A Salesforce-Driven Model of Consumer Choice

38 Pages Posted: 2 May 2016

See all articles by Tat Y. Chan

Tat Y. Chan

Washington University in St. Louis - John M. Olin Business School

Raphael Thomadsen

Olin School - Washington University in St. Louis

Bicheng Yang

Washington University in St. Louis - John M. Olin Business School

Date Written: April 29, 2016

Abstract

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

Suggested Citation

Chan, Tat Y. and Thomadsen, Raphael and Yang, Bicheng, A Salesforce-Driven Model of Consumer Choice (April 29, 2016). Available at SSRN: https://ssrn.com/abstract=2772780 or http://dx.doi.org/10.2139/ssrn.2772780

Tat Y. Chan

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Raphael Thomadsen

Olin School - Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Bicheng Yang (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

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