When Style Reduces the Discount

A STUDY BY PAOLO GUENZI LOOKS AT LEADERSHIP IN RELATION TO THE TENDENCY OF SALESPEOPLE TO OFFER DISCOUNTS

Salespeople are not like any other worker. They act more autonomously and therefore they are harder to supervise. Because they negotiate with customers, they have an immediate impact on the firm’s performance. In order to maximize their highly variable compensation, they may may grant discounts too easily. An additional average discount of 1% decreases a company’s profit by 11%. Because of that, the influence of leadership on salespeople’s price defense behavior is of critical importance.
 
“Yet the role of leadership in price defense is barely understood”, says Paolo Guenzi, Associate Professor of the Department of Marketing at Bocconi and Official Professor in the Executive MBA and in the Executive Master in Marketing at SDA Bocconi School of Management. There are many levers to push salespeople to defend firms’ price levels in price negotiations with customers. Some, such as economic incentives, are expensive. Others, such as leadership action, are free. “The influence of leadership and the adoption of a transformational leadership style are important and can be amplified by the combination of three variables: salespeople’s learning motivation; negotiation efficacy; and perceived customer lenience”, Paolo Guenzi says.
 
Results of a model using 264 salesperson-customer interactions in a car dealer confirm these predictions. Not only that, price defense does not induce customers to refrain from purchasing products they would have purchased otherwise. “These findings have some theoretical and managerial implications. Leaders need to be aware that their own negotiation behavior style influences their salespeople’s price defense behavior. They should adopt a transformational leadership style. They should aim at influencing their salespeople’s learning motivation and negotiation efficacy”.

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by Claudio Todesco