Train and Incentivize the Salesperson—or the Sales Manager? A Manufacturer’s Dilemma

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Why are specific products pushed, promoted, and recommended by salespeople? For example, when buying a new refrigerator, consumers typically prefer to view different options in person so they can measure the size of the compartments, open and close freezer drawers, ask questions about the product, and get recommendations from salespeople. Salespeople not only are armed with recommendations but can also share information about why a specific brand of refrigerator is superior and/or a better value than alternative brands. They also have a fair amount of discretion in terms of the information they share with consumers about specific brands, as well as which brands to share information on. So, what combination of levers within the control of a brand manager can be used to motivate downstream salespeople to direct their selling efforts toward the brand manager’s product? Sarah Magnotta, Brian Murtha, and Goutam Challagalla (2020) explore this question in their recent article published in the Journal of Marketing Research by examining the impact of two mechanisms employed by manufacturers (i.e., incentives and training) on salesperson efforts.

Manufacturers typically do not deal directly with consumers and thus must rely on distributors to move their products down the supply chain and ultimately to the customer. Distributor salespeople are tasked with selling an assortment of products from a variety of manufacturers, including products that directly compete with one another. The products that salespeople promote and recommend are influenced by various factors, including manufacturer-focused efforts to increase their product sales. Financial incentives (i.e., spiffs) and product training are two primary mechanisms that manufacturers use to influence this process and to encourage salesperson-focused effort.

The first mechanism, a manufacturer spiff, is a pay-for-performance financial incentive given to salespeople. For example, manufacturers may compensate salespeople $10 per seat to sell La-Z-Boy recliners or 3% of net sales for all furniture sold of the manufacturer’s brand. The second mechanism, manufacturer training, may take the form of joint sales calls with salespeople, or manufacturers may coach sales employees about the key product features and differentiating factors of their products. Past research suggests that training enhances the salesperson’s ability and effort to sell the product, and it increases their intrinsic motivation to sell the product.

While salespeople have been the primary focus of much research on motivating mechanisms, Magnotta, Murtha, and Challagalla delve into these mechanisms by examining not only the effects of spiffs and training on salespeople, but also on their sales managers. In doing so, they provide insight into the intricate ways that training and incentives directed towards both salespeople and sales managers can interact, leading to more or less favorable sales outcomes.

Analysis of the Multifunction Printer Sales

In their study, the authors utilized survey data from a substantial group of salespeople in the multifunction printer industry—153 salespeople and 85 sales managers across 60 different distributors. The authors also conducted an eight hour-long roundtable discussion with leaders of the participating firm to ensure that their measures were valid according to industry standards. A confirmatory factor analysis was used to assess the validity of their constructs, and they employed a multilevel model to assess the relationships between training, spiffs, focused effort, and ultimately performance at both the salesperson and sales manager levels.

Key Findings

• The effectiveness of motivating mechanisms on salespeople depends on the type of mechanisms targeted toward their sales managers.
• When manufacturers provide spiffs for both managers and their salespeople, this legitimizes the monetary incentives provided by manufacturers.
• Spiffs for sales managers can undermine the legitimacy of the manufacturers’ training of salespeople, reducing their focused effort.
• Legitimacy can be increased through additional training for managers, which then increases the impact of both spiffs and training on the focused effort of salespeople.

In the current economic environment, it is more important than ever for manufacturers and brands to develop long-lasting relationships with customers. Establishing high levels of engagement with customers, especially when the manufacturer produces a multitude of products, can lead to many positive outcomes. To illustrate the importance of a satisfied, trusting salesperson, consider two giants in the retail and technology segment, Amazon and Google, and two of their most popular products, the Amazon Echo and Google Home smart speakers. To fully understand the implications of cultivating this type of relationship with salespeople further downstream, let’s take a look at the effect of the consumer purchase decision in terms of long-term revenue and brand loyalty. If the consumer purchases the Echo, they would be more likely to buy other Amazon products and services in the future, such as Fire TV, Amazon Kindle, and Amazon Prime, as there is a likely chance that all the products and services are integrated, making for a more seamless consumer experience. Similarly, for Google, a purchase of Google Home would greatly increase the likelihood that the customer would buy products and services, including Nest, Google Pixel, Chromecast, and purchase Google Wi-Fi routers that integrate seamlessly with Google Home.

If the salesperson involved in this Amazon Echo vs. Google Home comparison feels their sales manager is receiving an unfair financial reward for the efforts undertaken by the salesperson to sell the product (e.g., because the salesperson has not been given spiffs but has been given training by the manufacturer), they would be more likely to focus their efforts on alternative products. Conversely, if that salesperson is given spiffs that are aligned with the spiffs given to their sales manager, they would be more likely to focus efforts on selling that manufacturer’s product—something manufacturers would do well to keep in mind as they design their downstream training and incentive programs.

Future Research Areas

The authors’ study advances our understanding of the complex relationships between manufacturers’ motivating mechanisms on salespeople and sales managers. However, a variety of other factors may contribute to increasing the focused efforts of salespeople. Future research could examine alternative factors that influence these effects, including personal preferences of products by salespeople, limitations of floor space, and use of additional sales objectives, such as urging salespeople to sell slower-moving, older, or larger products. An additional area for future research includes examining the relationship between the manufacturing firm and the distributor. Could the size or age of the manufacturing firm exert significant influence over distributors and encourage salespeople to put forth greater effort towards selling their products? Additionally, it would be interesting to examine the length and nature of the relationships between manufacturers and distributors and the nature of the relationships between employees of the partnering firms.

Referenced article:

Magnotta, Sarah, Brian Murtha, and Goutam Challagalla (2020), “The Joint and Multilevel Effects of Training and Incentives from Upstream Manufacturers on Downstream Salespeople’s Efforts,” Journal of Marketing Research, 57(4), 695–716.