Selling Service Innovations: Do Incentives Work?
Industrial firms are increasingly turning to service innovations to stay ahead of the curve. They use monetary incentives to encourage salespersons to push these innovations. However, monetary incentives have a complex relationship with innovation selling. Innovation selling is high when it is the principal basis of the incentive scheme. However, the proportion of variable pay, dependent on incentives, needs to be at a medium level to maximise innovation selling. Managers can consider these two aspects to design an effective incentive scheme.
Many industrial firms are turning to service innovations to become more profitable and
survive the tough competition prevalent in many sectors. Because this is a new area, salespersons pitching these innovations need different skill sets. Salespersons used to traditional selling may not feel motivated to acquire those skill sets. Firms are relying on financial incentives to address this issue. However, to what extent financial incentives can encourage innovation selling is unclear. So, a study tries to answer the question: What role do monetary incentives play in motivating salespersons to sell service innovations?
Service innovations are how product firms amplify their offerings to stay relevant to
customers. Honeywell OUP, for instance, is an Oil & Gas Processing firm that has come up with the concept of Honeywell Connected Plants. In these connected plants, they provide clients technical expertise and integrated OUP solutions based on streaming data, analytics, and OUP models through a cloud-based service using their own software platforms. This is a prime example of how service innovation helps industrial firms and why more are turning to these to complement their offerings.
To find out more about Honeywell Connected Plants, check out this video.
The study found that two aspects of monetary incentives affect salespeople’s motivation towards service innovations: incentive direction (which performance measure gets incentivised, in this case, selling service innovations) and incentive intensity (what portion of their total income comes from variable income that is dependent on service incentives). The first has a positive relationship with the selling success of service innovations, while the second has a more complicated relationship.
When innovation selling is the major parameter based on which incentives are determined,
salespersons’ motivation to sell innovations increases. For example, if an automobile firm considers three components for deciding a salesperson’s variable income—selling cars, selling an app-based servicing contract, and generating leads—the salesperson’s motivation will also be split into three parts. If the variable pay is dependent only or mainly on the success of the app-based servicing contract sales, the salesperson will have greater motivation to sell the servicing contract.
Sales can also get a boost from calibrating salespersons’ emotions. Here’s how!
The relationship between the level of variable pay and innovation selling success works via
problem-solving behaviour since service innovation success depends on it. To successfully pitch service innovations to clients, salespersons must understand their business needs, how the innovation fits into their plans, and how to implement it. As the proportion of variable income rises, initially problem-solving behaviour also increases. However, after variable pay reaches a certain level, problem-solving behaviour declines. So, service innovation success also rises and then falls as the level of variable income rises.
This study has concrete implications for managers looking to incentivise service innovation
selling success. They can build their incentive strategy and design keeping in mind that different aspects of incentives affect innovation selling differently. For instance, innovation selling success is high when selling service innovations is the primary basis of determining variable pay. Therefore, it makes sense for managers to design an incentive scheme that depends strongly on service innovation selling success.
Many organisational processes can impact salesperson performance. Read on to find out how onboarding of salespeople does so.
Further, monetary incentives can boost salespersons’ work effort but hamper their problem-solving solving behaviour. Up to a certain level, both rise with a rise in variable pay. Beyond this level, problem-solving behaviour reduces even though work effort increases. So, managers must decide what trade-off between work effort and problem-solving is acceptable to them to decide how high a percentage of income they will peg as variable income.
Innovation selling success is highest when the proportion of variable income to total income
is medium, but innovation selling is the major basis of deciding variable pay. Managers can build a robust incentive scheme by harnessing this nuanced relationship. They can prioritise incentive selling success while capping the share of variable income at a medium level to maximise salesperson motivation for service innovation selling.
It is important to consider the human aspect of salespeople. To find out how adverse events can impact their relationship with customers, check out this post.