Managing Conflicts between Marketing and Sales: Customer Acquisition in Business Markets

Abstract

Conflicts between marketing and sales functions concerning customer acquisition process in business-to-business firms hurt profits. Marketing claims that sales disregards qualified leads; sales questions lead quality. To address such conflicts and avoid threats to profits, we consider several fundamental, unexplored questions: Should marketers’ compensation depend on sales by sales reps, the leads marketers generate, or both? Should sales reps’ incentives depend on sales only, or should the volume of leads inform their compensation? How can B2B firms manage customer acquisition efficiently when marketing and sales interact? When does a decentralized structure erode profits compared to a centralized structure? We propose a multi-agent principal-agent model to address these questions where agents receive performance-based incentives on both leads and sales. First, when the quality of leads is perfectly observed, we uncover that coordinating efficiently the marketing–sales interface requires firms to incentivize marketers only on the basis of the volume of qualified leads. Conversely, when the quality of leads is imperfectly observed, firms should incentivize marketers on both qualified leads and sales. In both cases, however, we discover that both qualified leads and sales should underlie incentives schemes for sales reps, even though reps do not influence lead generation. In contrast, we establish that alternative intuitive plans recommended by practitioners would fuel conflicts at the marketing and sales interface. Finally, we find that the proposed incentive schemes can, in certain conditions, mitigate inefficiencies at the marketing–sales interface and replicate equilibrium profits attained with a centralized structure, whether the qualification process is perfect or not.

Keywords: Agency Theory, Business Markets, Compensation, Customer Acquisition, Incentives, Marketing-Sales Interface, Multitasking