by George John
It might seem like a smart idea to train a customer service team to make a great sales pitch, but Marketing Department Chair and General Mills/Pillsbury Chair in Marketing George John explains that it's not necessarily going to lead to lucrative results. In his paper "Aligning Channel Structures and Incentives to Promote Profitable Growth: What Works?" John concludes that it is more profitable for companies to maintain multiple channel outlet types aligned with different incentive plans than to combine those channels.
In a growth phase, firms often ask their employees to take on new responsibilities. Problems can occur when firms combine tasks that are easy to verify with those that are hard to verify. In an ideal task-to-incentive model, channel partners would receive strong incentives (e.g., pure commissions) for easy to verify tasks and weak incentives (e.g., hourly wage) for difficult to verify tasks. For example, closing sales or acquiring new customers (considered an easy to verify task) should be commission-based, while the task of fielding complaints (considered a hard to verify task) should be compensated with an hourly payment plan.
Growth initiatives often upset existing compensation systems because of task and channel mixing. A customer service representative who is usually tasked with matching products or educating customers might be asked to close sales as well in a new market. Unfortunately, for channel partners with multiple tasks, the strength of incentives is severely limited by the hardest-to-verify task in their responsibilities.
For example, when a mobile phone service provider pays an hourly rate to employees for completing the tasks of a) signing up new customers, b) matching plans and educating customers and c) responding to complaints, an hourly payment plan does not motivate them to seek out and sign up customers. The incentive is not strong enough to motivate the employee and that task is neglected leading to lower market penetration. Unfortunately, moving to a commission plan would be disastrous because tasks b) and c) would be neglected almost completely.
The best move is to separate channels to create more homogeneous tasks. Firms that craft different incentive structures to optimally complement task mixes assigned to independent channel partners stand a better chance of growing profitably.
Reprinted with permission of the Institute for Research in Marketing, Carlson School of Management, University of Minnesota. More information on the Institute can be found at www.carlsonschool.umn.edu/marketinginstitute.