Sales incentives-which one works better?
Sales is a field which can be tough but rewarding, if one persists in it. The toughness is due to the long hours and the constant stress due to targets. It may also get frustrating due to the need to be patient with prospects who may ignore repeated calls, pushy bosses and the different type of customers and prospects that the salesperson has to face and deal with, day to day. Having said all this, for a successful salesperson who has stayed the course, the reward comes in the form of two things. One is the feeling of achievement that one gets when he/she reaches the target and the other is the possible monetary incentive that goes along with it. There are many ways in which salespeople at retail showrooms are remunerated.
For the context of this study, we are only going to look at sales that happens at Retail Showroom spaces, especially related to Consumer Durables.
The aim of this article is to discuss which of these methods is bound to be most successful.
Today, the Consumer Durables products field is dominated by some big global brand names. Almost every product variety has almost ten to twenty manufacturers. Also the distribution for these products is now available in both online and physical form. In the physical form, there are dozens of retail outlets in every city. If we were to take an example, for a product like a LED TV, we have manufacturers like Samsung, LG, Panasonic, Sony, Toshiba, Videocon, AOC, Sansui, Philips, Reconnect (Reliance’s own brand) and Croma (Tata’s own brand). On the number of outlets, just to give a comparison, Reliance Digital alone has 40 outlets, Tata Croma has 15 and Girias has close to 30, allin and around Bangalore. Apart from this are the other retail outlets including the manufacturer’s ownoutlets like Sony World.Needless to mention and not included are also the online e-commerce sites. This, as you can imagine, results in a pitched battle out there for customer footfalls into the showrooms. Assuming the manufacturers and distributors are doing what they can to create awareness and interest in their products, the real deal is in what happens when the prospect steps into the showroom. Inside the showroom, the sales person who attends to the prospect plays a major role in converting him to a customer. Sales people in these showrooms are remunerated in different ways.
In Consumer Durables sales, the general practice is that the salespeople are remunerated in one of these three ways:
a. A fixed salary
b. A fixed salary plus individual incentive based on sales value attained or
c. A fixed salary plus group incentive based on total showroom sales.
Let’s analyze which of these ways is bound to be more successful in bringing about better conversion of prospects to successful sales.
Let’s take the case a) where employees in a showroom are paid only a fixed salary.
In this method of remuneration, salespeople are not motivated to push themselves to achieve more. They remain quite happy with whatever sells. Sometimes, distributors threaten salespeople that they would lose their job if they didn’t achieve their numbers. This may act as a spur for a short time, but it doesn’t help much. Salespeople just leave. However, this may work when the salesperson is motivated to perform based on certain factors like a) salary being higher than competition, b) works for a significantly better brand name.
Let’s take the case of (b) above where sales incentives are paid on individual sales value along with a fixed salary. More often than not, this system is also based on a slab system which works like this. A salesperson is, say, eligible for a per unit incentive of Rs. 2000/- per unit if he sells minimum 8 units up to10 units, and Rs. 3000/- per unit if he sells anything more than 10 units.
On the face of it, this looks attractive and motivating for anyone to try and reach more than 8 units. However, it so happens that many times, the individual salesperson falls quite short of the target of 8 units and he does not make the incentive.
Having observed this method during my years as channel sales manager, I can recall the intense unhealthy competition this system promotes among salespeople. Many a time, salespeople hold on to prospects even though they may not convert themselves nor will they let anyone else do it; there are many cases where sales leads have been leaked to competitors (it may be the own brand’s another sales outlet or a different brand altogether)
Also, this leads to salespeople holding back sales orders so that it can be accounted for in their next month’s sales quota, thereby leading to less than true sales numbers every month. In the example above, if he/she were to fall short of the 8 unit target narrowly, they tend to forestall orders and try to postpone it to the next month in the hope that they would be able to make the target the of 8 units(to be eligible for their individual incentive).
Now let’s look at the case of (c) above. Thisformat was followed by one of my car dealers and was a runaway success. Here the sales executives get incentivized right from the first unit they sell. Also, the incentives are distributed based on the total number that the team achieves. Here also, the incentives increase on a slab basis, i. e. higher incentive amount for a higher number of units sold but this format differs in that the incentive kicks in right from the first unit sold. Also, as the incentive is distributed to the team based on team numbers and not on individual achievements, the team is motivated to push for higher numbers, better transparency among team members about customer details and little leak of vital prospect related information outside.
There can be a view that even non-performers could gain by being on this team. However, this rarely happens when the sales manager keeps constantly monitoring the leads and conversions and is able to allocate leads better.
Another aspect of sales incentives is timing of distribution of incentives. If the incentives are distributed as soon as the month ends and the numbers have been tallied up, nothing works better than this in motivating sales executives. There are still a large number of dealers who delay incentive distribution citing many reasons. This only results in the sales team losing interest and looking for greener pastures outside.
Based on my personal experience, out of the three incentivizing methods used for Sales people, method C mentioned above works best not only in motivating sales executives but also in the overall business success for the distributor.