Converting from Independent to Employee Sales Forces: The Role of Perceived Switching Costs

By Erin AndersonAllen Weiss
1991| Working Paper No. 1126

Manufacturers selling into the U.S. market often use independent sales agencies (manufacturers’ representatives) to serve some or all of their customers. We model a manufacturer’s intention to replace its independent sales agents by integrating forward into selling (setting up its own sales force). This intention is cast as a function of several factors, particularly managerial perceptions of the overall “cost’ (roughly, disutility or difficulty) of switching away from the agent and dissatisfaction with the current agent. These forces are themselves described by two sub-models. In particular, managerial perceptions of overall switching costs are modeled as a function of observable factors (such as the difficulty of recruiting and training salespeople) and less easily observed factors (such as the agent’s likely reaction). The intention-to-integrate model and its associated submodels (switching costs and dissatisfaction with the agent) are estimated using survey data from 243 manufacturers currently using manufacturers’ representatives. Results indicate that perceived overall switching costs are heavily influenced by set-up factors, are little influenced by take-down factors, and are somewhat influenced by the decision itself, i.e. “cost estimates” are revised to fit a decision made on other grounds. Results also indicate considerable inertia in the manufacturer/agent relationship and suggest some reasons for the stability of these arrangements._x000B__x000B_