How Agency-Theoretic Factors Affect the Delegation of Pricing Authority to the Sales Force: An Empirical Study

Alireza Fazlzadeh,Pegah Mohammadi,Abolfazl Sepehrfar

doi:10.5539/ijms.v3n1p66

Abstract

Here we (1) empirically test a framework of important drivers of price delegation based on agency-theoretic (2) investigate the impact of price delegation on firm performance. The study data's collected from a sample of 180 companies from the industrial home appliances and structural equipment industry in Iran. Result show that, risk-aversion of salespeople is negatively and customer heterogeneity positively related to the degree of price delegation. Also we find that information asymmetry has no relationship with price delegation. Furthermore, we find a positive effect of price delegation on firm performance, which is amplified when market-related uncertainty is high and when salespeople possess better customer-related information than their managers. Hence, our results clearly show that rigid, “one price fits all” policies are inappropriate in many B2B market situations. sales managers should grant their salespeople sufficient leeway to adapt prices to changing customer requirements.

Highlights

ISSN 1918-719X E-ISSN 1918-7203 www.ccsenet.org/ijms to pay, enabling them to determine prices at which customers will buy that are profitable for the firm. This is in line with a rich stream of economic literature emphasizing that decision rights should be collocated with the knowledge that is valuable to those decisions
As the ambivalence about price delegation persists in sales management practice, a number of studies in the economic agency theoretic tradition aimed at explaining the observed variation in the use of price delegation as well as offering normative guidelines to sales managers have appeared (e.g., Bhardwaj, 2001; Joseph, 2001; Lal, 1986; Mishra & Prasad, 2004, 2005)
Considering that we focus on only agency-theoretic determinants of ‘pricing authority’. we find strong support for our hypothesis (H2) of a positive relationship between customer heterogeneity and pricing authority (ȕ=.41, t-value=4.01) This effect could occur because with greater customer heterogeneity there is greater potential for charges of price discrimination and customer antagonization if salespeople are given authority to vary the price according to their special knowledge of customers' characteristics

Summary

Introduction

ISSN 1918-719X E-ISSN 1918-7203 www.ccsenet.org/ijms to pay, enabling them to determine prices at which customers will buy that are profitable for the firm. As the ambivalence about price delegation persists in sales management practice, a number of studies in the economic agency theoretic tradition aimed at explaining the observed variation in the use of price delegation as well as offering normative guidelines to sales managers have appeared (e.g., Bhardwaj, 2001; Joseph, 2001; Lal, 1986; Mishra & Prasad, 2004, 2005) This theoretical literature has converged on several key factors that should affect the degree of pricing authority delegated to sales forces. A later study by Hansen, Joseph, and Krafft (2008) investigates selected hypotheses based only on the work of Joseph (2001), thereby ignoring several common antecedents identified in other models Against this backdrop, the goal of our study is to improve our understanding of the focal drivers and performance effects of delegating pricing authority to sales forces. We will test our research framework empirically using a newly developed multi-item scale for the focal pricing authority construct

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Conclusion