Threshold incentives over multiple periods and the sales hockey stick phenomenon

Milind G. Sohoni, Achal Bassamboo, Sunil Chopra, Usha Mohan, Nuri Sendil

Research output: Contribution to journalArticle

11 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)503-518
Number of pages16
JournalNaval Research Logistics
Volume57
Issue number6
DOIs
StatePublished - Sep 1 2010

Keywords

  • Sales effort
  • Sales variance
  • Supply chain incentives

ASJC Scopus subject areas

  • Modeling and Simulation
  • Ocean Engineering
  • Management Science and Operations Research

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