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Niels Peter Mols: Associate Professor of Marketing, Department of Management, University of Aarhus, Denmark
Introduction
By use of the Internet it is possible for banks to offer a number of home banking services, such as a variety of banking, bill payment, and money management services 24 hours a day. For example, customers can get up-to-date balance information on deposit and loan accounts, transfer funds between accounts, and communicate with the bank by e-mail. Thus, the Internet offers banks and other service firms like insurance companies and software distributors a new distribution channel.
It has been predicted by some that this new technology, along with other means of home banking, will dramatically change the distribution channel structure of retail banks (Tilden, 1996), and as mentioned by Moutinho et al. (1997, p. 99), industry analysts and banking experts have been arguing that bank branches' offices are "doomed". However, others have argued that for the foreseeable future bank branches will remain the main channel for the retail banks (e.g. Greenland, 1994). Banks have also been warned that Internet banking might result in lower switching barriers, that cross-selling will become more difficult, that information about customers will become harder to obtain, and that banks will have to compete product by product (Evans and Wurster, 1997).
What no one questions is that the Internet, in time, is likely to become the most important distribution channel for financial services. This development is analysed in section two, and it is argued that it makes it necessary for banks and similar firms to make a series of strategic distribution channel decisions. Finally, five alternative distribution channel strategies are identified, and their advantages and disadvantages are discussed in section three.
The future distribution channel structure
According to economic distribution channel theory, the "ideal" distribution system (Stern and Sturdivant, 1987) or the normative distribution channel (Bucklin, 1966, 1970; Stern et al., 1996) can be determined by answering three questions[1]:
1 What do consumers want in terms of service output from the distribution channel and how much are they willing to pay for a given service level[2]?
2 How can the wanted services be provided to them?
3 What are the costs of the alternative distribution channels?
Based on the answers to these questions, it is...