In an omnichannel world, how can retailers fairly and effectively compensate their salespeople? The question requires reconsideration, especially in settings that pay sales staff commissions on each sale they facilitate. In a traditional, in-store interaction, commissions encourage sales staff to interact with customers, provide them with great customer service, and ensure the sale gets completed. But the traditional model is less effective when customers prefer to interact with product reviews online, exploit service provision without being willing to pay more for it, and insist on finalizing the sale when and where they want.
These omnichannel consumers often research their purchases online, before they come in the store—if they come at all. If they buy online, the retailer has no good means to allocate the commission. But for many retailers, their compensation system is designed to ensure that each sale leads to a commission being paid. For an e-commerce interaction, should it go to the website designer, the local branch, or an online sales rep who might have answered a question through a chat function? Furthermore, if shoppers do their research online and then visit the store to buy, the sales clerk who rings them out has likely done little to facilitate the sale. Thus, the very purpose of the commission gets lost, which is inefficient and ineffective for the retailer.
Other customers instead seek out service in the store, gathering insights and information from the professional sales staff, but then buy online or through some other, less expensive channel. This showrooming is a prevalent challenge, particularly when it comes to compensation. A great sales clerk might provide stellar service, detailed information about the product, and a compelling sales pitch. But if consumers come into the store only to try out the item, planning in advance to purchase the product online and have it shipped to their homes, no amount of effort will produce a sale in the store. Here again, the commission structure cannot encourage the type of behavior that the retailer wants to solicit, because salespeople have little reason to devote effort to serving customers who might just leave and order online.
Retailers thus are retooling their commission structures. Some stores rely on team-based rewards, so all sales associated with the store go to the team of sales clerks. With this approach, the retailer can assign purchases by customers in each store’s radius, whether made online or in person, to that store and thus reward salespeople for helping the local customers who wander through the doors. However, such programs might encourage free-riding, such that some salespeople earn the benefits of their colleagues’ hard work without engaging in much effort themselves.
For smaller and luxury retailers, it also may be possible to assign each sales clerk to specific customers, such that every time Customer A makes a purchase, through any channel, Salesperson A earns the commission on that sale. Such options are unrealistic for larger or general merchandise retailers though, especially those in which salespeople need to help customers whom they do not know and have never seen before.
Other retailers have moved away from commissions altogether, turning to other methods such as training to encourage salespeople to provide the best service. But in some industries, commissions are used so widely that employees expect them, so the shift might make it difficult for retailers to attract sufficient, highly qualified salespeople.
Discussion Question:
- What impact do online sales have on in-store sales?
- How does this impact affect retail salespeople?
- What should retailers do to address the issue?
Source: Ross Marowitz, Financial Post, July 18, 2016