January 24, 2013
Internet Cuts Salespeoples’ Commissions
Way back in the days when I was writing copy on an IBM Selectric, I did ad work for a small, independent consumer electronics chain that specialized in selling high-end audio equipment. Service was its specialty and sales associates lived the business, spending whatever time was necessary to answer customer questions. The stores had an all-star list of customers including rock musicians, comedians, actors, and plenty of CEOs.
A couple of years after working on the account, a rival chain opened that offered almost no service, but advertised prices that were well below my client’s. Suddenly, people were coming into its stores and picking the sales associates’ brains only to leave to buy at the "crazy" guy down the highway. That made a lot of sales people working in the store angry since many of them made a nice living with the commissions they earned.
A similar situation has occurred in recent years with the showrooming effect.
"I had a guy come in six months ago. I spent a half an hour with him, trying on four pairs of shoes before getting up and saying, ‘Thanks, now I know what to get when I buy them online,’" Nelson Springer, a shoe salesman at Macy’s, told CNNMoney.
Mr. Springer said that he lost about $5,000 in commissions this past year because of people going elsewhere to buy. Some of those lost sales may have even been to Macys.com. The department store chain saw its same-store numbers increase 2.5 percent during the holiday season while online jumped more than 50 percent.
Macy’s, according the CNNMoney piece, has tried to help Mr. Springer and others get credit for sales made by letting them complete the transaction online for customers, but commission numbers continue to drop.
BrainTrust
Recent Discussions
Discussion Questions
In what ways is showrooming affecting how salespeople do their jobs in stores? Do retailers need to reconsider how they compensate employees who currently earn most of their income through commissions?
Poll
Only if Macy’s either raises its commission rate and/or finds a way to ensure that the salesperson gets credit for the online sale that results from their effort. The associates are doing the work and Macy’s is getting the sale.
The issue is the linkage between the two acts. One way would be to do a direct price match allowing the sales associate to complete the online purchase in the store and enter their ID so the sale is attributed to them.
If the products a retailer sells are readily available online, and if that retailer’s employees are compensated in large part through commissions, the compensation program needs to change or the employees will leave. Employees could be compensated for personal effort and the overall success of the company or be given a higher hourly wage and smaller commission. It all depends on the core philosophy of the retailer.
You can not compensate employees for loss of sales, and the way business is being done today. Technology will continue to shift how business is done, and fewer people will be needed to complete transactions. Unemployed folks can not find work in these jobs anymore, as few exist where you could make a really good living.
Showrooming is here to stay, and loyalty has left the building long ago (just ask Elvis), so where does that leave us? Leaner and meaner goes against the grain we blog about, i.e. top notch customer service, and how do we balance all of this out?
It’s not easy to be in business today and it never has been, so change is always necessary to adjust to the times. Will customer service ever be what it was, and who ultimately pays for that?
This is where we as business owners must make our staff very aware of the need to give the best service they can every day, and no slackers will be allowed to just hang around the store anymore. Very few stores today can afford to have extra bodies floating around, and the rest of us must make the very best people who are left compensated for their efforts.
Yes, retailers need to reconsider how they compensate employees and everything else about showrooming. In ten years, the only reason for most brick and mortar stores to exist will be to be a showroom. Therefore, the people on the floor must be skilled, know their products and extra-ordinarily personable (READ, Apple Genius Bar). To get these types of employees, you have to pay them. No promises of “free beer tomorrow”!
This seems like a chicken-or-egg situation. Many retail experts have been talking about the necessity for store associates to be armed with the the best information to help shoppers in the store. But if they are taking that information and using it to finalize their purchases online, then the store and the associates lose.
Brick-and-mortar retailers must figure out how to motivate shoppers to stay in the store to complete their purchases. Some creative thinking is needed here. It might be a special store-only deal, a free gift, or a loyalty incentive.
But retailers also must be careful not to over-reward shoppers who are not their best customers.
Showrooming—and Internet sales in general—obviously kill commissions and employees who earn less generally perform less effectively.
I’d say that industries that are traditionally commission focused need to rethink the model and move to a compensation policy more like Best Buy’s.
The alternative—maintaining the status quo compensation model—is just going to lead toward declining service over time in far too many companies.
What role do your sales reps play? What role do you want sales reps to play? What authority do sales reps have to match prices? What services do you provide after the sale? Do you provide any good reason for why customers should purchase the product from you?
Now, how should the salespeople be paid—on the sales they make or the service they provide? When job functions change, the method of rewards need to change as well.
Sorry, commissions are passe. Fewer people on the floor of the store and customer choice will prevail. The option of taking the order on the floor of the store through comparisons online with PC or iPad access is of course a solid alternative, but unless your dishwasher or dryer is in high demand to get replaced today, not going to happen—self-service online or off of smartphone will be the channel of preference.
Employee compensation has to follow from the economics of the business. If retailers aren’t making as much money, then commissions will drop. If commissions drop too much, the whole commission-based model becomes unsustainable.
What retailers can do right now is to test different offerings in the areas of the store most affected by showrooming. Does the shoe area (for example) need as many associates or can fewer people and more technology change the dynamic? Can we move to more of a self-service model? Should shoes be a smaller part of the store with other categories growing to fill the gap? Does a different customer engagement change conversion rates? All of these questions lead to testable hypotheses.
I found the final lines that he wasn’t worried since he was in a union rather odd. Does he feel they will protect him from staffing cuts?
Commission is usually given to areas in which skills are necessary to raise UPT. If customers are going to use them pretty much like an Automat to get what they want, there’s not much needed to be sold. If the commission sales people can’t find a way to convincingly show they are needed, I imagine commission will be on the way out for larger chains.
From the article, when the customer made the statement “Thanks, now I know what to get when I buy them online,” how the salesperson or the store responded is the key point to this discussion.
Did they let the customer walk out the door or did they try to address the verbalized objection?
Yes showrooming definitely impacts the employees who currently earn most of their income through commissions. While all the information is available on the internet, people still long for the human/in-person connection to make that buying decision. If retailers equip the sales force on the floor with hand-helds which could show more information, compare product features and prices, customers could make their decision in the store itself. It wouldn’t matter if the customer buys it in store or gets it shipped home.
If the sales person provides an additional coupon for buying it now, the sales person could then tag it and receive commission for the sale.
Brick & mortar stores need to give customers a reason to buy in the store vs online. I recently researched a purchase online and then went into my local store to make the purchase in hopes of taking the goods home with me or at least having my order delivered to the store free of charge for pickup. I was told they don’t sell off the floor—everything has to be ordered and it can’t be delivered to the store. The associate then placed the order for me on the company website on an iPad—in the process she ordered me the wrong item and charged me more shipping than if I had ordered it myself. I had to call customer service twice to fix it.
In the end, the whole experience wasted hours of my time for no added value. Retailers have to figure out how to provide a better experience in store than online—obviously not the case here.
This is an area that has every retailer scratching their heads. Yes, it needs an overhaul and I believe it will involve the emergence of new kinds of stores. Stores that are designed with the various types of services the customer has come in for. Some services may involve only a kiosk or other digital solution, while others will require brand advocates or store-within-a-store advocates that are partially funded by the manufacturer who is getting the sale.
Lots to think about, but the time has come!
You’re losing revenue and your first concern is (what is essentially) a decrease in your costs? How sweet; and how bassackwards! Let’s address the revenue loss first…’cuz if you don’t, your employees soon won’t have any jobs to worry about.
If only George had told us how HIS anecdote ended! (Hopefully happily….)
One of the more disappointing times in a sales career is the commodity part of a once lucrative product or service’s life cycle. This can be caused by the market’s common awareness and understanding of a product’s value, use and purpose. Another is enriched availability and market saturation due to production capacities passing market demand levels.
In either or any other case, the present day typical plan for most retail companies is to continue selling at the original equipment manufacturer’s needed financial plan production volumes by reducing the selling price closer to the landed costs, leaving little or no room to provide monetary incentives to the sales force. Grouping product, service and support can stem the tide of the inevitable margin declines for some time, but even with the add-on creations, a product’s margin will eventually succumb to downward price pressures.
There are many marketing companies in place to advise manufacturing companies of a product or service’s life cycle, as well as market value. These same companies also sell like information to capitol investment groups interested in building competitive start-up efforts wherever opportunity is seen. Obsolescence is another encroachment on margins and the ability to provide sales incentives. Sales people that are on constant vigil for easy transactions should instead be searching for greener pastures or the very latest products with familiar/similar characteristics to the market they are in.
Change is always good for those that get on board. If change is a fundamental part of a company’s vision and momentum, there is still a need for sales people to change by staying current with the company’s new products and market direction. Opportunity and fortune is much more than a prospect with cash in hand.
As for showrooming, this is a symptom of market fatigue for product that is in or headed for low margin commodity status.
Yup, commissions are dead as a retail compensation model, but that doesn’t mean that retailers can’t employ incentive compensation programs.
Retailers will need to reset base compensation but they should allocate part of their labor expense budget for bonus programs that reward top performance. Examples may include team bonuses for top-quartile performance on metrics like same store comps or inventory turns.
It’s cost them money, so now that that is a given, let’s dwell on what can be done about it. I might suggest a system whereby a consumer offers a credit card when they enter a store and are charged something after a certain number of minutes in the store. It might slow traffic down but it would definitely free up sales people’s time so they could talk to one another.
Now give us a break, showrooming has been going on ever since Sears published their first catalog. Blaming declining commissions on showrooming while ignoring the economy clearly makes this article a self fulfilling prophecy. I would bet that if the economy were much better, then people would be buying more from local retailers and not showrooming.
The economy has forced many to the internet. If you want to blame someone then blame Washington. The internet isn’t the problem, it’s a solution!
As a retailer, our floor price is pretty much the same as what you find on the reputable internet sites. We don’t price match, but we usually aren’t more than a few dollars off, if at all. The way we make our money is by charging for our knowledge, a consulting fee, if you will. And also offer installation and other services.
Selling products at a big enough profit to make a living on, that alone is dead thanks to the internet’s “race to the bottom.” It’s time to find other ways to make the real money and be able to afford to pay salaries and benefits.
How to do that with women’s shoes? Offer a free “shoe refurbish” every six months for shoes that go for over a certain dollar amount. Only carry lines that have a margin at the internet price and sell them at that price plus let the sales associates pull up the competitor’s web site on an iPad. Your customer is going to look online, why not do it with them? That will keep them from walking away.
One of the first questions we ask new customers is “I’m curious, why did you come in here, why not just buy it on the internet?” Usually they start gushing about a bad experience.
Some London department stores like Debenhams and John Lewis are already crediting digital sales within the catchment area of a store to the Associates Team in that store for exactly the reasons this article discusses.
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Only if Macy’s either raises its commission rate and/or finds a way to ensure that the salesperson gets credit for the online sale that results from their effort. The associates are doing the work and Macy’s is getting the sale.
The issue is the linkage between the two acts. One way would be to do a direct price match allowing the sales associate to complete the online purchase in the store and enter their ID so the sale is attributed to them.
If the products a retailer sells are readily available online, and if that retailer’s employees are compensated in large part through commissions, the compensation program needs to change or the employees will leave. Employees could be compensated for personal effort and the overall success of the company or be given a higher hourly wage and smaller commission. It all depends on the core philosophy of the retailer.
You can not compensate employees for loss of sales, and the way business is being done today. Technology will continue to shift how business is done, and fewer people will be needed to complete transactions. Unemployed folks can not find work in these jobs anymore, as few exist where you could make a really good living.
Showrooming is here to stay, and loyalty has left the building long ago (just ask Elvis), so where does that leave us? Leaner and meaner goes against the grain we blog about, i.e. top notch customer service, and how do we balance all of this out?
It’s not easy to be in business today and it never has been, so change is always necessary to adjust to the times. Will customer service ever be what it was, and who ultimately pays for that?
This is where we as business owners must make our staff very aware of the need to give the best service they can every day, and no slackers will be allowed to just hang around the store anymore. Very few stores today can afford to have extra bodies floating around, and the rest of us must make the very best people who are left compensated for their efforts.
Yes, retailers need to reconsider how they compensate employees and everything else about showrooming. In ten years, the only reason for most brick and mortar stores to exist will be to be a showroom. Therefore, the people on the floor must be skilled, know their products and extra-ordinarily personable (READ, Apple Genius Bar). To get these types of employees, you have to pay them. No promises of “free beer tomorrow”!
This seems like a chicken-or-egg situation. Many retail experts have been talking about the necessity for store associates to be armed with the the best information to help shoppers in the store. But if they are taking that information and using it to finalize their purchases online, then the store and the associates lose.
Brick-and-mortar retailers must figure out how to motivate shoppers to stay in the store to complete their purchases. Some creative thinking is needed here. It might be a special store-only deal, a free gift, or a loyalty incentive.
But retailers also must be careful not to over-reward shoppers who are not their best customers.
Showrooming—and Internet sales in general—obviously kill commissions and employees who earn less generally perform less effectively.
I’d say that industries that are traditionally commission focused need to rethink the model and move to a compensation policy more like Best Buy’s.
The alternative—maintaining the status quo compensation model—is just going to lead toward declining service over time in far too many companies.
What role do your sales reps play? What role do you want sales reps to play? What authority do sales reps have to match prices? What services do you provide after the sale? Do you provide any good reason for why customers should purchase the product from you?
Now, how should the salespeople be paid—on the sales they make or the service they provide? When job functions change, the method of rewards need to change as well.
Sorry, commissions are passe. Fewer people on the floor of the store and customer choice will prevail. The option of taking the order on the floor of the store through comparisons online with PC or iPad access is of course a solid alternative, but unless your dishwasher or dryer is in high demand to get replaced today, not going to happen—self-service online or off of smartphone will be the channel of preference.
Employee compensation has to follow from the economics of the business. If retailers aren’t making as much money, then commissions will drop. If commissions drop too much, the whole commission-based model becomes unsustainable.
What retailers can do right now is to test different offerings in the areas of the store most affected by showrooming. Does the shoe area (for example) need as many associates or can fewer people and more technology change the dynamic? Can we move to more of a self-service model? Should shoes be a smaller part of the store with other categories growing to fill the gap? Does a different customer engagement change conversion rates? All of these questions lead to testable hypotheses.
I found the final lines that he wasn’t worried since he was in a union rather odd. Does he feel they will protect him from staffing cuts?
Commission is usually given to areas in which skills are necessary to raise UPT. If customers are going to use them pretty much like an Automat to get what they want, there’s not much needed to be sold. If the commission sales people can’t find a way to convincingly show they are needed, I imagine commission will be on the way out for larger chains.
From the article, when the customer made the statement “Thanks, now I know what to get when I buy them online,” how the salesperson or the store responded is the key point to this discussion.
Did they let the customer walk out the door or did they try to address the verbalized objection?
Yes showrooming definitely impacts the employees who currently earn most of their income through commissions. While all the information is available on the internet, people still long for the human/in-person connection to make that buying decision. If retailers equip the sales force on the floor with hand-helds which could show more information, compare product features and prices, customers could make their decision in the store itself. It wouldn’t matter if the customer buys it in store or gets it shipped home.
If the sales person provides an additional coupon for buying it now, the sales person could then tag it and receive commission for the sale.
Brick & mortar stores need to give customers a reason to buy in the store vs online. I recently researched a purchase online and then went into my local store to make the purchase in hopes of taking the goods home with me or at least having my order delivered to the store free of charge for pickup. I was told they don’t sell off the floor—everything has to be ordered and it can’t be delivered to the store. The associate then placed the order for me on the company website on an iPad—in the process she ordered me the wrong item and charged me more shipping than if I had ordered it myself. I had to call customer service twice to fix it.
In the end, the whole experience wasted hours of my time for no added value. Retailers have to figure out how to provide a better experience in store than online—obviously not the case here.
This is an area that has every retailer scratching their heads. Yes, it needs an overhaul and I believe it will involve the emergence of new kinds of stores. Stores that are designed with the various types of services the customer has come in for. Some services may involve only a kiosk or other digital solution, while others will require brand advocates or store-within-a-store advocates that are partially funded by the manufacturer who is getting the sale.
Lots to think about, but the time has come!
You’re losing revenue and your first concern is (what is essentially) a decrease in your costs? How sweet; and how bassackwards! Let’s address the revenue loss first…’cuz if you don’t, your employees soon won’t have any jobs to worry about.
If only George had told us how HIS anecdote ended! (Hopefully happily….)
One of the more disappointing times in a sales career is the commodity part of a once lucrative product or service’s life cycle. This can be caused by the market’s common awareness and understanding of a product’s value, use and purpose. Another is enriched availability and market saturation due to production capacities passing market demand levels.
In either or any other case, the present day typical plan for most retail companies is to continue selling at the original equipment manufacturer’s needed financial plan production volumes by reducing the selling price closer to the landed costs, leaving little or no room to provide monetary incentives to the sales force. Grouping product, service and support can stem the tide of the inevitable margin declines for some time, but even with the add-on creations, a product’s margin will eventually succumb to downward price pressures.
There are many marketing companies in place to advise manufacturing companies of a product or service’s life cycle, as well as market value. These same companies also sell like information to capitol investment groups interested in building competitive start-up efforts wherever opportunity is seen. Obsolescence is another encroachment on margins and the ability to provide sales incentives. Sales people that are on constant vigil for easy transactions should instead be searching for greener pastures or the very latest products with familiar/similar characteristics to the market they are in.
Change is always good for those that get on board. If change is a fundamental part of a company’s vision and momentum, there is still a need for sales people to change by staying current with the company’s new products and market direction. Opportunity and fortune is much more than a prospect with cash in hand.
As for showrooming, this is a symptom of market fatigue for product that is in or headed for low margin commodity status.
Yup, commissions are dead as a retail compensation model, but that doesn’t mean that retailers can’t employ incentive compensation programs.
Retailers will need to reset base compensation but they should allocate part of their labor expense budget for bonus programs that reward top performance. Examples may include team bonuses for top-quartile performance on metrics like same store comps or inventory turns.
It’s cost them money, so now that that is a given, let’s dwell on what can be done about it. I might suggest a system whereby a consumer offers a credit card when they enter a store and are charged something after a certain number of minutes in the store. It might slow traffic down but it would definitely free up sales people’s time so they could talk to one another.
Now give us a break, showrooming has been going on ever since Sears published their first catalog. Blaming declining commissions on showrooming while ignoring the economy clearly makes this article a self fulfilling prophecy. I would bet that if the economy were much better, then people would be buying more from local retailers and not showrooming.
The economy has forced many to the internet. If you want to blame someone then blame Washington. The internet isn’t the problem, it’s a solution!
As a retailer, our floor price is pretty much the same as what you find on the reputable internet sites. We don’t price match, but we usually aren’t more than a few dollars off, if at all. The way we make our money is by charging for our knowledge, a consulting fee, if you will. And also offer installation and other services.
Selling products at a big enough profit to make a living on, that alone is dead thanks to the internet’s “race to the bottom.” It’s time to find other ways to make the real money and be able to afford to pay salaries and benefits.
How to do that with women’s shoes? Offer a free “shoe refurbish” every six months for shoes that go for over a certain dollar amount. Only carry lines that have a margin at the internet price and sell them at that price plus let the sales associates pull up the competitor’s web site on an iPad. Your customer is going to look online, why not do it with them? That will keep them from walking away.
One of the first questions we ask new customers is “I’m curious, why did you come in here, why not just buy it on the internet?” Usually they start gushing about a bad experience.
Some London department stores like Debenhams and John Lewis are already crediting digital sales within the catchment area of a store to the Associates Team in that store for exactly the reasons this article discusses.