Customer Acquisition in Business Markets: Managing Conflicts at the Marketing-Sales Interface

50 Pages Posted: 12 Dec 2019 Last revised: 8 Mar 2022

See all articles by Olivier Rubel

Olivier Rubel

University of California, Davis - Graduate School of Management

Chen Zhou

University of South Carolina

Rajdeep Grewal

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Jagmohan S. Raju

University of Pennsylvania - Marketing Department

Date Written: March 7, 2022

Abstract

In business markets, firms rely on sequential processes, or so called “funnels” to acquire new customers. During the initial stage, firms use marketing activities such as tradeshows, print advertising, digital advertising, social media, blogs, webinars to generate leads, and then resort to follow-up sales activities such as emails, phone calls, video meetings, in-person meetings to convert these leads into revenue generating customers. The former activity is typically handled by a group referred to as the “marketing group” and the latter handled by the “sales group,” and coordinating these two activities is critical to success. In many organizations, marketing people engaged in generating leads lament that sales disregards the leads they generate, while sales questions the revenue potential of these leads. To address such conflicts and their profit implications, we consider the following questions: How should firms coordinate lead generation and lead conversion efficiently? Should firms integrate marketing and sales into one group or should these be separate groups? Should marketers’ compensation depend on the leads they produce, the revenue the sales rep generate from these leads, or both? Should sales reps’ incentives depend on sales only, or should the volume of leads inform their compensation? We address these questions using principal-agent models where risk-averse agents could receive incentives based on leads, sales, or both. We establish that when there is no difference regarding leads’ revenue potentials, i.e., leads are homogeneous, optimal incentives prevent efficiency losses due to decentralization, i.e., the centralized and decentralized funnel structures yield the same equilibrium profits. However, when the revenue potentials of leads differ, i.e., leads are heterogeneous, we find that a centralized funnel structure could be suboptimal, despite the obvious a priori benefits of centralization. We show that the decentralized funnel structure dominates the centralized structure when uncertainty at the second (lead conversion) stage of the funnel is low, relatively to uncertainty at the first (lead generation) stage.

Keywords: Business Markets, Marketing-Sales Interface, Conflicts, Agency Theory, Sequential Agency Model.

Suggested Citation

Rubel, Olivier and Zhou, Chen and Grewal, Rajdeep and Raju, Jagmohan S., Customer Acquisition in Business Markets: Managing Conflicts at the Marketing-Sales Interface (March 7, 2022). Available at SSRN: https://ssrn.com/abstract=3493361 or http://dx.doi.org/10.2139/ssrn.3493361

Olivier Rubel (Contact Author)

University of California, Davis - Graduate School of Management ( email )

One Shields Avenue
Davis, CA 95616
United States

Chen Zhou

University of South Carolina ( email )

701 Main Street
Columbia, SC 29208
United States

Rajdeep Grewal

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

Jagmohan S. Raju

University of Pennsylvania - Marketing Department ( email )

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA 19104-6340
United States
215-898-1114 (Phone)
215-898-2534 (Fax)

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