implications are ambiguous: Margin gains may be offset by customer losses due to increased competition.
For distributors, reassignment brings different challenges. Although their direct relationship with the manufacturer remains unchanged, they must now assume a new role and discontinue their previous wholesale role. This shift creates significant financial strain. Not only do distributors lose their retailer-customers, who now deal directly with the manufacturer, they also face new intrabrand competition from those retailers in the downstream market. Moreover, the promotion of retailers to the distributors’ level causes horizontal demotion, further diminishing distributors’ status. Unless the firm takes steps to offset these disruptions, such as offering tailored incentives, reassigned distributors may find little reason to remain in the firm's channel system.
Implications of Channel Format Expansion and Contraction
Firms pursue format expansion when they anticipate that a new retail format will better serve certain target customer segments or operate more efficiently. This type of restructuring inevitably introduces indirect intrabrand competition, whether through the addition of new partners or the conversion of current partners to the new format. As illustrated in Figure 3, the introduction of franchised outlets particularly affects retailers in the same geographic markets (R2), which face increased competition and are likely to experience negative financial impact. In contrast, retailers in markets without the new franchised competitors (R1) are less affected. Distributors also suffer, as a larger proportion of the retailers they serve face competition from the new franchise format, putting additional pressure on their financial outcomes. The addition of franchisees also results in horizontal status demotion for both distributors and retained retailers.
When format expansion is achieved by reassigning existing partners, the perceived threat to retained partners is typically lower. Nevertheless, legacy format retailers (R1 Format A) are likely to face some financial downside due to the introduction of a new competing format, despite benefiting from fewer direct competitors of the legacy format. Distributors may experience a net financial benefit from partner reassignment, as the gains from increased end user sales through the new format can outweigh the losses from cannibalized sales of the legacy format. Unlike hierarchy restructuring, channel format expansion and contraction impose no change in the functional roles of retained partners that continue to operate in the same manner after the restructuring. For partners required to change formats, the transition requires additional investments but only moderate role modifications.
In format contraction, outcomes vary depending on how the change is implemented. As shown in Figure 4, when contraction involves the removal of partners as well as the format, retained partners benefit from reduced intrabrand competition and horizontal status promotion, both of which can lead to positive financial outcomes. In contrast, when format contraction involves the reassignment of partners (R2 Format A), the implications are more complex. Partners in the retained format (R1 Format A) are exposed to more direct intrabrand competition, which may negatively impact their financial performance. Reassigned partners fare worse, as they not only face the same intensified intrabrand competition but also must absorb the costs of transitioning to the retained format. For distributors, both kinds of format contraction generally yield negative financial outcomes as the sales losses from the eliminated format are unlikely to be fully recovered in the near term.
Implications of Channel Partner Expansion and Contraction
The most common form of channel restructuring is the addition or removal of channel partners without changing hierarchy levels or operating formats. Importantly, neither partner expansion nor partner contraction necessitates role changes for retained partners. As Figure 5 illustrates, partner expansion benefits upstream distributors, who experience net financial gains from increased sales volume. However, for partners at the same hierarchical level (R1 and R2), expansion introduces greater intrabrand competition, resulting in horizontal status demotion, which may generate resentment and conflict. If the end user market is growing, the immediate negative effects of added competition on retained retailers may be modest, but these partners may nevertheless harbor concerns about future expansion and its negative financial implications.
In contrast, partner contraction, as shown in Figure 6, tends to favor retained partners at the same level (R1 and R2), who benefit from reduced intrabrand competition, horizontal status promotion, and the positive financial impact from absorbing some of R3's former end users. For distributors, however, the removal of downstream retailers has a negative financial impact, as the lost sales from eliminated retailers may not be fully recovered by those who are retained.
An Integrative Analysis of the Six Restructuring Types
As many scholars would expect, channel hierarchy expansion is highly disruptive to channel system operations. However, what may be more surprising is that channel format expansion can be equally, if not more, disruptive to channel operations, as it has greater potential for negative consequences for retained partners than hierarchy expansion. In comparison, channel partner expansion is generally less disruptive, yet can still generate significant adverse effects for retained partners. Although the firm's market growth is undoubtedly desirable, the channel expansion required to support it creates substantial challenges for various partners, with potential long-term consequences.
When a manufacturer reassigns an existing partner's role to leverage them as a known and trusted entity, it can have downsides for the partner. However, it also carries a significant downside: the partner is removed from a role they were previously performing effectively, leaving a gap that must be filled by other partners. This change not only affects the reassigned partner but also triggers a cascade of adjustments for their peers, upstream suppliers, and downstream customers. Furthermore, the reassigned partner must make investments, acquire new skills, and undergo a learning curve to succeed in their new role—all of which take time, disrupt operations, and carry operational risk. Alternatively, bringing in new partners to fill expanded roles can offer advantages, particularly if they already operate in the desired format or channel level and can hit the ground running. However, these new entrants must establish upstream and downstream relationships with the firm and its retained partners—a time-consuming and potentially risky process.
Although channel system contraction is often perceived as inherently negative, as it is frequently associated with decline or retrenchment, it can be a strategic response to market opportunities and a key component of a growth strategy. As market needs evolve, some partner formats or entire channel structures become obsolete. The short-term effects of channel contraction are likely to raise concerns among retained partners, but the longer-term financial impact can be positive if the firm offers clear reason and takes action to reinforce partner loyalty.
Enhancing the Likelihood of Successful Channel Restructuring
Every channel restructuring creates at least short-term negative consequences for some of its retained partners. However, these disruptions are often accompanied by countervailing benefits or the promise of favorable long-term outcomes. Partners that perceive the planned restructured channel system as potentially beneficial are more likely to comply with and support the firm's restructuring. In contrast, when partners anticipate more negative outcomes or face greater uncertainty, their responses may range from reluctant, passive compliance to voluntary exit from the channel system (Hibbard, Kumar, and Stern 2001). In this section, we offer propositions regarding factors that enhance the likelihood of partner compliance.
Baseline Effects of Restructuring
We anticipate that partners experience both positive and negative effects of restructuring depending on the extent of their required role revisions, the direction of their status change, and the favorability of their expected financial outcomes. These dimensions jointly shape partners’ evaluations of whether continued participation aligns with their strategic and economic interests. When the restructuring demands substantial changes in functional responsibilities, reduces perceived standing within the channel, or introduces uncertainty regarding future profitability, partners are more likely to resist the firm's initiative or exit the system altogether. Conversely, when role adjustments are manageable, status improvements are evident, and financial prospects appear favorable, partners are more inclined to comply and support the restructuring effort.
In addition to these baseline effects inherent in restructuring, a partner's compliance will vary based on a range of contextual factors. Building on insights from both practitioner observations and prior research, we identify three key factors: asymmetric impacts on specific partners, partners’ operational readiness, and the firm's restorative actions during restructuring. We next consider these factors and offer theoretically grounded moderating propositions.
Asymmetric Impacts of Restructuring
As illustrated in Figures 1–6, channel restructuring can produce varied effects for retained partners. We contemplate three sources of asymmetric impact: (1) countervailing effects of status versus functional and financial implications for a partner, (2) concurrent but opposing status changes for a partner, and (3) differential effects on partners within the same hierarchical level.
Channel partner compliance is a two-step process: (1) the firm restructures its channel system, imposing functional role, financial, and/or status implications on its partners, and (2) partners evaluate the implications and decide whether to comply with the new system or exit to find new suppliers (Anand et al. 2025). Although changes in functional roles, status, and expected financial outcomes all shape channel partners’ willingness to comply with restructuring, they differ in their immediacy and certainty of impact. A partner's impending status promotion or demotion becomes apparent as soon as the restructuring initiative is shared with channel partners (Lee and Griffith 2019; Pick 2010). This instantaneous signal strongly shapes partners’ willingness to cooperate, invest in joint activities, and remain committed to the relationship. That signal also projects to the downstream customers and broader ecosystem how the partner is valued by the firm.
In contrast, the full impact of a revised functional role and financial outcomes manifest only as the partner operates within the revised channel system. The changes and switching costs required to fulfill a new or significantly altered role are not immediately apparent. In addition, the financial implications of role changes, such as required investments, adjustment time, and the impact on costs, are estimated values. Long-term revenue projections are also uncertain, as future performance outcomes in the revised channel system are inherently ambiguous and unfold over time, depending on the reactions of downstream customers to the revised system.
As uncertainties associated with the new functional roles and expected financial implications increase, partners are more likely to seek strategically reassuring anchors for decision-making (Loewenstein et al. 2001) and, therefore, rely on the most salient and immediate cue available, namely status.
When a partner experiences only vertical or only horizontal status change, the effect on compliance is relatively straightforward: promotion tends to increase the likelihood of compliance, whereas demotion has the opposite effect. However, partners can experience both types of status change simultaneously, but in opposing directions. For example, a partner may experience vertical status promotion (becoming a direct partner of the manufacturer) simultaneously with horizontal demotion (increased intrabrand competition). When this occurs, we anticipate that the vertical status change will dominate. The prestige and strategic benefits of vertical promotion and closer affiliation with the firm will have a greater impact than the negative implications of horizontal demotion and more intense peer competition. Conversely, when a partner receives a horizontal promotion concurrently with a vertical status demotion, the negative effects of the vertical status loss are likely to outweigh the benefits of reduced peer competition. Increased distance from the firm diminishes the partner's perceived status, strategic importance, and financial benefits, all of which are potentially more immediate and influential in shaping partners’ compliance behavior than the likely benefits of less intense peer competition.
Channel restructuring often affects partners operating at the same hierarchical level unevenly, including disparate changes in functional roles, status, or financial outcomes. As partners assess their standing relative to peers, asymmetries in opportunity and impact are likely to trigger perceptions of inequity (Festinger 1954). When partners perceive that restructuring will impact them less positively or more negatively than their peers, perceived inequity and resentment are likely. These negative social comparisons can trigger loss aversion (Lee and Griffith 2019), thus increasing the likelihood that disadvantaged partners will resist the restructuring or even exit the channel system altogether.
Channel Partners’ Operational Readiness
Drawing insights from supply chain resilience research, we posit that partners are more likely to comply when they possess operational readiness. Operational readiness is a key component of absorptive capacity (Chowdhury and Quaddus 2016), which allows partners to reconfigure or realign existing resources to address emerging threats and seize new opportunities (Ambulkar, Blackhurst, and Grawe 2015) and to withstand disruptions with minimal impact on their operations and downstream service delivery (Christopher and Peck 2004). Operational readiness comprises resource slack and dynamic capabilities (Azadegan, Patel, and Parida 2013; Dolmans et al. 2014), which equip a partner to assume new functional roles with minimal strain.
Resource slack refers to underutilized assets, such as idle warehouse space, surplus labor capacity, or unused IT bandwidth, that enable a partner to take on additional functional responsibilities without disrupting existing operations. Such slack is especially valuable in addressing unanticipated challenges or opportunities (Daniel et al. 2004). Without adequate slack, transitioning to a new channel structure can impose significant financial and operational burdens, leading to service failures, reactive and costly damage control efforts, and margin erosion. Slack also provides partners with the flexibility to make relationship-specific investments, such as acquiring new or upgraded facilities, expanding logistics infrastructure, or training personnel for added responsibilities (Palmatier, Stern, and El-Ansary 2015). Having access to the capital or credit required for such investments accelerates the partner's transition into the new role and increases the likelihood of successful adaptation.
Dynamic capabilities refer to a partner's agility in responding to change, specifically their ability to reconfigure resources rapidly and scale operations to support new functions (Barreto 2010; Laaksonen and Peltoniemi 2018). These capabilities include reallocating personnel, repurposing physical infrastructure, and adapting technological systems to meet evolving demands. A partner lacking dynamic capabilities is likely to struggle with the complex adjustments required during restructuring (Winter 2003). Dynamic capabilities are especially crucial when a partner is tasked to relinquish certain functional roles; they enable the efficient redeployment of freed resources toward other revenue-generating opportunities, either by deepening the partner's engagement in a more focused role within the firm's channel system or by expanding activities outside of it.
Restorative Capabilities Offered by the Firm
Drawing on insights from interorganizational relationship marketing and supply chain resilience research, we posit that partners are more likely to comply when the manufacturer offers restorative mechanisms to offset potential negative impacts. Firms implementing restructuring can deliberately build resilience into the revised channel system by embedding mechanisms that promote partner compliance. Three restorative capabilities are particularly effective in reducing partner exits: financial incentives, procedural fairness, and outcome fairness (Blut et al. 2016).
Financial incentives play a critical role in shaping how partners interpret the manufacturer's intent during restructuring. The financial implications of restructuring are typically uncertain for channel partners. Role changes entail transition costs and can increase ongoing operational expenses, while projections of future sales revenue are often speculative, particularly when the restructuring significantly alters a partner's responsibilities and position within the revised channel system. The firm can enhance compliance by offering financial assistance to retained partners that incur transition costs arising from significant role changes, such as loans to expand physical plant, providing training for new duties, or cost-sharing via joint relationship–specific investments. Helping defray partners’ transition costs can greatly increase their likelihood of complying with the restructuring.
Additionally, role changes may alter the firm's access to or qualification for its incentive programs, such as rebates, cooperative advertising funds, and tiered margin schemes, which are typically codified in explicit, legally binding agreements with defined thresholds and payout schedules (Blut et al. 2016). These programs highlight immediate, quantifiable benefits available to partners once eligibility conditions are met, allowing partners to factor them into their expected financial outcomes. In contrast, future sales revenue and profits unfold over time and are contingent on downstream customer awareness, competitive responses, and broader channel dynamics (Bucklin, Siddarth, and Silva-Risso 2008).
Each partner's ultimate profitability depends on a complex interplay of external and often uncontrollable factors, such as competitor entry, geographic overlap, peer defections, and service differentiation. Although the net financial impact, based on evolving costs and revenue streams, is uncertain, the firm can reduce partners’ uncertainty by providing additional incentives, particularly to those experiencing significant transition costs. These incentives reduce partners’ perceived risk, reinforce trust, and enhance compliance, particularly when partners face high levels of disruption and uncertainty.
Channel restructuring can be deeply unsettling for partners the firm hopes to retain. Restructuring often presents significant challenges for partners, including exposure to new competitors and the need to make costly, relationship-specific investments. When restructuring requires partners to undertake changes that involve substantial risk, procedural fairness becomes a critical aspect of securing compliance. Partners are more likely to perceive restructuring as fair when the firm shares the strategic rationale motivating the changes, acknowledges how restructuring impacts the partners and the challenges they face, explains the necessity for restructuring, encourages open bidirectional communication, and addresses partners’ objections and concerns constructively. Fairness perceptions are also promoted by the firm's impartiality and consistency, such as applying the same criteria to all similarly situated partners and treating partners with courtesy and respect (Kumar, Scheer, and Steenkamp 1995).
Perceptions of unfairness are especially likely to arise among partners who feel negatively affected by restructuring. Such perceptions are often intensified when there is a lack of transparency about the decision-making process (Lee and Griffith 2019). The firm can mitigate negative reactions by explicitly explaining why certain partners were demoted, how comparable partners were treated under the same criteria, and whether there are conditions under which the demotion could be reconsidered. This transparency helps reduce attributions of arbitrary or biased treatment and can preserve trust in the relationship. Moreover, even in difficult cases, courteous treatment, respectful dialogue, attentive customer service, and postrestructuring support signal the firm's ongoing commitment to its retained partners. Such gestures reinforce the message that the firm seeks not only to restructure its channel system but also to sustain long-term relationships with its retained partners (Anand et al. 2025).
Partners evaluate outcome fairness, the fairness of the outcomes they expect to receive after restructuring (Kumar, Scheer, and Steenkamp 1995), which is shaped by how partners compare their expected outcomes to various referents (Arnold et al. 2009). The most immediate comparison is the partner's own anticipated net outcomes in the restructured system against their current net outcomes. If the revised system demands significantly greater investments without a commensurate increase in financial returns, partners will view the restructuring as unfair and be unlikely to comply. Even when future outcomes appear favorable compared to current outcomes, partners also assess fairness relative to peers. If they perceive that similar or lesser-performing partners receive disproportionately greater benefits, feelings of negative inequity may arise, undermining perceived fairness. In addition to peer comparisons, partners consider their own anticipated outcomes relative to their own inputs—including the resources they are required to commit for the revised channel configuration—in comparison to the firm's contributions to and benefits from the relationship. Firm-provided incentives play an important role, as they can restore equity in the relationship by aligning the firm's and partner's outcome/input ratios. Collectively, these comparisons shape partners’ overall perception of outcome fairness, which influences their responses to the restructuring.
Discussion
Restructuring involves simultaneous, large-scale transformations across interdependent components—channel architecture, partner roles, and resource allocation—which entail substantial operational and relational recalibrations. We offer a holistic framework that identifies six primary restructuring types and their operational, relational, and financial implications for channel partners. Our empirically testable propositions highlight conditions under which partners are more likely to cooperate with a firm's restructuring initiative. We also identify moderating factors that affect partners’ compliance, including differential partner-level factors, the complex interplay of functional, status, and performance projections, and actions the firm can take to mitigate the adverse consequences of negative or uncertain partner outcomes.
The Importance of Evaluating Restructuring from the Perspective of Channel Partners
Our propositions offer relevant factors for practitioners to consider when devising and implementing channel restructuring. Although the goal is strategic channel system optimization, restructuring can inadvertently provoke conflict, opportunism, and distrust among partners it wants to keep. It behooves a firm contemplating major channel restructuring to consider: How will channel partners it seeks to retain be impacted by the functional role changes required? How will those partners’ status be affected by not just their own role changes, if any, but by the changes involving relevant peers or upstream/downstream partners? Although the firm may project that the revised channel system will yield positive performance outcomes for the retained partners, do the partners project similar future outcomes with the same level of confidence?
Channel restructuring is inherently disruptive, and the more extensive the restructuring, the greater the uncertainty both directly and indirectly involved firms will face about the future. Observing drastic changes required by other parties, particularly in channel contraction, can provoke anxiety among retained partners who worry: Are we the next to be dropped from the firm's channel system? It is important that the firm reassure retained partners regarding their future in the revised channel system.
Negative reactions are especially likely when the planned changes have disparate impacts on partners at the same hierarchical level, disrupt established relational norms, or alter status hierarchies. Restructuring generates heterogeneous effects on partners within and across hierarchical levels, triggering upward social comparisons and potentially leading to resentment. If the planned restructuring strategy is viewed as detrimental by a significant share of its channel partners, those partners could create a coalition to rebel or protect their rights, as happened with McDonald's franchisees (Luna 2018). Firms should strive to preemptively identify and compensate for adverse asymmetries in impact either through targeted incentives or calibrated role adjustments, thereby enhancing perceived fairness.
Before selecting specific partners for extensive functional role changes, we suggest that firms evaluate each partner's operational readiness. Does the partner possess the necessary slack resources and/or dynamic capabilities to adapt quickly and seamlessly to the new role? Partners lacking operational readiness are more likely to voluntarily exit the channel system, rather than comply with demands placed on them by the firm's restructuring initiative. If the selected partners choose to leave the firm's channels, the firm must modify its plans and identify alternative partners to assume the necessary roles, resulting in additional turbulence during the restructuring process. When significant role changes are required, offering targeted support and incentives, such as coinvesting in training, temporary warehouse and IT support, cost-sharing of relationship-specific investments, and similar assistance, not only increases partner compliance but also signals that the firm is committed to a long-term relationship with that partner.
For the partners directly involved in or impacted by the restructuring, firms should include restorative mechanisms in their restructuring strategy, particularly when partners are likely to experience high uncertainty about outcomes or anticipate negative short-term effects. As a general rule, firms benefit from engaging in actions that promote partner perceptions of procedural and outcome fairness, but this is even more critical during restructuring. Actions that reduce perceptions of unfairness can encourage partners to assess their options more objectively.
It is also important to keep in mind that partners’ initial responses to restructuring are not irrevocable. A partner that complies only because of dependence on the firm may become more enthusiastic if their postrestructuring outcomes are more favorable than anticipated (Anand et al. 2025). Conversely, a partner may initially comply, but later exit the channel system as their functional and financial consequences become more certain. Channel restructuring is a dynamic process that is implemented over time, requiring adjustments not only by the partners involved but also by the firm itself. Partners’ postrestructuring relationship investments or new relationship development efforts are not static, but may change based on the value they derive, or expect to derive, after transition to the revised channel system. These dynamic, multistage behaviors, where partners and firms alternately respond and readjust, emphasize the importance for firms to understand the long-term relational and financial benefits for those involved partners.
Although this paper focuses specifically on partners that the firm seeks to retain after restructuring, the postexit actions of partners dropped during restructuring and partners that voluntarily leave the firm's channel system should also be considered. When partners are terminated, unanticipated costs can manifest for the firm, such as complexities in liquidating terminated partners’ inventories. Partners that are no longer involved in the firm's channel system explore new and potentially better opportunities, as expressed by the chief strategist of a consulting firm, “Much like it's difficult to walk away from a well-paying job that mistreats you, these [cancelled] retailers have now been freed up to step into the future.” (Ryan 2021; Stein 2021; Zimmerman 2020). Terminated partners may pursue opportunities to work with the firm's competitors. In addition, the firm can be negatively affected by subsequent retaliation from terminated partners (Kumar, Scheer, and Steenkamp 1998), such as when an immigrant franchisee filed a racial discrimination lawsuit against Dunkin’ following the termination of his four stores (NRN 2007).
The Impact of Channel Restructuring on Other Parties
Restructuring can impact perceptions of parties beyond the firm's partners, including competitors, end users, and investors. Competitors watch for opportunities to poach discontented channel partners; restructuring incentivizes them to exploit the strained relationships in the revised channel system, potentially turning these disruptions to their long-term advantage. When Nike ended its partnership with Foot Locker, Adidas quickly seized the opportunity to announce a long-term partnership with the retail chain. Similarly, several retailers began expanding their brand portfolios or investing more in their private labels (Monteros 2022). Therefore, if not implemented well, restructuring may not just upset the firm's current channel system but also provide avenues for competitors to gain market share at the firm's expense.
End users can be brand agnostic (Ryan 2021), such that their loyalty is owned by the reseller with whom they deal directly, rather being brand loyal to the upstream firm (Palmatier, Scheer, and Steenkamp 2007). When a downstream reseller exits the firm's channel system, their loyal customers will stay with that reseller and switch brands, rather than migrate to different resellers in the firm's revised channel. Some degree of customer churn is to be expected, but an excessive amount of brand switching undermines the success of the firm's restructuring strategy.
Restructuring can also generate negative sentiments about the firm among other parties, such as when Nike severed its ties with local retailers: “[Nike is] taking money out of [the retailer's] pocket” and “it's not right, it's unbelievable” (Torres 2020). Nike's actions garnered significant negative publicity, including among investors and financial analysts who questioned Nike's decisions. Firms must be extremely cautious and strategic when planning channel restructuring, for it often generates strong emotions, can become highly public, and can have peripheral negative effects even when the core strategic outcomes for the firm are positive.
Considerations while Conducting Research on Channel Restructuring
We discuss the most critical reasons why research on channel restructuring is inherently challenging, so that researchers can be informed, circumspect, and foresighted when designing studies. First, restructuring decisions and partners’ reactions are not always publicly disclosed; therefore, researchers may need to develop industry connections to gather primary data for studying restructuring. Firms often present restructuring initiatives as “growth strategies” to mitigate negative perceptions and curtail stakeholder scrutiny (Deng 2020). Partners may hesitate to publicize restructuring involving status demotion due to concerns about the negative reputation effects that could harm their upstream and downstream relationships.
Second, both firms and partners incur a variety of intangible costs, such as additional effort and time, as well as out-of-pocket expenses that may not be fully captured or categorized as restructuring expenses on balance sheets. Managers of the firm have an incentive to downplay restructuring costs to enhance perceptions of the restructuring strategy's success. Channel partners’ full costs incurred in the restructuring may also be underreported, such as investments in developing staff and processes to effectively provide new functional roles, the time and effort required to develop new upstream or downstream relationships, or the adjustments necessitated by new governance mechanisms. Consequently, the true costs of restructuring are likely to be underreported, resulting in an underestimation of the negative impacts of restructuring. Researchers must strive to account for all revenues and costs when studying restructuring.
Lastly, the extended timeline of channel restructuring requires researchers to gather data spanning multiple periods. To establish causal relationships, researchers must account for spillovers across various levels, endogeneity in both the firm's and partners’ strategic choices, and the impact of staggered rollouts or pilot programs (Blackburn et al. 2011). Many restructuring strategies involve multistage decision-making, with the actions of one party influencing the subsequent behavior of others. Researchers could consider using game theory and structural estimation techniques to analyze these complex, interdependent decisions.
In conclusion, channel restructuring is a critical interorganizational phenomenon that warrants further academic attention. We conceptualize the range of channel restructuring, discuss the complexity of restructuring, identify important factors to consider when contemplating restructuring, and discuss how those factors impact both the retained channel partners and, ultimately, the probability of the firm's successful channel restructuring. We hope that this inspires further investigation into this underexplored area of B2B channel management.
Footnotes
Acknowledgments
The first and third authors received the 2019 Dissertation Support Award from the Institute for the Study of Business Markets (ISBM) for an early version of this manuscript. The authors are grateful to the JM review team for their developmental feedback throughout the review process.
Coeditor
Rebecca Slotegraaf
Associate Editor
Jan B. Heide
Declaration of Conflicting Interests
The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The authors disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: This work was supported by the 2019 Dissertation Support Award Competition from the Institute for the Study of Business Markets (ISBM).
Data Availability
No data were created or analyzed for this article.