Aligning marketing and sales in multi-channel marketing: Compensation design for online lead generation and offline sales conversion

Firms engaged in personal selling in business and retail markets tend to invest substantial portions of their marketing budgets on lead generation through marketing agents and conversion by sales reps. However, such an arrangement of marketing-sales interface has often been found to be inefficient due to the multi-channel attribution problem. We use analytical models to find optimal sales compensation designs to solve the multi-channel attribution problem. Findings suggest that contracts involving revenue incentives, lead qualification, and sales autarky leave a gap between the first-best and the achieved profit due to budget balance, costs of lead qualification, and the sales forces lack of specialization in marketing, respectively. An increase in risk aversion favors sales autarky and lead qualification contracts over the revenue incentive contracts while an increase in overall uncertainty favors lead qualification. A certain type of contest (or stack ranking-based pay) achieves first-best profit when uncertainty is moderate.