Dynamic Incentives in Sales Force Compensation

Olivier Rubel () and Ashutosh Prasad ()
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Olivier Rubel: University of California, Davis, Davis, California 95616
Ashutosh Prasad: University of Texas at Dallas, Richardson, Texas 75080

Marketing Science, 2016, vol. 35, issue 4, 676-689

Abstract: To inform the design of sales force compensation plans when carryover effects exist, we propose a dynamic model where these effects, together with present selling efforts, drive sales. Our results show that a salesperson with low risk aversion exerts effort to decrease attrition from existing business, whereas a salesperson with high risk aversion does not. Why? Because carryover increases not only expected sales but also sales uncertainty. Consequently, the manager should incentivize the high risk-aversion salesperson with a concave compensation plan to counterbalance suboptimal customer attrition, and the low risk-aversion salesperson with a convex compensation plan that limits coasting on past efforts. We generalize our results to when the firm employs multiple salespeople, and when advertising and personal selling are budgeted together.

Keywords: sales force; compensation; sales dynamics; agency theory; differential games; advertising (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:35:y:2016:i:4:p:676-689

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