Dealer Hoarding, Sales Push and Seed Returns: Characterizing the Interdependency between Dealer Incentives and Salesforce Management
University of Lugano - Institute of Management; Sloan School of Management - Operations Management and System Dynamics
April 1, 2008
MIT Sloan Research Paper No. 4694-08
Hybrid seed suppliers experience excessive and costly rates of seed returns from dealers, who order in advance of grower demand realization and may return unsold seeds at the end of the season. Sales representatives know they must carefully gather information on grower demand for seed types and quantities to improve their demand forecast and better position their seeds. However, when pressured to meet sales targets late in the sales cycle, salespeople abandon time-consuming seed positioning to push out dealers' inflated orders. Such push effort leads to excessive returns, generating more inflated orders by dealers the following period and increasing the total sales that agents must achieve to meet their quota, requiring them to push still more seed. Here we develop a formal dynamic model of the interaction of sales effort allocation and dealer hoarding behavior to understand the dynamics of corn seed returns through a model-based field study. Depending on the availability of sales resources, this biased sales effort allocation can generate a self-perpetuating stream of returns. While incentives to dealers solve the dealer hoarding problem, they do not address pressured salespeople's inadequate effort allocation to pushing seeds. Because decreased sales resources and overly-aggressive sales targets increase the pressure faced by salespeople, they also lead to higher seed returns. By understanding the causes of seed returns, our research informs us about the limitations of dealer incentives, shedding light on the important roles of adequate sales resources management and of setting moderate sales targets.
Number of Pages in PDF File: 48
Keywords: Salesforce management, sales resource allocation, dealer hoarding, dealer incentives, sales targets, behavioral modeling, system dynamicsworking papers series
Date posted: April 4, 2008
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