The Internet has led many manufacturers to add direct online retail channels to their existing offline retail networks. Using both online and offline channels, manufacturers increase their market coverage and profits by customizing their products and services for the differing needs of customer segments using separate channels. Much recent research on channel management tends to focus on pricing strategies rather than analyzing channel strategies. This paper analyzes optimal channel strategies of manufacturers when they consider online stores as their new direct online channels, and it discusses some strategic implications of these channel strategies from the perspective of consumer heterogeneity and retail services. (C) 2011 Elsevier Inc. All rights reserved.