Examining Salesperson Effort Allocation in Teams: A Randomized Field Experiment

Link: https://doi.org/10.1287/mksc.2019.1163

Business-to-business and business-to-consumer organizations are made up of teams that comprise salespeople with heterogeneous abilities, motivation, and sales effectiveness. A challenge for managers is to assign salespeople with asymmetric abilities to different teams, and salespeople themselves need to work out how to adjust effort as the abilities of their coworkers change.

Consider a brand that employs four salespeople with different sales abilities. A manager is tasked with assigning the salespeople equally to two teams, across two shifts in a day. Should the manager assign salespeople such that those with similar abilities work together? Or should the manager mix salespeople with more diverse abilities?

A working paper helps chief sales officers answer this question by examining how salespeople adjust effort in response to changes in the ability levels of their coworkers in a sales team. The researchers focus on sales teams in a retail context and examine behavior across two common types of incentive contracts: the individual-based (IB) incentive, in which salespeople earn commissions based on their individual sales; and the revenue-sharing (RS) incentive, in which salespeople equally divide commissions on the basis of the sales of the entire team.

The researchers conducted a large-scale field experiment in a major Chinese department store, and focused on 29 brands in the women’s clothing section. Each brand was assigned a separate retail booth on the main floor and while the brands employed their own sales team to promote and sell products they paid the store a share of their revenues. Sixteen brands used the IB incentive to compensate salespeople, and the remaining 13 brands used the RS incentive.

The experimental results offered the following insights:

• Under the IB incentive, where salespeople are commissioned on individual sales revenue, sales of the lower-ability salespeople decreased as the ability levels of their coworkers increased. Correspondingly, sales of the higher-ability salespeople declined when they were matched with salespeople of increasingly lower ability.
• For the booths that employed the RS incentive, where salespeople are compensated by group sales revenue, sales of the lower-ability salespeople increased as their coworker’s ability increased. Sales of the higher-ability salespeople also increased as their coworker’s ability decreased.

These empirical patterns were consistent with the researchers’ theory that salespeople’s effort decisions were driven by both pecuniary considerations and social preferences.

With regard to revenue implications of team composition on firm performance, the researchers found that while a firm that uses an IB incentive should have more homogeneous sales teams, a firm that employs an RS incentive might benefit more if the ability levels in the team are more heterogeneous. The results suggested that firms could achieve significant economic gains simply by optimizing the ability mix of a retail sales team.