A Salesforce-Driven Model of Consumer Choice
38 Pages Posted: 2 May 2016
Date Written: April 29, 2016
We develop a salesforce-driven consumer choice model to study how performance-based commissions incentivize a salesperson’s service effort toward heterogeneous, substitutable products carried by the firm. We use a structural approach to back out the effort that is unobserved from data, and conduct counterfactual experiments that help provide important managerial insights. The model quantifies the impact of commissions on salespeople’s service effort toward differentiated products, and the impact of such effort on the demand and the substitution pattern between products. In our empirical application, we calculate the own- and cross-elasticities of demand with respect to the change in commissions. We further demonstrate how to use these results to compare the effectiveness of various performance-based incentive policies.
Keywords: Salesforce management, Incentives, Consumer choice, Product substitution
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