Side Payments in Marketing

Side Payments in Marketing

Side payments, known politely as gainsharing and pejoratively as bribery, are prevalent in marketing. Indeed, many management schools have added ethics modules to their basic marketing courses to discuss these issues and there is much discussion of side payments in the literature (e.g., Adams 1995,...

Ausführliche Beschreibung

Bibliographische Detailangaben
Veröffentlicht in:Marketing Science. - Institute for Operations Research and the Management Sciences. - 16(1997), 3, Seite 246-255
1. Verfasser: Hauser, John R. (VerfasserIn)
Weitere Verfasser: Simester, Duncan I., Wernerfelt, Birger
Format: Online-Aufsatz
Sprache:English
Veröffentlicht: 1997
Zugriff auf das übergeordnete Werk:Marketing Science
Schlagworte:Incentive Systems Salesforce Agency Theory Side Payments Business Economics Behavioral sciences Mathematics
LEADER 01000caa a22002652 4500
001 JST056346581
003 DE-627
005 20240622022632.0
007 cr uuu---uuuuu
008 150324s1997 xx |||||o 00| ||eng c
035 |a (DE-627)JST056346581 
035 |a (JST)184223 
040 |a DE-627  |b ger  |c DE-627  |e rakwb 
041 |a eng 
100 1 |a Hauser, John R.  |e verfasserin  |4 aut 
245 1 0 |a Side Payments in Marketing 
264 1 |c 1997 
336 |a Text  |b txt  |2 rdacontent 
337 |a Computermedien  |b c  |2 rdamedia 
338 |a Online-Ressource  |b cr  |2 rdacarrier 
520 |a Side payments, known politely as gainsharing and pejoratively as bribery, are prevalent in marketing. Indeed, many management schools have added ethics modules to their basic marketing courses to discuss these issues and there is much discussion of side payments in the literature (e.g., Adams 1995, Borrus 1995, Mauro 1997, Mohl 1996, Murphy 1995, Peterson 1996, and Rose-Ackerman 1996). We seek to provide insight with respect to one class of marketing side payments. We hope that our analyses clarify some of the issues and suggest how these side payments affect marketing activities. We begin by focusing on one common example of potential side payments-salesforce ratings of internal sales support. We derive two formal results and speculate on how these results generalize. The two results are (1) that having one group of employees rate another implies that there are almost always incentives for side payments, but (2) the side payments need not reduce the firm's profit. At least in theory, the firm is always able to revise the reward system to factor out these side payments. The first result, based on a straightforward proof, has important practical implications for managers who may wish to preclude side payments. They may be unable to design a ratings-based reward system that does not have inherent incentives for side payments. The second result, in our opinion, is quite surprising. It suggests that marketing managers might be advised to invest more time into understanding how side payments affect employee reactions to reward systems. They might want to reconsider costly efforts to monitor, police, or preclude such side payments. While our results do not substitute for a moral discussion of side payments, we hope that the formal structure for one common marketing situation provides valuable insight. The system we analyze is based on a practical managerial problem we have observed. The salesforce evaluates a sales support group with a real-valued rating. The sales support group is rewarded based on that rating, whereas the sales-force is rewarded based on outcomes, such as sales or customer satisfaction, that indicate incremental profits to the firm. The reward to the salesforce might also depend upon how it rates sales support. For example, the salesforce might be held to a higher standard whenever it rates sales support as "excellent." (We argue in the paper that the firm will want this to happen.) In addition, the salesforce might ask for a side payment from the sales support group as compensation for high ratings. We cast the practical problem as a formal game and incorporate the following issues: (1) incremental actions taken by the salesforce and by sales support are perceived to be onerous, (2) the measure of incremental profit is a noisy measure, (3) both the salesforce and sales support are risk averse, (4) given the reward system imposed by the firm, both the salesforce and sales support will maximize their well-being, and (5) given the structure of the reward system, the firm will seek to maximize expected profits. We first show that there are almost always incentives for side payments. Specifically, we demonstrate that sales support is better off with a side payment, while the salesforce is no worse off. This is not surprising because the reward to sales support is increasing in the rating, while in the absence of a side payment, the salesforce will select a rating such that its net marginal returns to increasing the rating are zero. The exception occurs when the rating is constrained by the firm to be less than this "optimal" rating, but even then there might be incentives for side payments. We next show that the firm can anticipate these side payments and design a reward system to factor them out at no loss of profit. The intuition is straightforward. The firm first adjusts the marginal returns in the reward functions for sales support and for the salesforce such that they will each take the "optimal" actions even though they engage in side payments. Then the firm adjusts their fixed compensation so that the firm extracts its full profit. The proof is difficult because we must show that adjusted reward systems exist and we must show that they allow the full profit to be extracted. Throughout the paper we discuss the practical implications of our results. We close by highlighting future research opportunities. 
540 |a Copyright 1997 Institute for Operations Research and the Management Sciences 
650 4 |a Incentive Systems 
650 4 |a Salesforce 
650 4 |a Agency Theory 
650 4 |a Side Payments 
650 4 |a Business  |x Business administration  |x Corporate communications  |x External corporate communications  |x Marketing 
650 4 |a Business  |x Business operations  |x Commerce  |x Financial transactions  |x Payments 
650 4 |a Business  |x Business administration  |x Business management  |x Sales management 
650 4 |a Business  |x Business administration  |x Human resources  |x Employee motivation  |x Productivity incentives  |x Incentive pay 
650 4 |a Economics  |x Microeconomics  |x Economic utility  |x Expected utility 
650 4 |a Economics  |x Economic disciplines  |x Financial economics  |x Finance  |x Financial analysis  |x Risk management  |x Risk aversion 
650 4 |a Behavioral sciences  |x Psychology  |x Cognitive psychology  |x Intuition 
650 4 |a Business  |x Business administration  |x Corporate communications  |x External corporate communications  |x Marketing  |x Marketing strategies 
650 4 |a Mathematics  |x Mathematical expressions 
650 4 |a Economics  |x Macroeconomics  |x International economics  |x International trade  |x Trade relations  |x Trade gains 
655 4 |a research-article 
700 1 |a Simester, Duncan I.  |e verfasserin  |4 aut 
700 1 |a Wernerfelt, Birger  |e verfasserin  |4 aut 
773 0 8 |i Enthalten in  |t Marketing Science  |d Institute for Operations Research and the Management Sciences  |g 16(1997), 3, Seite 246-255  |w (DE-627)320627799  |w (DE-600)2023536-7  |x 1526548X  |7 nnns 
773 1 8 |g volume:16  |g year:1997  |g number:3  |g pages:246-255 
856 4 0 |u https://www.jstor.org/stable/184223  |3 Volltext 
912 |a GBV_USEFLAG_A 
912 |a SYSFLAG_A 
912 |a GBV_JST 
912 |a GBV_ILN_11 
912 |a GBV_ILN_20 
912 |a GBV_ILN_22 
912 |a GBV_ILN_23 
912 |a GBV_ILN_24 
912 |a GBV_ILN_31 
912 |a GBV_ILN_32 
912 |a GBV_ILN_39 
912 |a GBV_ILN_40 
912 |a GBV_ILN_60 
912 |a GBV_ILN_62 
912 |a GBV_ILN_63 
912 |a GBV_ILN_65 
912 |a GBV_ILN_69 
912 |a GBV_ILN_70 
912 |a GBV_ILN_90 
912 |a GBV_ILN_95 
912 |a GBV_ILN_100 
912 |a GBV_ILN_110 
912 |a GBV_ILN_120 
912 |a GBV_ILN_152 
912 |a GBV_ILN_187 
912 |a GBV_ILN_224 
912 |a GBV_ILN_285 
912 |a GBV_ILN_374 
912 |a GBV_ILN_702 
912 |a GBV_ILN_2001 
912 |a GBV_ILN_2003 
912 |a GBV_ILN_2005 
912 |a GBV_ILN_2006 
912 |a GBV_ILN_2007 
912 |a GBV_ILN_2008 
912 |a GBV_ILN_2009 
912 |a GBV_ILN_2010 
912 |a GBV_ILN_2011 
912 |a GBV_ILN_2014 
912 |a GBV_ILN_2015 
912 |a GBV_ILN_2018 
912 |a GBV_ILN_2020 
912 |a GBV_ILN_2021 
912 |a GBV_ILN_2026 
912 |a GBV_ILN_2027 
912 |a GBV_ILN_2034 
912 |a GBV_ILN_2044 
912 |a GBV_ILN_2048 
912 |a GBV_ILN_2050 
912 |a GBV_ILN_2055 
912 |a GBV_ILN_2056 
912 |a GBV_ILN_2057 
912 |a GBV_ILN_2059 
912 |a GBV_ILN_2061 
912 |a GBV_ILN_2065 
912 |a GBV_ILN_2068 
912 |a GBV_ILN_2106 
912 |a GBV_ILN_2107 
912 |a GBV_ILN_2108 
912 |a GBV_ILN_2111 
912 |a GBV_ILN_2112 
912 |a GBV_ILN_2113 
912 |a GBV_ILN_2118 
912 |a GBV_ILN_2122 
912 |a GBV_ILN_2129 
912 |a GBV_ILN_2143 
912 |a GBV_ILN_2147 
912 |a GBV_ILN_2148 
912 |a GBV_ILN_2152 
912 |a GBV_ILN_2153 
912 |a GBV_ILN_2190 
912 |a GBV_ILN_2232 
912 |a GBV_ILN_2472 
912 |a GBV_ILN_2935 
912 |a GBV_ILN_2940 
912 |a GBV_ILN_2949 
912 |a GBV_ILN_2950 
912 |a GBV_ILN_4012 
912 |a GBV_ILN_4035 
912 |a GBV_ILN_4037 
912 |a GBV_ILN_4046 
912 |a GBV_ILN_4112 
912 |a GBV_ILN_4125 
912 |a GBV_ILN_4126 
912 |a GBV_ILN_4242 
912 |a GBV_ILN_4246 
912 |a GBV_ILN_4249 
912 |a GBV_ILN_4251 
912 |a GBV_ILN_4305 
912 |a GBV_ILN_4306 
912 |a GBV_ILN_4307 
912 |a GBV_ILN_4313 
912 |a GBV_ILN_4322 
912 |a GBV_ILN_4323 
912 |a GBV_ILN_4324 
912 |a GBV_ILN_4325 
912 |a GBV_ILN_4326 
912 |a GBV_ILN_4335 
912 |a GBV_ILN_4338 
912 |a GBV_ILN_4346 
912 |a GBV_ILN_4393 
912 |a GBV_ILN_4700 
951 |a AR 
952 |d 16  |j 1997  |e 3  |h 246-255