The Journal of the Academy of Marketing Science has just published the latest research into salesforce activity and the tendancy to pursue opportunities beyond the point where they are profitable.
Managing salesforce presents huge challenges. Outside sales people operate remotely and often unobserved by their managers in fluid and idiosyncratic environments. Research shows that salespeople employ behaviours that are highly adapted to their customers unique needs and requirements.
The sales person needs to do much more than simply present a product or service. Success also depends on the selling firm's degree of social capital and the quality of the supplier customer relationship.
These new selling conditions lead to sales managers attempts to maximise sales person performance by a aligning incentives with those of the firm. There are increasing attempts to design sophisticated compensation structures designed to more precisely marry the salesperson goals to those of the firm.
Given that alignment many managers assume that salespeople work rationally. There is a significant investment of time and firm resources to win each customer. The assumption the effort - outcome relationship is positive may not be correct. Given the growing importance of overseeing a portfolio sales opportunities sales managers may need to gain a greater understanding of salesperson decision-making regarding customer selection and resource commitment. That is managers may need to consider the possibility that the sales people may commit unreasonable amount of time and resource pursuing sales opportunity but have little or no chance result in the sale.
Acting in their own interest salespeople can decide to continue to pursue an account even in the face and negative information and so escalating commitment to winning the account. Escalation of commitment refers to a behaviour pattern in which individuals or groups continue to rationalise decisions and actions and investment even face with increasingly negative outcomes rather than alter the course of action.
Sales people can make many types of costly decisions to a non-viable sales opportunity including costly on site demonstrations, travel and entertainment of customers. However sales people are often and the pressure to meet they quoted. Under circumstances with the deadline looming a sale person with a none viable prospect may be tempted to throw more resources at the prospect. Such an additional investment may result in a loss becoming a win but more likely result in further lost investment.
The results indicate that sales peoples biases had a considerable impact on the decision-making regarding allocation of effort. In addition to supporting the existence of escalation of commitment in a sales environment the findings show how the phenomena manifests itself in real world settings. Investing firm’s resources continue can continue well beyond a normal sale cycles. Sales people even continue to pursue a sale with extra efforts of attention given to the sales opportunity actually decrease the likelihood have a closing it.
The results show however that this effect is not uniform across the salesforce. Salespeople of higher ability manage their selling effort more effectively. Though still subject to the escalation of commitment the impact of the efforts of high performing sales people stay positive for a longer period that of low performing sales people.
The findings also indicate that strategic accounts are less likely to be the subject of escalation of commitment. As these accounts tend to be very large and visible within the firm. It might be expected the escalation of commitment would be an even larger problem. However the nature of strategic account make them subject to additional interest which in turn helps prevent sales people from throwing additional resources at these sales opportunities without approval from higher management.
Improved managerial scrutiny appears to help reduce the escalation of commitment Alignment incentives only go so far in the face of irrational tenancies on the part of account executive. Raising the stakes does nothing to ameliorate the tendency to double down on the losing.
One way to decrease escalation of commitment is to determine the normal time taken by salesperson in a successful effort. Then apply more stringent guidelines for allocating resources to potential deals that are linger longer than the normal time range. To keep an account open beyond this point sales people should be required to build a case for why this account should continue to be pursued. The longer the time past a normal closing date for the stricter the test should be to justify continued investment in that account. Requiring that sales people make this effort results in greater rationality about some most fruitful opportunities to pursue
This article is based upon the following paper
An escalation of commitment perspective on allocation-of-effort decisions in professional selling
Mayberry, Robert; Boles, James; Donthu, Naveen
Journal of the Academy of Marketing Science , Volume OnlineFirst – June 2018