Journal of Market Focused Management, 2, 309–338 (1998) c  1998 Kluwer Academic Publishers, Boston. Manufactured in The Netherlands. Distribution Equity: Creating Value through Managing Knowledge Relationships with Distribution Channels D. SUDHARSHAN sudharsh@uiuc.edu Department of Business Administration, College of Commerce and Business Administration, University of Illinois, Urbana-Champaign, 1206 South Sixth Street, Champaign, IL 61820 USA RON SANCHEZ rsanchez@ecel.uwa.edu.au Graduate School of Management, University of Western Australia, Nedlands 6907 W.A., Australia Received December 24, 1997; Accepted February 25, 1998 Abstract We introduce the concept of distribution equity to represent the asset value of a distribution relationship. Distribution equity is characterized as the increase in options value of mar- keting opportunities that result when a firm effectively utilizes its knowledge relationships with an existing distribution channel partner to create and market its products. By providing a framework characterizing various forms of knowledge in a channel partner relationship and the ways in which they can increase the options value of a firm’s product development and marketing opportunities, we provide a framework for improving the management of distribution equity. Keywords: Distribution channels, options value, knowledge management 1. Introduction In this paper we focus on the value of a firm’s relationships with its distribution channels, which we represent by introducing the concept of distribution equity. We identify several benefits to be derived from the effective management of channel relationships, and we suggest the how these benefits can be represented as providing a firm more and better options in developing products and markets. Accordingly, we further suggest how effective management of channel relationships can increase the options value of a firm’s new product opportunities. We suggest how this value arises from the knowledge relationships a firm may develop with its distribution channels, and we investigate ways in which a firm can effectively manage and use these knowledge relationships to increase the distribution equity obtained from its distribution channels.