Essays on Sales Gamification

Abstract

Traditional sales compensation schemes typically rely on straightforward metrics such as commissions and bonuses tied directly to sales outcomes. While effective in driving certain sales outcomes and salespeople’s behaviors, these compensation schemes often overlook the nuanced motivational drivers and psychological dynamics that can significantly influence sales performance. In the evolving landscape of sales management, gamification (e.g., contests, leaderboards, and random rewards) has emerged as a powerful tool to enhance the motivation and performance of salespeople. Gamification introduces elements traditionally found in games, such as competitive and random aspects, into non-gaming environments like the workspace, education, self-improvement, and lifestyle. According to surveys, about 70% companies listed in the Global 2000 use gamification and over 89% of employees said gamification made them more productive. The sales gamification is usually short-term and is on top of the traditional compensation schemes (e.g., commissions and bonuses) as supplementary pay. This dissertation explores the application of sales gamification, focusing on two categories of distinct gamification programs: (1) contests with leaderboards, and (2) random rewards. By integrating principles from behavioral economics, these essays offer a novel perspective on the design and effectiveness of sales gamification tools that transcend traditional compensation structures. This approach seeks to leverage the natural human inclinations for game elements as drivers for enhanced performance. The two essays in this dissertation are united by their focus on sales gamification but diverge in their specific mechanisms and implications. The first essay delves into the use of contests as motivational tools. While the standard expected utility models with rational agents predict that disclosing the interim standings in a contest is not beneficial to the principal (Weigelt et al. 1989), but contests are used pervasively. In addition, empirical works show inconsistent patterns of how standings influence agent’s subsequent performance. This essay contributes towards understanding these puzzles by introducing social motivation into agent behavior. I provide evidence of the social comparison effects on efforts induced by interim disclosure. The second essay investigates the impact of gamification that includes random or lottery-like elements on sales performance. This approach grows out of the longstanding literature on the superiority of variable ratio reinforcement (Ferster and Skinner 1957) but was under-studied when it is used as supplementary compensation. This essay fills this gap and contributes towards understanding how the windfalls influence the subsequent effort by introducing individuals’ mis-specified beliefs about independent stochastic events, similar to hot-hand vs. gambler’s fallacy. Both essays are also linked to behavioral economics, which provides a framework for incorporating psychological factors into economic decisions. This theoretical orientation is critical, as it challenges the conventional rational agent model prevalent in standard economic theory, introducing a more nuanced view of human behavior that includes heuristics and biases. In both essays, I develop theoretical models incorporating behavioral economics elements to hypothesize the potential impacts of gamification. The predictions are tested with real-world data from sales gamification programs, bridging theory with real-world applications. More broadly, my work contributes to a more nuanced view of gamification. In contrast to the managers’ overwhelmingly positive view of sales gamification, my essays document unmistakably negative consequences of certain elements of these programs and point to the need of careful design of these programs.