Harvard Case - Incentivizing Sales Advisors at Mustang
"Incentivizing Sales Advisors at Mustang" Harvard business case study is written by Susanna Gallani, Martin Artz, Johannes Habel, Sascha Alavi. It deals with the challenges in the field of Accounting. The case study is 17 page(s) long and it was first published on : Jan 30, 2020
At Fern Fort University, we recommend Mustang implement a multi-faceted incentive program for its sales advisors, focusing on a combination of individual performance metrics, team-based goals, and long-term customer relationship building. This program should be designed to align with Mustang's overall business strategy, fostering a culture of customer-centricity and sustainable growth.
2. Background
Mustang, a leading manufacturer of high-end motorcycles, faces a challenge in motivating its sales advisors to achieve sales targets and build long-term customer relationships. The current incentive program, solely based on individual sales volume, is failing to drive desired results. This case study explores the existing situation and proposes a revised incentive program to address the shortcomings.
The main protagonists in this case are:
- Mike O'Connell: Mustang's CEO, concerned about the lack of customer retention and the impact on long-term profitability.
- Steve Hanson: Vice President of Sales, responsible for developing and implementing sales strategies and incentive programs.
- Sales Advisors: The frontline employees responsible for selling motorcycles and building customer relationships.
3. Analysis of the Case Study
This case study can be analyzed through the lens of strategic management and employee performance management.
Strategic Analysis:
- Industry Landscape: The motorcycle industry is characterized by high customer loyalty and a strong focus on brand image. Mustang's success depends on building a loyal customer base and fostering a positive brand experience.
- Competitive Advantage: Mustang's competitive advantage lies in its high-quality motorcycles, personalized customer service, and strong brand reputation. However, the current incentive program undermines these strengths by encouraging short-term sales focus over long-term customer relationships.
- Growth Strategy: Mustang aims to achieve sustainable growth by expanding its customer base and increasing customer lifetime value. The current incentive program hinders this goal by failing to incentivize customer retention and relationship building.
Employee Performance Management Analysis:
- Current Incentive Program: The current program, based solely on individual sales volume, creates a competitive environment among sales advisors, potentially leading to unethical practices and neglecting customer relationships.
- Performance Measurement: The focus on individual sales volume ignores other crucial performance indicators like customer satisfaction, retention, and referral rates.
- Motivation and Engagement: The lack of recognition for customer relationship building and long-term value creation demotivates sales advisors, leading to decreased engagement and a decline in overall performance.
4. Recommendations
To address the shortcomings of the current incentive program, Mustang should implement a multi-faceted approach:
1. Shift to a Balanced Scorecard Approach:
- Financial Performance: Maintain a component based on individual sales volume, but introduce metrics like average transaction value and customer lifetime value to incentivize higher-value sales and long-term relationships.
- Customer Satisfaction: Incorporate metrics like customer satisfaction ratings, repeat purchase rate, and referral rate to encourage sales advisors to prioritize customer experience.
- Internal Processes: Evaluate and reward sales advisors based on their adherence to customer service protocols, product knowledge, and efficient handling of customer inquiries.
- Learning and Growth: Incentivize sales advisors to participate in training programs and professional development initiatives to enhance their skills and knowledge.
2. Implement a Team-Based Incentive Program:
- Team Goals: Set team-based sales targets and reward the entire team based on their collective performance. This encourages collaboration and knowledge sharing among sales advisors.
- Cross-Selling and Upselling: Incentivize sales advisors to sell additional products and services to existing customers, increasing customer lifetime value and revenue generation.
- Customer Relationship Management (CRM): Utilize a CRM system to track customer interactions and reward sales advisors for building strong relationships and exceeding customer expectations.
3. Introduce Long-Term Incentives:
- Customer Retention Bonuses: Reward sales advisors for retaining customers for extended periods, demonstrating their ability to build lasting relationships.
- Referral Bonuses: Incentivize sales advisors to generate referrals from existing customers, expanding the customer base and fostering organic growth.
- Performance-Based Stock Options: Offer stock options to top-performing sales advisors, aligning their interests with the long-term success of the company.
5. Basis of Recommendations
This recommendation aligns with Mustang's core competencies and mission by:
- Focusing on customer satisfaction and retention: This aligns with Mustang's commitment to providing exceptional customer experiences and building lasting relationships.
- Encouraging collaboration and teamwork: This fosters a positive work environment and promotes knowledge sharing among sales advisors.
- Promoting long-term growth and profitability: This aligns with Mustang's strategic objective of sustainable growth and maximizing customer lifetime value.
The recommendation also considers:
- External customers: The program focuses on delivering value to customers and building strong relationships.
- Internal clients: The program motivates sales advisors and empowers them to achieve their full potential.
- Competitors: The program helps Mustang differentiate itself from competitors by prioritizing customer experience and long-term relationships.
The attractiveness of this recommendation can be measured through:
- Increased customer retention: This leads to higher revenue and profitability.
- Improved employee morale and engagement: This results in higher productivity and sales performance.
- Enhanced brand reputation: This attracts new customers and strengthens Mustang's competitive position.
6. Conclusion
By implementing a multi-faceted incentive program that rewards individual performance, team collaboration, and long-term customer relationships, Mustang can effectively motivate its sales advisors to achieve sales targets and build a loyal customer base. This strategy will lead to increased customer retention, improved employee engagement, and sustainable growth for the company.
7. Discussion
Other Alternatives:
- Maintaining the current incentive program: This would continue to focus solely on individual sales volume, neglecting customer relationships and potentially leading to unethical practices.
- Implementing a purely team-based incentive program: This could create a sense of unfairness among sales advisors, especially those who consistently outperform their peers.
Risks and Key Assumptions:
- Cost of implementation: Implementing a new incentive program can be costly, requiring careful budgeting and resource allocation.
- Employee acceptance: Sales advisors may resist changes to the existing incentive program, requiring effective communication and training to ensure buy-in.
- Accurate measurement of performance: Implementing a balanced scorecard approach requires accurate data collection and analysis to ensure fair and transparent performance evaluations.
Options Grid:
| Option | Pros | Cons |
|---|---|---|
| Current Incentive Program | Simple to implement, cost-effective | Focuses solely on individual sales volume, neglects customer relationships |
| Multi-faceted Incentive Program | Encourages customer-centricity, promotes teamwork, fosters long-term growth | Requires careful planning, implementation, and ongoing monitoring |
| Purely Team-Based Incentive Program | Encourages collaboration, promotes team spirit | May create a sense of unfairness among individual performers |
8. Next Steps
Timeline:
- Month 1: Conduct a comprehensive assessment of the current incentive program and identify key performance indicators.
- Month 2: Develop a detailed proposal for the new incentive program, including specific metrics, rewards, and implementation plan.
- Month 3: Communicate the new incentive program to sales advisors, providing clear explanations and addressing any concerns.
- Month 4: Implement the new program, ensuring proper training and support for sales advisors.
- Month 6: Monitor the program's effectiveness, collecting data on key performance indicators and making adjustments as needed.
By following these steps, Mustang can successfully implement a new incentive program that aligns with its strategic goals, motivates its sales advisors, and drives sustainable growth for the company.
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