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Everyday low pricing (EDLP) as behavior-based control: An integration of agency theory within the structure of channel relationships
Abstract
This study examined, within the context of the packaged-goods industry, a two-mechanism governance structure for channel relationships through the integration of agency theory and the role of dependence. This framework is to guide manufacturer decision-making through an understanding of the factors that determine the most efficient incentive strategy (agency contract control) and the relationship with retailers required to maximize strategy effectiveness (social integration control). The social control that emerges from the relationship is based on relational exchange theory. Everyday low pricing (EDLP) and high levels of trade allowances are offered as behavior-based and outcome-based incentive strategies, respectively. The role of monitoring was examined as an indicator of the inverse relationship, reflecting the primary control component, between governance mechanisms. The influence of manufacturer and retailer dependence on both governance mechanisms was also evaluated in this study. The results of this study indicated partial support for the assumptions of the hidden action model of agency theory as determinants of the control mechanisms. The risk accepted or tolerated by the manufacturer for generating consumer demand was found to influence the selection of incentive control strategy. The use of EDLP increased with risk acceptance. Goal compatibility and task programmability were found to influence the control of social integration. Increased levels of the assumptions resulted in a greater level of relational exchange. This finding indirectly supported the value-added movement of efficient consumer response. A direct correspondence between the two governance mechanisms was not found in this study. Gaps in mechanism correspondence may indicate a less efficient and effective governance. A transition phase, such as when an incentive strategy leads or follows social integration, was offered as an explanation for the results. Additionally, manufacturers who were more socially integrated with retailers monitored less. Asymmetrical dependence was found to influence the type of exchange relationship. Packaged-goods manufacturers perceived a more relational exchange when there existed higher levels of retailer dependence and lower levels of manufacturer (their own) dependence.
Subject Area
Marketing
Recommended Citation
Anselmi, Kenneth, "Everyday low pricing (EDLP) as behavior-based control: An integration of agency theory within the structure of channel relationships" (1995). ETD collection for University of Nebraska-Lincoln. AAI9604397.
https://digitalcommons.unl.edu/dissertations/AAI9604397