Spiffed-up channels: The role of spiffs in hierarchical selling organizations

Fabio Caldieraro*, Anne T. Coughlan

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

19 Scopus citations


We study a channel relationship in which manufacturer(s) use independent sales representatives (rep firms), which employ salespeople to do the actual selling. We show that commission-only payments by manufacturers to rep firms lead to suboptimal outcomes for the manufacturer relative to those obtained under a vertically integrated channel. From the manufacturer's standpoint, these inefficiencies can be ameliorated through the use of sales incentives given to the rep firm's salespeople directly by the manufacturer (called "spiffs"). In a monopolistic environment, spiffs are shown to improve the manufacturer's profits in the face of contractual restrictions on the channel members' ability to set separate commission rates by product. For certain types of restrictions, spiffs may generate manufacturer outcomes close to the fully coordinated ones achieved under vertical integration even when compensating the rep firm through commission-only contracts. In a competitive environment, spiffs are shown to be used by a powerful manufacturer that shares a rep firm's sales efforts with the product of a weaker manufacturer (i.e., in the case of "common agency"). In this case, spiffs are used as a strategy to deter the weaker manufacturer from challenging the stronger manufacturer for the salesforce's valuable selling effort.

Original languageEnglish (US)
Pages (from-to)31-51
Number of pages21
JournalMarketing Science
Issue number1
StatePublished - Jan 2007


  • Agency theory
  • Channels of distribution
  • Compensation
  • Competition
  • Salesforce

ASJC Scopus subject areas

  • Business and International Management
  • Marketing

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