Should a brand adopt group or individual sales incentives for its retail sales force? This pivotal question lies at the heart of a study recently accepted by the esteemed Journal of Marketing, where Wake Forest School of Business Associate Professor Dr. Jia Li collaborated with co-authors to examine the above question in the context of brand-managed retail (BMR) settings.
BMR encompasses various formats, including brand-managed stand-alone stores like Lululemon or Warby Parker, as well as stores-within-a-store (SWAS) such as Louis Vuitton in Saks Fifth Avenue and Apple in Best Buy. In fact, the cosmetics sections at almost all major U.S. department stores (e.g., Bloomingdale’s, Macy’s, Neiman Marcus, Nordstrom, and Saks Fifth Avenue) are managed under SWAS arrangements (Li, Chan, and Lewis 2016). These settings are typically staffed by the brand rather than the retailer, with the brand also having autonomy over inventory and pricing decisions for its products.
Industry experts have noted a rising trend: more retailers are incorporating BMR offerings in the current new era of retailing (e.g., Marsh 2023). This shift underscores the importance of the study – in their exploration, the research team recognizes that salespeople serve a mix of consumers, including some fully informed ones who are ready to make a purchase (e.g., a repeat customer), and others who are uninformed about the brand’s value proposition and need to be convinced by the salesperson. In designing incentives, the firm would ideally like to offer incentives only for sales to uninformed consumers, as only these sales require salesperson effort. While the firm cannot usually observe whether a sale made by an individual salesperson is to an uninformed consumer, it has better information on whether the sales team as a whole sells to the uninformed consumer because the group output in this case would be higher than otherwise.
Their theoretical analysis reveals a compelling insight: the information advantage of group incentives is particularly pronounced for weaker brands. Consequently, weaker brands may realize greater profitability through group incentives, while stronger brands are better positioned to enhance profitability and performance by utilizing individual salesperson incentives.
“Our findings underscore the efficiency implications of aligning sales incentives with brand strength,” explains Li. “To implement the findings of our research, managers of BMR sales operations may use brand equity metrics to form brand strength assessments and confirm the validity of the incentive type recommended by our findings through experimentation. Overall, our research shows that executives and managers, particularly those who run BMR sales operations, should factor in their brand’s strength when deciding on the optimal salesperson incentive compensation.”
One distinctive aspect of this study is its comprehensive approach, which combines rigorous theoretical modeling with empirical validation. Following their theoretical analysis that extends the classic principal-agent model, the research team applies cutting-edge machine learning techniques (e.g., Double Machine Learning) to test their theoretical predictions using data from multiple industry sections. They found that the data universally supported their theoretical predictions, highlighting the practical relevance of their theoretical propositions.
As a paper with complex models (the accepted paper includes 48 pages of Web Appendices providing theoretical model proofs and data modeling details), the research team takes pride in its acceptance by the Journal of Marketing. Renowned for its emphasis on real-world application, the Journal serves as a premier outlet with a particular focus on developing knowledge about practical marketing questions that are beneficial not only to scholars but also to practitioners. Boasting the highest Impact Factor (12.9) among all marketing journals, the Journal of Marketing is widely recognized as one of the foremost in marketing and is included in both The University of Texas at Dallas 24 (UTD 24) and the Financial Times 50 (FT 50), two prestigious business research journal lists.
“We have put a lot of effort into improving the readability of the paper,” Li said. “The acceptance illustrates that rigorous academic research with complex models and real-world application is not always met with resistance.”
Li also highlighted how the study reflects the value of working at Wake Forest, which cultivates a strong sense of community. “As we neared the end of the paper revision process, we sought input from industry professionals to enhance the real-world relevance of our research. Stacy Owen, the Executive Director of Alumni Engagement at the Wake Forest School of Business, promptly connected me with multiple alumni who generously shared their insights on the BMR setting,” Li explained. “I’m truly grateful for the support and assistance of Stacy, as well as our alumni Wendy Eavenson, Annie Eavenson, John Hoskins, and Lauren Key. Their willingness to engage and share expertise underscores the collaborative spirit at Wake Forest.”
When asked to summarize the paper’s insight in one sentence, Li referred to what the Journal of Marketing posted on their Twitter (X) account; “Brands must factor in brand strength when designing sales incentives: group incentives for weaker brands and individual incentives for stronger ones!”
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