Threshold incentives over multiple periods and the sales hockey stick phenomenon

Sohoni, M G and Bassamboo, A and Chopra, S and Mohan, U and Sendil, N (2010) Threshold incentives over multiple periods and the sales hockey stick phenomenon. Naval Research Logistics, 57 (6). pp. 503-518.

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Abstract

In this article, we study threshold-based sales-force incentives and their impact on a dealer's optimal effort. A phenomenon, observed in practice, is that the dealer exerts a large effort toward the end of the incentive period to boost sales and reach the threshold to make additional profits. In the literature, the resulting last-period sales spike is sometimes called the hockey stick phenomenon (HSP). In this article, we show that the manufacturer's choice of the incentive parameters and the underlying demand uncertainty affect the dealer's optimal effort choice. This results in the sales HSP over multiple time periods even when there is a cost associated with waiting. We then show that, by linking the threshold to a correlated market signal, the HSP can be regulated. We also characterize the variance of the total sales across all the periods and demonstrate conditions under the sales variance can be reduced. © 2010 Wiley Periodicals, Inc.

ISB Creators:
ISB CreatorsORCiD
Sohoni, M GUNSPECIFIED
Item Type: Article
Uncontrolled Keywords: Sales effort; Sales variance; Supply chain incentives
Subjects: Business and Management
Operations Management > Supply Chain Management
Depositing User: LRC ISB
Date Deposited: 29 Oct 2014 04:56
Last Modified: 29 Oct 2014 04:56
URI: http://eprints.exchange.isb.edu/id/eprint/58
Publisher URL: http://dx.doi.org/10.1002/nav.20417
Publisher OA policy: http://www.sherpa.ac.uk/romeo/search.php
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