When Salespeople Manage Customer Relationships: Multidimensional Incentives and Private Information

Minkyung Kim, K. Sudhir (), Kosuke Uetake and Rodrigo Canales
Additional contact information
Minkyung Kim: School of Management, Yale University
K. Sudhir: Cowles Foundation & School of Management, Yale University, https://faculty.som.yale.edu/ksudhir/
Kosuke Uetake: School of Management, Yale University
Rodrigo Canales: School of Management, Yale University

No 2122, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: At many firms, incentivized salespeople with private information about customers are responsible for CRM. While incentives motivate sales performance, private information can induce moral hazard by salespeople to gain compensation at the expense of the firm. We investigate the sales performance'moral hazard tradeoff in response to multidimensional performance (acquisition and maintenance) incentives in the presence of private information. Using unique panel data on customer loan acquisition and repayments linked to salespeople from a microfinance bank, we detect evidence of salesperson private information. Acquisition incentives induce salesperson moral hazard leading to adverse customer selection, but maintenance incentives moderate it as salespeople recognize the negative effects of acquiring low-quality customers on future payoffs. Critically, without the moderating effect of maintenance incentives, adverse selection effect of acquisition incentives overwhelms the sales enhancing effects, clarifying the importance of multidimensional incentives for CRM. Reducing private information (through job transfers) hurts customer maintenance, but has greater impact on productivity by moderating adverse selection at acquisition. The paper also contributes to the recent literature on detecting and disentangling customer adverse selection and customer moral hazard (defaults) with a new identification strategy that exploits the time-varying effects of salesperson incentives.

Keywords: When; Salespeople; Manage; Customer; Relationships:; Multidimensional; Incentives; and; Private; Information (search for similar items in EconPapers)
Pages: 72 pages
Date: 2018-02
New Economics Papers: this item is included in nep-hrm and nep-mfd
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