Directed Search with sales agent-customer interactions

Motivations

• Sales agent compensation scheme
• Traditionally
  
  • commissions for successful sales
• recent change
  
  • more stores switched to non-commission based
• are commissioned sales positions going away?
• for some, paying sales commission no longer makes sense
• Kalra, shi and Srinivasan (2003)
  
  • Best buy
  • prinsource financial center
  • virgin financial
  • charles schwab
• Pride on compensating sales by non-commissions
• Criticize competitors for paying commissions

common characteristics

• sales agent is involved
• two effects for advice
  
  • enhances understanding on product value
  • conducts persuasion
• consummers
  
  • limited understanding on the products
  • difficult to distinguish between useful advice and persuasion
  • different likelihood of being affected by persuasion
• existence of consumer search

Research objectives

• develop a consumer search model
  
  • sales agent-customer interactions
  • endogenize choice of sales agent compensation scheme
• switching of compensation scheme
  
  • rationalize the changes
  • conditions for switching
  • market impacts
  • welfare implications

results

• sophoisticated but impressionable consumers
  
  • segmented market
    
    • more impressionable consumers visit fixed wage stores
    • less impressionable consumers visit commision based stores
• increasing amount of fixed wage stores
  
  • decrease in search cost when the advice enhances product value by a small amount
  • less efficient advice from sales agents
• market impacts of switching to fixed wage based
  
  • uncertain change in social welfare
    
    • stores might be better off or worse off
    • consumer might be better off or worse off