A Salesforce-Driven Model of Consumer Choice

Bicheng Yang (), Tat Chan () and Raphael Thomadsen ()
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Bicheng Yang: Sauder School of Business, University of British Columbia, Vancouver, British Columbia V6T 1Z2, Canada
Tat Chan: Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130
Raphael Thomadsen: Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130

Marketing Science, 2019, vol. 38, issue 5, 871-887

Abstract: This paper studies how salespeople affect the choices of which products consumers choose, and from that, how a firm should set optimal commissions as a function of the appeal, substitutability, and profit margins of different products. We also examine whether firms are better off promoting products through sales incentives or price discounts. To achieve these goals, we develop 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 treats the selling process as a joint decision by the salesperson and the consumer. It allows the salesperson’s efforts to vary across different transactions, depending on the unique preferences of each consumer, and incorporates the effects of commissions and other marketing mix elements on the selling outcome in a unified framework. We estimate the model using data from a car dealership. We find that the optimal commissions should be lower for popular items and for items that are closer substitutes with other products. We also find that for the car industry we study, the cost of selling more cars using sales incentives is cheaper than the cost of selling the same number of cars using price discounts.

Keywords: salesforce management; incentives; consumer choice; differentiated products (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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