MIT Open Access Articles
Why Do Salespeople Spend So Much Time Lobbying for Low Prices?
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how this access benefits you. Your story matters.
Citation: Simester, Duncan and Zhang, Juanjuan. “Why Do Salespeople Spend So Much Time
Lobbying for Low Prices?” Marketing Science 33, no. 6 (November 2014): 796–808.
As Published: http://dx.doi.org/10.1287/mksc.2014.0856
Publisher: Institute for Operations Research and the Management Sciences (INFORMS)
Persistent URL: http://hdl.handle.net/1721.1/109224
Version: Author's final manuscript: final author's manuscript post peer review, without
publisher's formatting or copy editing
Terms of use: Creative Commons Attribution-Noncommercial-Share Alike
,Why Do Sales People Spend So Much Time Lobbying for Low Prices?
June 2013
Duncan Simester and Juanjuan Zhang
MIT Sloan School of Management
, Why Do Sales People Spend So Much Time Lobbying for Low Prices?
In business-to-business settings a company’s sales force often spends considerable time lobbying
internally for authorization to charge lower prices. These internal lobbying activities are time
consuming, and divert attention from other tasks, such as interacting with customers. We explain why
the sales force’s internal lobbying activities serve an important role. They help the firm elicit truthful
reporting of demand information from the sales force. As a result, it may be profitable for the firm to
require lobbying (and make the requirement onerous), even though lobbying is a nonproductive activity
that creates an additional administrative burden and imposes a deadweight loss.
Key words: lobbying, influence activities, sales force management, pricing, agency theory, incentives,
information elicitation, marketing-sales interface.
, § 1. Introduction
“I have gradually begun to appreciate that many account managers perceive that
it is easier to deal with the customer, compared to the difficulties of negotiating
with their own managers and colleagues to get things done on the customer’s
behalf. Many would argue that internal negotiation is the real crux of the job.”
Beth Rogers (2011 at page 82)
Studies of pricing practices in business-to-business settings often refer to the inefficiencies that
result from the sales force lobbying internally for lower prices. Crainer and Dearlove (2004 at
page 438) report that “more than 80 percent of all cases were ‘exceptions’ that required
internal negotiation between marketing and sales. These constant price negotiations wasted
considerable time.” Similar examples can be found in Sodhi and Sodhi (2007) and Dietmeyer
(2004). Notably, instead of banishing lobbying to reduce bureaucratic inefficiencies, many firms
appear to make the process intentionally onerous. We provide an explanation for why firms
choose not to banish lobbying and why these apparently nonproductive activities may
represent an equilibrium outcome.
The explanation recognizes that the sales force often has private information about the
strength of demand. However, if the firm lowers prices when the sales force reports demand is
low this may create an incentive for the sales force to understate demand, as it takes less effort
to convince customers to buy when prices are low. As a result, the firm must pay the sales
force information rents to admit when demand is high. Lobbying is a mechanism that the firm
can use to help mitigate these rents. It allows the firm to leverage the private information of
the sales force in the low demand condition to reduce the information rents it pays when
demand is high.
We model the requirement to lobby for low prices as a requirement to present evidence that
demand is low. If it is easier for the sales force to produce this evidence when demand truly is
low, then making this evidence a condition of approving a discount may be profitable for the
1|Page
Why Do Salespeople Spend So Much Time Lobbying for Low Prices?
The MIT Faculty has made this article openly available. Please share
how this access benefits you. Your story matters.
Citation: Simester, Duncan and Zhang, Juanjuan. “Why Do Salespeople Spend So Much Time
Lobbying for Low Prices?” Marketing Science 33, no. 6 (November 2014): 796–808.
As Published: http://dx.doi.org/10.1287/mksc.2014.0856
Publisher: Institute for Operations Research and the Management Sciences (INFORMS)
Persistent URL: http://hdl.handle.net/1721.1/109224
Version: Author's final manuscript: final author's manuscript post peer review, without
publisher's formatting or copy editing
Terms of use: Creative Commons Attribution-Noncommercial-Share Alike
,Why Do Sales People Spend So Much Time Lobbying for Low Prices?
June 2013
Duncan Simester and Juanjuan Zhang
MIT Sloan School of Management
, Why Do Sales People Spend So Much Time Lobbying for Low Prices?
In business-to-business settings a company’s sales force often spends considerable time lobbying
internally for authorization to charge lower prices. These internal lobbying activities are time
consuming, and divert attention from other tasks, such as interacting with customers. We explain why
the sales force’s internal lobbying activities serve an important role. They help the firm elicit truthful
reporting of demand information from the sales force. As a result, it may be profitable for the firm to
require lobbying (and make the requirement onerous), even though lobbying is a nonproductive activity
that creates an additional administrative burden and imposes a deadweight loss.
Key words: lobbying, influence activities, sales force management, pricing, agency theory, incentives,
information elicitation, marketing-sales interface.
, § 1. Introduction
“I have gradually begun to appreciate that many account managers perceive that
it is easier to deal with the customer, compared to the difficulties of negotiating
with their own managers and colleagues to get things done on the customer’s
behalf. Many would argue that internal negotiation is the real crux of the job.”
Beth Rogers (2011 at page 82)
Studies of pricing practices in business-to-business settings often refer to the inefficiencies that
result from the sales force lobbying internally for lower prices. Crainer and Dearlove (2004 at
page 438) report that “more than 80 percent of all cases were ‘exceptions’ that required
internal negotiation between marketing and sales. These constant price negotiations wasted
considerable time.” Similar examples can be found in Sodhi and Sodhi (2007) and Dietmeyer
(2004). Notably, instead of banishing lobbying to reduce bureaucratic inefficiencies, many firms
appear to make the process intentionally onerous. We provide an explanation for why firms
choose not to banish lobbying and why these apparently nonproductive activities may
represent an equilibrium outcome.
The explanation recognizes that the sales force often has private information about the
strength of demand. However, if the firm lowers prices when the sales force reports demand is
low this may create an incentive for the sales force to understate demand, as it takes less effort
to convince customers to buy when prices are low. As a result, the firm must pay the sales
force information rents to admit when demand is high. Lobbying is a mechanism that the firm
can use to help mitigate these rents. It allows the firm to leverage the private information of
the sales force in the low demand condition to reduce the information rents it pays when
demand is high.
We model the requirement to lobby for low prices as a requirement to present evidence that
demand is low. If it is easier for the sales force to produce this evidence when demand truly is
low, then making this evidence a condition of approving a discount may be profitable for the
1|Page
