Two Essays in Marketing Channel
In this dissertation, I focus on two issues in marketing channel. The first essay “Implication of Brand Strength for the Choice of Group versus Individual Sales Incentives” studies one of the most important issues in marketing – salesforce incentive scheme. Firms often use individual and group performance incentives to motivate and compensate their salesforce. A 2016 survey found that 79% of organizations used individual performance incentives while 33% used group performance incentives. This observation raises an interesting research question as to why some firms motivate their salespeople based on group performance while others use individual performance. In particular, there is not much research on whether strong or weak brands benefit more from group performance incentives as opposed to individual incentives. In this research, we investigate this issue using a principal-agent model with a risk-neutral firm employing multiple risk-averse salespersons, who serve heterogeneous consumers. Consistent with previous research, we find that incentives based on sales, whether group or individual, are optimal when salespersons’ efforts are not observed by the firm. However, interestingly, we find that a group incentive is more beneficial to a weaker brand. Furthermore, we empirically test the findings of our analytical model using a unique dataset which contains compensation schemes and sales data for 51 brands sold by a consumer electronic retailer. Our empirical results are consistent with our analytical predictions. The second essay “Disentangling the Effect of Seasonality and Firm Strategic Pricing Decisions” investigates the seasonality problem. Seasonality is ubiquitous in almost all product categories. Despite its importance, there is little research that investigates the formation of seasonality, not to mention its marketing implications. In this study, we open the “black box” of seasonality to understand how the seasonal outcomes are exogenously and endogenously formed and how a firm can incorporate seasonality into marketing decisions. By analyzing a unique dataset from a Chinese department store and its mobile phone market, we find that observed seasonality is not only attributable to an underlying demand increase but also attributable to the firms’ strategic marketing decisions. The analysis shows that the consumers are more price-sensitive in high seasons, hence more responsive to the firms’ price cut. The firms’ strategic reaction on consumer price sensitivity intensifies the demand fluctuation.
Li, Purdue University.
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