Sales Practices: Monitoring Sales Activity for Anomalous Behaviors

The use of incentives to influence the behavior of sales people has a long history in the United States.This reward system came about in the late nineteenth century, and was widely popularized by the National Cash Register (NCR) Company.In the early years the company's motivation was due to a lack of cash to pay salaries, resulting in NCR paying as much as 50% in commissions, and illustrated the effect of changing commissions on behavior.As time went on the notion of utilizing Short Term Incentives (STI) became ubiquitous in all types of sales programs, and it continues to be used to motivate certain behaviors that align the agent and principal goals.The ability to affect behavior is well documented (Thaler and Sunstein 2008), however, there is a plethora of research on the unintended effects that can result from these programs.Of particular interest is the understanding by various researchers that STIs, if left unchecked, can lead to unethical and non-customer oriented behavior, among other things (Zoltners, Sinha, and Lorimer 2013).Normally an analysis that seeks to discover anomalies, even in a dynamic environment, relies significantly on established (i.e.proven) benchmarks of some type.However, sales organizations, whether related to new or existing products/services, have been challenged to develop such accurate benchmarks or "forecasts."In many cases "forecasts" have little, if any, basis and reflect the wish of finance or management.This leads to incentive plans that are not only unrealistic given a particular environment, but also encouraging of behavior that is the antithesis of client centric.Organizations that utilize blanket sales goals across large geographic and/or client segments, irrespective of the nuances of the various segments, exhibit this flawed thinking.A variety of methods have been employed and discussed in the literature, including those that incorporate the salespeople themselves (White 1984), which raise questions about the inherent principal agent conflict.In the best case, accurate forecasts may benefit the corporation, but may not benefit its customers.While there are a number of examples of the problematic application of STIs in the current environment this is not a new phenomenon.In the early 1990's Sears, Roebuck and Co. incentivized sales people in its auto division with a straight commission payout resulting in unnecessary work being performed and Sears paying fines and compensation (Ganzel 1998).In more recent times there have been other types of sales-based issues that have resulted in industry-wide settlements.The Auction Rate Securities settlements resulted in billions of dollars in repurchases and fines being paid by many of the world's leading financial services firms.In both of these cases and most others there were signs that something was amiss, so why were these issues not identified?There appear to be several reasons: 1) there is a hesitancy by management to look (what appears to be) a gift horse in the mouth; 2) few firms have a solid scientific basis for forecasting sales; and 3) there is little understanding of how a detection measurement might be accomplished.