Sales force commissions in relationship marketing

Abstract

Purpose This paper aims to examine the roles of both aggregate and specific commission rates to control the sales force in relationship marketing with a customer portfolio. Design/methodology/approach Drawn on the concept of customer lifetime value and agency theory, the author calculated both specific and aggregate sales force commission rates in a relationship marketing perspective. Contrary to the prior researchers, the author assumes that, at any period, both the gross margins and retention rate of each customer are a stochastic function of the salesperson’s effort. Findings The results indicated that when there is symmetric information between a sales manager and salesperson, both aggregate and specific commissions can be used to monitor the sales force. Under asymmetric information, however, each type of commission rate can only be used under certain conditions. In addition, conditions in which the aggregate commission is equivalent to the specific commission for each customer were derived. Research limitations/implications Hypothetical data were used to explain the model. It would be more appropriate to use real data to see its managerial relevance. Originality/value In the author’s knowledge, this study is the first that specifically links scholastic customer’s retention and salesperson commission rate to monitor salesperson effort in relationship marketing. It is also the first that shows in which conditions aggregate and specific commission rates are equal for a salesperson’s customer portfolio management.