New research co-authored by a UC Riverside business professor offers valuable insights for managers of retail outlets that focus on a single brand: it is crucial to consider the brand’s strength when designing sales staff pay incentives. The study examines “brand-managed” retail operations, which include “stores within stores,” such as cosmetics counters in major department stores staffed by salespeople dedicated to a single brand like Clinique. It also covers standalone stores in shopping malls that feature products from one brand, such as Nike sportswear or Gap clothing.

Subramanian Balachander, a marketing professor at UC Riverside, and his collaborators discovered that group incentives, like sales commissions shared equally among sales team members, lead to better sales performance for weaker brands in these specific retail settings. In contrast, individual incentives based on each salesperson’s sales volumes proved more effective for more substantial brands. While these findings may appear counterintuitive, Balachander clarified that weaker brands typically experience more unpredictable sales outcomes. If salespeople are individually compensated, the store risks overpaying some salespeople for easier sales to repeat buyers or customers inclined to purchase upon arrival.

“With a weaker brand, group sales compensation serves as a better filter because it eliminates the concern of whether a particular salesperson made an easy sale or dealt with a difficult customer. It ensures that all salespeople are collectively working towards converting new customers, which is significantly more beneficial for a weak brand,” explained Balachander, who holds the Albert O. Steffey Chair at UCR’s School of Business. The study’s findings are based on data from brand-managed retail operations in the United States and China.

In the U.S., researchers collected data on the prevalence of group compensation in brand-managed outlets by examining designer brand names for beauty and fashion lines offered by a high-end department store and standalone stores at the Mall of America in Bloomington, Minnesota. Employee-reported information about salesperson incentives, such as commissions or cash bonuses offered by brands, was gathered from Glassdoor.com and Indeed.com. In China, researchers obtained monthly sales data from 23 gold jewellery brands sold in a large retail store, each with its own counters and sales staff. Similarly, sales data was collected from a major Chinese electronics retailer, earning a percentage of the sales revenue from 51 brands in the store, each with its own selling counter and salespeople.

The study also presents a model illustrating how brand strength or equity, influenced by marketing, promotion, customer awareness, and other factors affecting customer perception before visiting the store, impacts the selling effectiveness of salespersons. By understanding these dynamics, managers can better structure their sales staff incentives to align with the strength of their brand, ultimately improving sales performance and operational efficiency in brand-managed retail environments.

More information: Wenshu Zhang et al, Group or Individual Sales Incentives? What Is Best for Brand-Managed Retail Sales Operations?, Journal of Marketing. DOI: 10.1177/00222429241249424

Journal information: Journal of Marketing Provided by University of California, Riverside