In business markets, marketing and sales functions often conflict over customer acquisition. Marketers are seen to complain 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 by the acquisition funnel? We investigate these questions using relatively novel sequential principal-agent models with risk averse agents where asymmetry of information exists regarding leads’ revenue potentials. The proposed framework captures relevant managerial features of acquisition funnels in business markets, i.e., marketing and sales efforts are often exerted by different agents, marketing efforts produce leads with different revenue potentials, and only the agent responsible for conversion efforts discovers which leads have a high versus low revenue potential. In this setting, the characterization of optimal incentives allows us to establish three key results. First, we find that the intuitive managerial recommendations such as compensating agents on “what matters” or “what they control,” may misallocate risks between the two functions resulting in conflicts. Second, we discover conditions under which the separation of the marketing and sales functions can be achieved without any loss of efficiency when leads are homogeneous. Third, in the case where leads are heterogeneous, we identify conditions under which functional integration is suboptimal despite the a priori benefits that could come with centralization.
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