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TITLE: Designing Sales Contests: Does the Prize Structure Matter?

ABSTRACT:

Sales contests are short-term incentives that are widely used by managers to raise effort levels of salespeople to meet firms’ objectives. The extant marketing theory predicts that the prize structure of a sales contest is an important determinant of sales effort and the optimal prize structure should have two characteristics: 1) the number of prizewinners should be greater than one; and that 2) prize values should be unique and rank-ordered. However, this theory has not been empirically examined. This paper presents two empirical studies that test if varying the prize structure of a sales contest leads to differences in sales performance. In each study, we investigate the incremental effects of introducing multiple prizewinners and unique rank-ordered prizes into a sales contest. The first study is a laboratory experiment where participants make decisions that closely reflects the decision trade-offs in the theoretical model of sales contests. The second study consists of two randomized field experiments where trained salespeople sell fundraising sponsorships to companies. Both studies conclude that the number of prizewinners in a sales contest should indeed be greater than one; however, introducing unique rank-ordered prizes does not generate any incremental boost to sales effort and revenues.