Transaction Cost Theory
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The transaction cost theory as it applies to sales incentives tells the following:
| Assumption | Market control mechanisms are more efficient than bureaucratic ones |
| Favours | Outsourced sales force |
| Problem | Markets can fail and therefore must be looked into (see below) |
| Solution | If any of the problems exist, insource the sales force |
Problems:
- Asset specificity
- Capabilities need to sell the product and that cannot easily be used for other products and services
- Safeguard problem
- Sales people can take advantage of the specific knowledge they receive as resellers
- Transaction frequency
- High transaction volumes are more cost efficient in an hierarchical organisation.
