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Jointly Optimal Sales Commissions for Nonincome Maximizing Sales Forces

Author

Listed:
  • Charles B. Weinberg

    (Stanford University)

Abstract

In a multiproduct sales force, it has previously been shown that a commission structure based on equal fractions of each product's realized gross margin is jointly optimal if the sales force's goal is to maximize (expected) income and products are independent. Jointly optimal means that the sales force, which is presumed to be best able to estimate customer response to sales force activities, will simultaneously act to optimize its own objective and maximize corporate earnings. In this paper, it is shown that an equal gross margin commission system is also jointly optimal when products are interdependent and when the sales force does not have a goal of income maximization but has other objectives, such as minimizing time to reach a certain income goal or trading off time against money. Further, not all salespeople are required to have the same objective. For income maximizers an approach requiring less stringent assumptions than previously employed to show joint optimality is developed.

Suggested Citation

  • Charles B. Weinberg, 1978. "Jointly Optimal Sales Commissions for Nonincome Maximizing Sales Forces," Management Science, INFORMS, vol. 24(12), pages 1252-1258, August.
    • Handle: RePEc:inm:ormnsc:v:24:y:1978:i:12:p:1252-1258
    DOI: 10.1287/mnsc.24.12.1252
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    Citations

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    Cited by:

    1. Lee, Chung-Yee & Yang, Ruina, 2013. "Compensation plan for competing salespersons under asymmetric information," European Journal of Operational Research, Elsevier, vol. 227(3), pages 570-580.
    2. Johannes Habel & Sascha Alavi & Nicolas Heinitz, 2023. "A theory of predictive sales analytics adoption," AMS Review, Springer;Academy of Marketing Science, vol. 13(1), pages 34-54, June.
    3. Sascha Alavi & Johannes Habel & Paolo Guenzi & Jan Wieseke, 2018. "The role of leadership in salespeople’s price negotiation behavior," Journal of the Academy of Marketing Science, Springer, vol. 46(4), pages 703-724, July.
    4. Frenzen, Heiko & Hansen, Ann-Kristin & Krafft, Manfred & Mantrala, Murali K. & Schmidt, Simone, 2010. "Delegation of pricing authority to the sales force: An agency-theoretic perspective of its determinants and impact on performance," International Journal of Research in Marketing, Elsevier, vol. 27(1), pages 58-68.
    5. Fangruo Chen, 2000. "Sales-Force Incentives and Inventory Management," Manufacturing & Service Operations Management, INFORMS, vol. 2(2), pages 186-202, February.
    6. Albers, Sonke, 1996. "Optimization models for salesforce compensation," European Journal of Operational Research, Elsevier, vol. 89(1), pages 1-17, February.
    7. Chung, Doug J. & Kim, Byungyeon & Syam, Niladri B., 2020. "A Practical Approach to Sales Compensation: What Do We Know Now? What Should We Know in the Future?," Foundations and Trends(R) in Marketing, now publishers, vol. 11(1), pages 1-52, June.

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