Why would a big retailer refuse to collaborate on manufacturer SPIFF programs

Big retailers that carry a large assortment of products rely on knowledgeable salespeople to provide purchase advice to customers and match customers with suitable products. Interestingly, big retailers vary in their policies regarding whether to allow their salespeople to receive manufacturer SPIFF (Sales Person Incentive Funding Formula) payments, which motivate salespeople advising at no cost of the retailer. In this study, we investigate a big retailer’s incentive to block manufacturer SPIFF programs, which has the consequence of demotivating salespeople from advising customers, from the perspective of vertical channel interactions. We scrutinize a big retailer’s decision to maximize its profit through managing its channel interactions with upstream manufacturers offering horizontally differentiated products, customers uncertain about true fits with competing products, and its salesperson who can match customers with suitable products through offering purchase advice. Our analysis shows that motivating the salesperson to advise customers is profitable for the retailer only if the such advising has moderate effectiveness in matching consumers and suitable products, and only in this case would the retailer collaborate on manufacturer SPIFF programs. Otherwise, salesperson advising hurts retailer profit and the big retailer benefits from blocking manufacturer SPIFF programs. Our study reveals the interesting theoretical insight that the incentives of a big retailer and upstream manufacturers to motivate sales advising reside in their incentives to battle for a more favorable channel status.