Want to Optimize Sales Performance? New Research Says Reduce Commissions on Sales of Popular Items and Provide Sales Incentives, Not Customer Discounts

Key Takeaways: 

• Study of automotive dealership sales reveals that sales performance can be optimized when commissions are adjusted for sales of already popular items. 
• It’s more cost-effective to provide sales incentives to the sales force than to offer discount pricing to consumers.

CATONSVILLE, MD, September 16, 2019– According to new research published in the INFORMS journal Marketing Science (Editor’s note: The source of this research is INFORMS), companies can improve sales performance when they adjust sales commissions for the sale of more popular items. Further, the researchers found that when companies provide incentives to the sales force, that is more cost-effective than offering consumers discount pricing. The research centered on automotive sales at the dealership level.

The study in this month’s edition of the INFORMS journal Marketing Science is titled “A Salesforce-Driven Model of Consumer Choice,” by Bicheng Yang of the University of British Columbia and Tat Chan and Raphael Thomadsen, both of Washington University in St. Louis.

The researchers examined how sales commissions as compensation influences total sales and which products consumers choose. To achieve this, they developed a model that took into account the decisions of both salespeople and consumers.

“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 conducted their research using data from a car dealership in Japan, combined with comprehensive and global literature research.

“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.”

Link to full study.

About INFORMS and Marketing Science 

Marketing Science is a premier peer-reviewed scholarly marketing journal focused on research using quantitative approaches to study all aspects of the interface between consumers and firms. It is published by INFORMS, the leading international association for operations research and analytics professionals. More information is available at www.informs.org or @informs.

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Tim O’Brien

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