December 28, 2005

Paying for Performance and Customer Service

Today I ventured out on a mission to help my father buy a new computer. I use the word "mission" since in the physical world I'm a dysfunctional shopper. I dread the experience and need to prep to minimize time spent. I much perfer the online shopping experience where I don't have to wait a half an hour for a parking spot.

Also, it's not the best time of year to hit the computer stores, much less any other store. Post-Christmas, Pre-New Year's is the busiest shopping period of the year. It means contending with lineups, and tons of kids on school vacations checking out Xbox 360's. But my dad needed to see what he was getting...so off we went...but only after some web research.

The plan was to hit 3 stores. We would go to a no service discounter, a warehouse club and a full service retailer. My prediction was that he'd buy from the full service retailer after gaining some knowledge transfer there.


Things moved quickly - the warehouse club was out of stock of laptops . So they were crossed off the list. What remained was the full service and discounter retailers. What was surprising was how superior the discounter experience was compared to the full service one.

The discounter offered accessible and knowledgeable staff. Whereas we couldn't find help at the full service store. Both stores have about the same number of square footage, personnel and equivalent density of customers in store.

So what made the discounter so much better at customer service? The answer is - sales compensation philosophies. The discounter pays its sales staff on commission and the full service retalier pays straight salaries.

In fact the full service company advertises its salaried personnel as a differentiator and better for the client. Pehaps they have a point. We've all experienced being stalked by commissioned reps in discount computer stores. This behaviour is a annoying. But not nearly as bad as not getting any help in a full service store.

In my experience a sales person (with the proper customer orientation) paid on performance (commission) will always out service the straight salary equivalent. Pay for performance connects with human nature. It's the very essence of what drives the market economy.

If I were the CEO of the full service retailer I would reinvent the business on other differentiating factors and change the compensation model before the market forces the change.

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1 comment:

  1. It's not so cut and dried. You could do a mix of the two - salary plus performance pay, based on store-level or department-level metrics. Such as repeat business, referrals, customer satisfaction ratings, returns and sales.

    There are clear plusses and minuses for the 2 commonly-used pay schemes as you've delineated. However, I'm sure a little legwork would reveal cases where non-commissioned sales staff give just fine customer service - because elements of their employment and/or compensation are tied to customer metrics.

    You get the behavior you reward.

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