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Abstract:

In business markets, marketing and sales functions often conflict over customer acquisition. Marketers express frustration that sales representatives disregard the leads they generate, while sales representatives question the revenue potential of these leads. How should firms resolve such conflicts? Should they integrate the two functions into one to avoid conflicts; or can Marketing and Sales be separated and yet managed effectively? If so, how should firms incentivize the two functions to maximize the value created through the acquisition funnel? To address these questions, we conduct an analytical investigation using a dynamic principal-agent model. The proposed model considers the sequential nature of acquisition funnels and incorporates information asymmetries regarding lead types. Our analysis provides three key new results. First, we find that intuitive managerial recommendations such as compensating agents on 鈥渨hat matters鈥� or on 鈥渨hat they control,鈥� will misallocate risks between the two functions resulting in conflicts. Second, we establish conditions under which the separation of the two functions can be achieved without any loss of efficiency when leads are homogeneous. Third, in the case where leads are heterogeneous, we discover that functional integration can be suboptimal despite the a priori benefits that could come with centralization.