An Empirical Examination of Economic Rationales for Companies' Use of Sales Contests

Abstract

The use of sales contests in sales force management is growing in popularity and receiving increasing allocations of sales budgets in many industries. So far, however, the sales management research literature offers little guidance on why and when firms benefit from employing "openended" and/or "closed-ended" sales contests instead of regular commission or quota-based bonus plans to motivate their sales forces. In this article, the authors review economic agency and tournament theory-based rationales for the use of contests as incentives. Based on this review, the authors develop a number of hypotheses about the effects of various characteristics of the selling environment, sales force, sales force control and regular sales force compensation plan, on the likelihood of companies being users of sales contests in general and closed-ended sales contests in particular. The hypotheses are tested on data from two independent surveys of sales organizations in the USA and Germany and many receive empirical support, suggesting that the agency- and tournament-theoretic models can usefully serve to guide sales managers' use and design of sales contests in the future.

JEL Classification: C4, M12, J33