The Case for Spiffs — And Why Some Still Cry Foul

MTC Performance's George Kriza

George Kriza

By George Kriza, Founder & CEO, MTC Performance

As the president of an incentive company, I periodically encounter dealer, retailer or even reseller owners who strongly oppose spiffs. They are not in the majority, but still, there’s a consistent wing of the channel raising objections.

Do I find validity in their arguments? No. When used and managed effectively, spiffs are still a powerful tool to motivate, excite and drive sales as well as enhance overall business results, including profitability. Still, the common objections raised to spiff programs are worth a look. They include the supposition that salespeople everywhere lose all sense of ethics and customer satisfaction and, to make a few extra dollars, are happy to sell the “wrong” product. Others maintain that spiffs can work against a dealer’s investments in training and its inventory position and undermine key manufacturer relationships.

Let’s see if these objections hold any water.

One interesting theory, which might happen periodically, is that a salesperson will sell the wrong product to get that incentive. This is a self-correcting problem because any such salesperson’s tenure will be short-lived — clients will likely not be repeat customers if their business needs are not being satisfied. Yes, dealer management should take an interest in defining the limits of acceptable solutions and approving sales configurations. But if the solution actually does the job for the customer, where exactly is the issue? The fact is that it’s a rare product that has no valid competition. Typically, a customer has so many roughly equivalent choices that confusion is the most likely end product. At least a spiff adds some focus for salespeople as they being to guide the buying process.

Given many potential products to sell, the issue cascades to an entirely different set of drivers, ones the dealer is very invested in. Margin is one. Most dealers I know are interested in maintaining the largest possible margin while not losing market share. It’s a delicate balance: Who controls pricing in the dealer? Likely it is the confluence among management, sales and consumer influences. But each dealer always has the right to determine how low it will price any particular sale, whether solution or commodity. And the dealer also has the right to control which brands it will sell, which models it will stock, and other important factors. There may be occasions where the salesperson makes a greater margin than the dealer (when you factor in the spiff), but this is rare, and if the dealer proactively is managing pricing policy and has professional salespeople who sell a true value-added solution that is properly structured and marketed, it should thrive.

Sometimes the dealer principal will ask the manufacturer to just reduce the price, allowing the dealer to highlight the product and take it to the appropriate target market. From the manufacturer’s point of view, this will never accomplish the same objectives as a spiff. Why? Because a price cut will not inherently influence the number of times the product is presented and recommended to potential clients at point of sale. Whether in a store, online, on a telephone selling opportunity or during a corporate presentation, it’s all about what product is presented and recommended.

The manufacturer must make a profit, the dealer must make a profit, the salesperson would like a reasonable commission and the customer would like …

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