A recent focus on intermediary compensation underscores the need to organize the many complex incentives used by channel practitioners. Employing a grounded theory methodology, a channel incentives classification scheme is induced from 170 unique channel incentives used in 59 high technology suppliers' channel programs. The incentives are organized into 16 subcategories and 5 major categories: Credible Channel Policies, Market Development Support, Supplemental Contact, High-Powered Incentives, and End-User Encouragements. Each incentive subcategory is discussed as a means of controlling reseller behaviors. Also, the conditions that give rise to the implementation of incentives are investigated through four testable research propositions.
Recently, methods of compensation have received increased attention in the interorganizational and sales management literatures [1], [2] and [3]. Because of this important stream of work, we know that supplier-initiated incentive programs play a key role in maintaining relationships with independent channel intermediaries. For instance, carefully crafted incentive contracts motivate resellers to participate in suppliers' promotional programs [4], to support suppliers' customer service objectives [5], and to seek continuation of an ongoing relationship [6]. Also, because information is embedded in incentives, role ambiguity is reduced, end-user needs more clearly identified [1], and opportunistic behaviors less likely to occur [7]. These factors enhance the supplier's ability to control its channel and to subsequently attain high performance outcomes [8].
Although several theoretically sound, two- and three-category incentive frameworks have been proposed (e.g., [1], [2], [3], [9], [10] and [11]), channel practitioners actually use “a complex array of different tools-levers” [12]. Frazier continues:
Firms can rely on a mix of contracts, pricing and credit programs (e.g., functional discounts, margin guarantees, extended dating), promotional programs (e.g., market development funds, co-op programs, incentive or spiff programs, earned volume rebates, end-customer promotions), merchandising aids, training programs, and inventory buyback programs, among other components (p. 229).
Further, because firms continually develop new and creative ways to motivate intermediaries [6], attempting to classify the many incentives used in business-to-business channels quickly taxes existing frameworks.1 In fact, despite their theoretic usefulness, these classifications have been called “an oversimplification of the manner in which incentives can be allocated” ([2], p. 77).
Fortunately, theory can be developed at different levels of abstraction, and given the complexity of the many incentives-in-use by channel practitioners it is advantageous to examine incentives at a level that is relatively close to the phenomenon. In this study, qualitative data from the high technology industry and a grounded theory coding methodology are used to inductively derive a business-to-business channel incentives classification scheme. The scheme is based on 170 unique channel incentives applied in the reseller programs of high tech suppliers such as Sun Microsystems, Microsoft, Cisco Systems, and others.
The primary purpose of this paper is to present a channel incentives classification scheme, which supports our understanding of channel incentives in several ways. First, by describing the scheme's various categories and subcategories, the breadth and creativity of the many incentive arrangements used in practice are illustrated. Second, the categories and subcategories that emerge from the data enhance our theoretic understanding of how incentives are used to control resellers by motivating them to engage in certain practices. Thus, the classification scheme developed here may serve as an alternative to existing categorizations. Also, to demonstrate the usefulness of the scheme, a series of theory-based, testable research propositions are advanced that investigate when channel incentives are likely to be implemented. It will be suggested that incentives are utilized to allocate channel functions and resources, achieve performance goals, control reseller actions, manage channel conflict, and promote channel adaptability. Finally, because classification schemes play a fundamental role in the advancement of a discipline [13], a substantive research agenda will be suggested to support the development of the field. Before the classification scheme is presented, the governing characteristics of channel incentives are discussed.
