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Customer lifetime value-based sales force control in the financial services industry— an incentive-compatible remuneration model

Author

Listed:
  • Julia Heidemann
  • Marcus Kaiser
  • Mathias Klier
  • Florian Probst

Abstract

In the financial services industry, a shift from product- to customer-oriented business models can be observed since several years. To ensure that independent sales representatives act in accordance with the long-term oriented business objectives, financial services providers need appropriate control systems. In this context, science as well as practice agree to a large extent that sales force control of self-employed and thus independent sales representatives has to be primarily based on monetary incentives. However, only few approaches and corresponding analyses can be found which address the integration of customer lifetime value-oriented components into the remuneration of independent sales representatives. Therefore, the objective of this article is to develop a remuneration model focusing on the financial services industry that rewards a customer lifetime value-oriented and corporate value-enhancing behavior. For this purpose, an incentive-compatible remuneration model that is based on commissions is proposed. It accounts for both the calculus of the independent sales representatives, i.e., the (short-term) maximization of the income, and of the financial services provider, i.e., the (long-term) maximization of the corporate value. General results are derived by using a simulation study, since—due to the interdependencies between the two calculi—the analysis and interpretation of algebraic solutions is only possible to a very limited extend. In addition to the development of the incentive-compatible remuneration model, we are able to provide general recommendations regarding the design of a customer lifetime value-oriented remuneration. It becomes apparent that based on the suggested incentive-compatible remuneration model both the company as well as the sales representatives can be better off. The practical application and the collection of the parameters that are needed for the operationalization of the proposed model are illustrated by using the example of a German financial services provider. Copyright Springer Verlag 2012

Suggested Citation

  • Julia Heidemann & Marcus Kaiser & Mathias Klier & Florian Probst, 2012. "Customer lifetime value-based sales force control in the financial services industry— an incentive-compatible remuneration model," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 23(1), pages 27-51, September.
    • Handle: RePEc:spr:metrik:v:23:y:2012:i:1:p:27-51
    DOI: 10.1007/s00187-012-0152-0
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    References listed on IDEAS

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