Multi-dimensional Salesforce Compensation with Negotiated Prices

In many settings where pricing is delegated to salespeople, firms provide the salespeople incentives to not only sell more, but also to do so at higher prices. In this paper, we study the relative importance of pricing-focused and revenue-focused incentives, and quantify the profitability of different designs for the pricing-focused incentives. Utilizing data from a large durable goods retailer in the U.S., we outline and estimate a structural model of multitasking salesforce where a salesperson jointly makes selling and negotiation decisions for multiple product types. We find that the disutility from negotiating varies by product type, and is comparable to that from selling. Eliminating pricing-focused (revenue-focused) incentives, while making the salesperson indifferent, lowers the retailer's profit by 11% (10%) pointing to the relative importance of pricing-focused incentives. Additionally, eliminating different features of pricing-focused incentives which vary in whether they incentivize salespeople to sell at higher or lower markups, result in lower profits for the retailer. These results are driven by (i) the possibility that efforts in selling and negotiating can either be substitutes due to effort cost considerations or complements because of the demand response to change in prices, and (ii) the salesperson's ability to reallocate efforts across product types in response to changes in the compensation scheme