Two essays on new B2B sales incentive mechanisms for enhancing selling effectiveness and coordinating inside and outside sales forces
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Essay 1: Motivating Salespeople to Enhance Selling Effectiveness: The Role and Optimal Design of Activity-Based Incentive Plans This paper provides a rationale and model for the use and optimal design of salesplus activity-based incentive plans that are quite common in sales management practice. So far, there is no theoretical research providing guidance on why and how to structure such mechanisms. To meet this need, I argue that the role of appropriate activity-based sales force incentives is to increase selling effectiveness just like the usual sales commissions are utilized for motivating higher selling effort. I conceptualize that enhanced selling effectiveness stems from greater thinking efforts in the preparation for as well as execution of customer sales calls, and appropriately selected activities induce such thinking efforts. By relaxing the assumption of fixed selling effectiveness that is present in all agency-theoretic sales force incentive models to date, and allowing for adaptable selling effectiveness and sales that are a function of both selling and thinking efforts, I derive and compare optimal sales plus activity-based incentive plans with only sales-based incentives. I establish the conditions under which the former multidimensional plans produce outcomes for both the firm and the salesperson that are superior, as well as provide guidance for their operational design in practice. Essay 2: Compensation Mechanism for Coordinating Inside and Outside Sales Forces To ensure cooperation between inside and outside salespeople of business-to-business (B2B) sales organizations I propose and analytically demonstrate the benefits of a new joint compensation system. This proposed new compensation system is designed to facilitate the exchange of well-qualified leads between inside and outside salespeople. The motivation for designing this new system is the Internet-induced fundamental changes in B2B buyers purchasing behavior from a reactive or sellerdriven to a proactive or buyer-driven approach. These trends have led to inside sales forces rising in importance and value relative to outside sales forces in B2B sales. However, they pose problems to B2B selling firms: 1) dissonance between inside and outside salespeople; 2) loss of potential customers as each sales group pursues those leads of most relevance to the group; and 3) increasing costs when each group passes on poorly qualified leads to the other group. To mitigate these problems, my proposed compensation mechanism ties each sales groups incentives to achievement against self-selected targets for leads to be passed on to the other group. In this research, I describe and investigate the impacts of properties of this compensation plan and also compare its impact on salespeoples utilities and earnings, and firms profits, with those of two other incentive mechanisms (i) A system that rewards salespeople for their own performance; and (ii) A system under which salespeople are partly rewarded for corporate performance but receive no extra incentive for exchanging leads. My simulation results show that the target-value compensation system is optimal for the firm and salespeople. More specifically, the target-value compensation system ensures that (1) salespeople of one group will endeavor to deliver well-qualified leads to the other side and (2) firms do not need to observe sales forces actions.
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