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Edited by Gary L. Lilien and Rajdeep Grewal
Chapter 3: Applications of Agency Theory in B2B Marketing: Review and Future Directions
Ranjan Banerjee, Mark Bergen, Shantanu Dutta and Sourav Ray The important role of independent ‘facilitating agents’ in B2B markets cannot be overstated, because ‘Most goods and services are distributed through intermediaries – such as wholesalers, retailers, or franchisees – who act as agents . . . of the manufacturer’ (Bergen et al. 1992, p. 2). From distribution channels to sales forces, these intermediaries perform essential business functions such as bringing a product to market, enhancing awareness of a firm’s product or service, educating customers on specific functionalities or performing warehousing and logistic functions. Unfortunately these relationships also involve substantial challenges for motivating, contracting, coordinating and controlling the independent agents. This scenario creates a fundamental dilemma for B2B marketers, academics and practitioners: how should firms structure their relationship with their facilitating agent most effectively to provide agents with proper incentives? Agency theory has emerged as one of the foundational theories for tackling such questions. Such theory pertains to situations in which one party (the principal) depends on another party (the agent) to undertake some action on its behalf. Both channel and sales force relationships are classic agency problems, because ‘A distribution channel constitutes a set of agency relationships’ (Bergen et al. 1992, p. 13) and ‘The relationship between sales manager and sales person is an agency relationship’ (Bergen et al. 1992, p. 8). The key challenge in these situations arises when some information is relevant and known to one party but unknown to the other. For example, facilitating agents often have private information about the levels...
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