Advertisement

Quantitative Marketing and Economics

, Volume 16, Issue 4, pp 441–472 | Cite as

Why would a big retailer refuse to collaborate on manufacturer SPIFF programs?

  • Zheyin (Jane) Gu
  • Yunchuan Liu
Article
  • 121 Downloads

Abstract

Big retailers that carry a large assortment of products rely on knowledgeable salespeople to provide purchase advice to customers and match customers with suitable products. Interestingly, big retailers vary in their policies regarding whether to allow their salespeople to receive manufacturer SPIFF (Sales Person Incentive Funding Formula) payments, which motivate salespeople advising at no cost of the retailer. In this study, we investigate a big retailer’s incentive to block manufacturer SPIFF programs, which has the consequence of demotivating salespeople from advising customers, from the perspective of vertical channel interactions. We scrutinize a big retailer’s decision to maximize its profit through managing its channel interactions with upstream manufacturers offering horizontally differentiated products, customers uncertain about true fits with competing products, and its salesperson who can match customers with suitable products through offering purchase advice. Our analysis shows that motivating the salesperson to advise customers is profitable for the retailer only if the such advising has moderate effectiveness in matching consumers and suitable products, and only in this case would the retailer collaborate on manufacturer SPIFF programs. Otherwise, salesperson advising hurts retailer profit and the big retailer benefits from blocking manufacturer SPIFF programs. Our study reveals the interesting theoretical insight that the incentives of a big retailer and upstream manufacturers to motivate sales advising reside in their incentives to battle for a more favorable channel status.

Keywords

Retailing Sales advising Manufacturer SPIFF Vertical channel interactions 

JEL Classification

D4 L1 M3 

Notes

Acknowledgements

The authors acknowledge, with thanks, the insightful suggestions and constructive comments offered by the Co-editor and review team, which greatly enhanced the quality of this paper. The authors are also grateful to Anand Krishnamoorthy, Jeffrey Shulman, and Ashutosh Prasad for helpful comments and advice on earlier drafts of this paper.

Supplementary material

11129_2018_9202_MOESM1_ESM.pdf (4.1 mb)
(PDF 4.08 MB)
11129_2018_9202_MOESM2_ESM.pdf (296 kb)
(PDF 296 KB)

References

  1. Anderson, E.W., & Sullivan, M. (1993). The antecedents and consequence of customer satisfaction for firms. Marketing Science, 12(2), 125–143.CrossRefGoogle Scholar
  2. Anderson, E.W., Fornell, C., Lehmann, D.R. (1994). Customer satisfaction, market share and profitability: findings from Sweden. Journal of Marketing Research, 31(3), 53–66.Google Scholar
  3. Arya, A., & Mittendorf, B. (2013). Managing strategic inventories via manufacturer-to-consumer rebates. Management Science, 59(4), 813–818.CrossRefGoogle Scholar
  4. Basu, A.K., Lal, R., Srinivasan, V., Staelin, R. (1985). Salesforce compensation plans: an agency theoretic perspective. Marketing Science, 4(4), 267–291.CrossRefGoogle Scholar
  5. Bhardwaj, P., Chen, Y., Godes, D. (2008). Buyer-initiated vs. seller-initiated information revelation. Management Science, 54(6), 1104–1114.CrossRefGoogle Scholar
  6. Boulding, W., Kalra, A., Staelin, R., Zeithaml, V.A. (1993). A dynamic process model of service quality: from expectation to behavioral intentions. Journal of Marketing Research, 30(1), 460–469.CrossRefGoogle Scholar
  7. Boulding, W., Kalra, A., Staelin, R. (1999). The quality double whammy: the rich get richer. Marketing Science, 18(4), 363–384.CrossRefGoogle Scholar
  8. Caldieraro, F., & Coughlan, A.T. (2007). Spiffed-up channels: the role of spiffs in hierarchical selling organizations. Marketing Science, 26(1), 31–51.CrossRefGoogle Scholar
  9. Chen, Y., & Xie, J. (2008). Online consumer review: word-of-mouth as a new element of marketing communication mix. Management Science, 54(3), 477–491.CrossRefGoogle Scholar
  10. Chen, X., Li, C.-L., Rhee, B.-D., Simchi-Levi, D. (2007). The impact of manufacturer rebates on supply chain profits. Naval Research Logistics, 54(6), 667–680.CrossRefGoogle Scholar
  11. Chu, J. (2006). What top performing retailers know about satisfying customers: experience is key. New York: IBM Institute for Business Value.Google Scholar
  12. Chung, D.J., Steenburgh, T., Sudhir, K. (2014). Do bonuses enhance sales productivity? a dynamic structural analysis of bonus-based compensation plans. Marketing Science, 33(2), 165–187.CrossRefGoogle Scholar
  13. Coughlan, A.T., & Sen, S.K. (1989). Salesforce compensation: theory and managerial implications. Marketing Science, 8(4), 324–342.CrossRefGoogle Scholar
  14. Gerstner, E., & Hess, J.D. (1991a). A theory of channel price promotion. American Economic Review, 81(4), 872–886.Google Scholar
  15. Gerstner, E., & Hess, J.D. (1991b). Who benefits from large rebates: manufacturer, retailer, or consumer Economics Letter, 36, 5–8.CrossRefGoogle Scholar
  16. Gu, Z.J., & Liu, Y. (2013). Consumer fit search, retailer shelf layout, and channel interaction. Marketing Science, 32(4), 652–668.CrossRefGoogle Scholar
  17. Gu, Z.J., & Xie, Y. (2013). Facilitating fit revelation in the competitive market. Management Science, 32(4), 652–668.Google Scholar
  18. Hauser, S., & Wernerfect. (1994). Customer satisfaction incentives. Marketing Science, 13(4), 327–350.CrossRefGoogle Scholar
  19. Hubbard, J. (2012). Lowe’s gives incentives for leaving, Journal Patriot. February 10 2012.Google Scholar
  20. Inderst, R., & Ottaviani, M. (2009). Misselling through agents. American Economic Review, 99(3), 883–908.CrossRefGoogle Scholar
  21. Inderst, R., & Ottaviani, M. (2012). Competition through commissions and kickbacks. American Economic Review, 102(2), 780–809.CrossRefGoogle Scholar
  22. Iyengar, S.S., & Lepper, M.R. (2000). When choice is demotivating: can one desire too much of a good thing? Journal of Personality and Social Psychology, 79 (6), 995–1006.CrossRefGoogle Scholar
  23. Iyer, G., & Miguel Villas-Boas, J. (2003). A bargaining theory of distribution channels. Journal of Marketing Research, 40(1), 80–100.CrossRefGoogle Scholar
  24. Jeuland, A.P., & Shugan, S.M. (1983). Managing channel profits. Marketing Science, 2(3), 239–272.CrossRefGoogle Scholar
  25. Kalra, A., Shi, M., Srinivasan, K. (2003). Salesforce compensation scheme and consumer inferences. Management Science, 49(5), 655–672.CrossRefGoogle Scholar
  26. Korkki, P. (2009). A look at those who’d rather stay than switch, New York times, May 30 2009.Google Scholar
  27. Kuksov, D., & Miguel Villas-Boas, J. (2010). When more alternatives lead to less choice. Marketing Science, 29(3), 507–524.CrossRefGoogle Scholar
  28. Lal, R., & Staelin, R. (1986). Salesforce compensation plans in environments with asymmetric information. Marketing Science, 5(3), 179–198.CrossRefGoogle Scholar
  29. Misra, S., & Nair, H. (2011). A structural model of sales-force compensation dynamics: estimation and field implementation. Quantitative Marketing and Economics, 9(3), 211–257.CrossRefGoogle Scholar
  30. Prendergast, C. (1999). The provision of incentives in firms. Journal of Economic Literature, 37(1), 7–63.CrossRefGoogle Scholar
  31. Taylor, T. (2002). Supply chain coordination under channel rebates with sales effort effects. Management Science, 48(8), 992–1007.CrossRefGoogle Scholar
  32. Taylor, T., & Xiao, W. (2009). Incentives for retailer forecasting: rebates vs. returns. Management Science, 55(10), 1654–1669.CrossRefGoogle Scholar
  33. Wernerfelt, B. (1994). On the function of sales assistance. Marketing Science, 13(1), 68–82.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.University of ConnecticutStorrsUSA
  2. 2.University of Illinois, Urbana-ChampaignChampaignUSA

Personalised recommendations