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Channel Training Strategies in High-Technology Industries

Caldieraro, Fabio and Coughlan, Anne T., "Channel Training Strategies in High-Technology Industries" (June 2002). Available at SSRN:

Abstract:

    We investigate how optimal sales training strategies depend on firm, industry, and channel structure factors, such as sales training productivity, market growth rates, the organizational structure of the intermediary's salesforce, the learning and retraining characteristics of salespeople, and competitive externalities of training. We build and analyze two new models that account for the dynamics of market growth and thus provide insight into the optimal amount, timing and organizational level of training.

    The analysis first evaluates a duopoly model in which firms sell their products through a two-level intermediary to end-users, assuming that training expenditures exhibit decreasing returns to scale within each training period. Next the analysis considers the same duopoly model, but examines the impact of assuming diminishing marginal returns to training over the product's whole life cycle.

    The results show that if training exhibits decreasing returns in each period, then: (a) a company should focus on training in the initial stages of the product life cycle, unless the memorability of sales training or the discount factor is small; (b) training in the early stages of the product life cycle is worthwhile for sales managers, while training in the maturity and declining stages is worthwhile for field salespeople; (c) for selling organizations with a small span of control per sales manager, and/or for organizations where retraining is not very effective, optimal training focuses more heavily on the field salesforce and less on sales managers; and (d) in contrast to the popular view that the value of training increases as salespeople's retention of training knowledge decreases, we find that as organizational memory increases, it is worthwhile to train more.

    On the other hand, if training exhibits global decreasing returns over time, then the optimal training strategies share some commonalities with the previous results, but also show some important differences: (a) it is optimal to start training field salespeople only when the product is ready to be sold, while sales managers may be trained in advance; (b) the effect of sales training retention and the discount factor differs from those in the first model (for low retention of training knowledge or low discount factor, optimal training tracks contemporaneous demand in each period, while optimal training is concentrated in the initial phases of the product life cycle otherwise); (c) an increase in the market potential of some period t implies an increase in optimal training of field salespeople in period t and an increase of optimal training of sales managers and salespeople in previous periods, as well as a decrease in optimal training of sales managers in period t and a decrease of optimal training of sales managers and field salespeople in future periods; and (d) the decision between training sales managers or field salespeople is very sensitive to sales training retention, the discount factor, the breadth of the organization, and the ability of sales managers to pass on training to the field salesforce. This sensitivity is so extreme that optimal training in a given period is 'mutually exclusive' between organizational levels.

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