Companies can boost sales performance by adjusting commissions for the sale of more popular products, according to a new study published in the INFORMS journal Marketing Science.
The research, which centered on automotive sales at the dealership level, also found that it is more cost-effective when firms provide incentives to the sales force compared to offering consumers discount pricing.
The study, titled “A Salesforce-Driven Model of Consumer Choice,” was led by Bicheng Yang of the University of British Columbia and Tat Chan and Raphael Thomadsen, both of Washington University in St. Louis.
The researchers wanted to see the influence that sales commissions as compensation has on total sales and the products consumers choose.
According to the abstract of the study, the team developed a salesforce-driven consumer choice model to study “how performance-based commissions incentivize a salesperson’s service effort toward heterogeneous, substitutable products carried by a firm.”
The model that the team created treats the selling process “as a joint decision by the salesperson and the consumer.”
“The selling process is structurally modeled as a joint decision that involves two parties,” said Thomadsen. “Although the consumer makes the final decision, the sales representative’s decision of how much service effort to invest in each product also influences the consumer’s choice.”
The researchers used data from a car dealership in Japan along with comprehensive and global literature research.
They found that the optimal commissions should be lower for popular items and for items that are closer substitutes with other products.
“Our research showed us that not only do consumers have certain product preferences, but sales representatives and their incentivization through commissions has a powerful impact on sales performance,” continued Thomadsen.
“Our findings shed some light on how companies can strike the right balance to optimize sales.”
Journal Citation
“A Salesforce-Driven Model of Consumer Choice”
Bicheng Yang , Tat Chan, Raphael Thomadsen
Marketing Science
Published Online: 6 Sep 2019
https://doi.org/10.1287/mksc.2019.1175