Designing Sales Contests: Does the Prize Structure Matter?

Journal of Marketing Research (JMR)
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Key Takeaways

Sales contests are short-term incentives that are widely used by managers to raise effort levels of salespeople to meet firms’ objectives. The extant marketing theory predicts that the prize structure of a sales contest is an important determinant of sales effort and that the optimal prize structure should have two characteristics: (1) The number of prizewinners should be greater than one, and 2) prize values should be unique and rank ordered. However, this theory has not been empirically examined.

This article presents two empirical studies that test whether varying the prize structure of a sales contest leads to differences in sales performance. In each study, the authors investigate the incremental effects of introducing multiple prizewinners and unique rank-ordered prizes into a sales contest. The first study consists of a pair of laboratory experiments in which participants make decisions that closely reflect the decision trade-offs in the theoretical model of sales contests. The second study consists of two field economic experiments, in which trained salespeople sell fundraising sponsorships to companies. The results across the experiments are remarkably consistent: The number of prizewinners in a sales contest should indeed be greater than one. However, introducing rank-ordered prizes into contests with multiple prizewinners does not produce any boost to sales effort and revenues. In other words, the optimal sales contest should have multiple prizewinners, but the values of the prizes can be kept identical across winners. Thus, designing the optimal sales contest is a less complex task than prescribed by the extant marketing theory; managers only need to determine the optimal number of winners in multiple prizewinner contests. Moreover, the findings suggest that because calculating optimal prize spreads among prizes is less important, managers can also opt more readily for noncash prizes, in which the perceived differences in monetary values of the prizes may be less precise, without worrying about a reduction in effort.

Noah Lim is Assistant Professor of Marketing in the C.T. Bauer College of Business at the University of Houston. His research uses incentive-compatible experiments to study how managers should set prices when customers are boundedly rational and how sales managers should design promotional incentives to best motivate their sales force. He has published in the Journal of Marketing Research and Marketing Science. He received his PhD in Marketing from the Wharton School at the University of Pennsylvania. 

Michael Ahearne (PhD, Indiana University) is Associate Professor of Marketing and Executive Director of the Sales Excellence at the University of Houston. Before joining the University of Houston, he was a professor at the University of Connecticut and Pennsylvania State University. His research primarily focuses on factors influencing the performance of salespeople, sales teams, and sales organizations. He has published articles in many academic journals, including Journal of Marketing, Management Science, Journal of Applied Psychology, International Journal of Research in Marketing, and Journal of the Academy of Marketing Science. He is a coauthor on the best-selling national and international professional textbook, Selling Today: Creating Customer Value, which has been translated into numerous languages and is used in more than 30 countries. Before entering academia, he played professional baseball for the Montreal Expos and worked in market research for Eli Lilly and PCS Healthcare.

Sung H. Ham is a doctoral candidate in Marketing in the C.T. Bauer College of Business at the University of Houston. His research uses a combination of game-theoretic models and experimental economics to develop and empirically test marketing theories. Currently, he is investigating how firms benefit by delegating the pricing decision to the sales force and is also examining why some consumer segments purchase counterfeit status products.

J Marketing Research, Volume 46, Number 3, June 2009
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