Abstract for: Dealer Hoarding, Sales Push and Seed Returns: On the Interdependency between Incentives and Salesforce Management

Several industries struggle with the intensity and cost of product returns. Product returns generate significant costs due to transportation, inventory, warehousing, repackaging, retesting, refurbishing, among others. Buyer incentives and contracts can often align retailer incentives with those of the manufacturer reducing returns, many industries that adopt such measures still face high level of returns. Here, we describe a case-based field study of the hybrid seed industry and develop a formal dynamic model of the interaction of sales effort allocation and dealer hoarding behavior to understand the dynamics of corn seed returns. Our analysis suggests that a key factor contributing to excessive seed returns is the unplanned allocation of sales resources to meet revenue quotas late in the sales cycle. In particular, we find that: (1) managerial pressure and sales representativesí efforts to meet quotas coupled with dealer hoarding of scarce products can lead to high return rates, (2) this mechanism is self-reinforcing when examined across multiple seasons, and (3) these dynamics can be provoked by temporary increases in demand. By understanding the causes of seed returns, this research informs the limitations of dealer incentives shedding light on the important roles of managing sales resources and setting adequate sales targets.