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Sales Commissions Going the Way of Buggy Whips

From November 21, 2013 – MediaPost – Sales Commissions Going the Way of Buggy Whips – by Thom Forbes

The salesforce commission is going the way of the 15% media commission if stories in the New York Times and Wall Street Journal this morning are any indication. And in at least one case, few tears will be shed. “Say Goodbye to the Car Salesman,” reads the hed over Christina Rogers piece on the WSJ, “No-Haggle Price, Online Selling Transform Auto Retailing.”

We’re all familiar with the transparency inherent in online shopping (although there’s a bit of “mumbo-jumbo” involved with concepts such as “invoice price,” as we covered earlier this month). But the net result is that people like 30-year-old Mia Morris are becoming the “new face of auto sales,” Rogers reports. She “doesn’t work on commission, isn’t interested in haggling over price and spends more time online conversing with customers than on the showroom floor” at Nissan of Manhattan.

That’s because you’ve already decided what you’re going to pay, presumably.

“The whole process of buying a car has been flipped flop from what it used to be,” Alison Spitzer, VP of Spitzer Auto Group in Elyria, Ohio, tells Rogers. “Today, customers find the car first, then the dealership.” Spitzer’s salesforce operates under a “no haggle” policy that salaryman Jeff Dietz, also 30, says “doesn’t make me seem as pushy.”

In “For Some, Paying Sales Commissions No Longer Makes Sense,” the NYT’s Stacy Perman ledes with a Chicago software company, ThoughtWorks, that “decided to upend one of the sacrosanct principles of sales” by putting its entire 40-person global salesforce on straight salary a couple of years ago after nearly 20 years of doing things the way that they’ve been done since … oh, way back in the 1950s.

“The United States has been responsible for many great innovations but not all have turned out the way the inventors, architects or innovators intended. One such miscalculation was the introduction of ‘commission-only’ salespeople” in the post-World War II era, Sue Barrett informs us in Australia’s SmartCompany.

Historian Peter Finklestein tells Barrett that with factories churning out more goods that Americans could consume after the war, “it was decided that additional salespeople would be engaged on a sell-and-earn-basis. Salespeople were therefore paid for selling something and if they made no sale they made no income. These salespeople were not employees and this kept business costs down.”

But ThoughtWorks president and COO Craig Gorsline tells Perman that “commissions were getting in the way of a proper dialogue with our customers.” And he’s not alone, although the elimination of commissions may seem like “blasphemy” not only to managers but also to top-performing salespeople. (The co-president of the firm of the group that owns Nissan Manhattan tells the WSJ’s Rogers that more than 75% of his sales staff went elsewhere after the policy took force.)

On the other hand, “proponents of ditching commissions believe they foster negative behaviors, such as focusing on an individual’s profit over the company’s, emphasizing short-term outcomes and encouraging unproductive competition among sales representatives,” writes the NYT’s Perman. “Even companies that pay commissions can face costly turnover as representatives chase more lucrative offers.”

Meanwhile, over at Forbes.com, Jacquelyn Smith weighs in with a piece this week that asks, “Is A Commission-Based Sales Job Right For You?” Art Sobczak, president of BusinessByPhone.com, tells her that “you have to have an insatiable desire to succeed” and “if you’re content with your work and you’re never willing to take the extra step, this isn’t the right job for you.”

Despite the increasing loss of performance incentives at the last link in the demand chain — or perhaps because of it — “marketers around the world showed growing confidence during November,” according to Warc’s latest Global Marketing Index (GMI), which rose 3 points from 54.8 in October to 57.8 in November’s with all regions performing strongly.

The GMI figure takes into account marketers’ expectations for trading conditions and staffing levels as well as marketing budgets; where values above 50 indicate a positive trend. Europe led the way with a 3.9 point “surge” — its highest ever, according to the Warc report, and the usually trendsetting U.S. did not fare too poorly either considering the 16-day government shutdown at the beginning of last month. It rose 3.1 points to 57.5.

What’s more, the outlook for marketing budgets leaped 6.3 points in the Americas during the period. Time to hire some salespeople willing to take the extra step despite the lack of commission, no?

NOTE: This article can also be found on MediaPost.com at: http://www.mediapost.com/publications/article/213975/sales-commissions-going-the-way-of-buggy-whips.html?edition=67125

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