Compensation, Ethical Sales Behavior and Customer Lifetime Value

Abstract

A salesperson’s ethical behavior plays a critical role in forming, maintaining and sustaining long-term customer relationships. Ethical sales behavior increases customer satisfaction, trust, loyalty and eventually enhances customer lifetime value (CLV). The CLV approach quantifies the potential monetary value of customers over their lifetime and builds linkages between ethical sales behavior and the financial performance of the organization. An ethical sales practice is one of the drivers influencing and enhancing CLV. An ethical climate of the organization can be reinforced by implementing an effective sales compensation plan. The purpose of effective sales compensation is to recognize the role fulfilled by salespeople to maximize CLV as a result of ethical sales behavior. The frameworks developed in this research illustrates how the compensation practices of an organization influence ethical sales efforts and also shows that what a salesperson does influences customer acquisition, customer retention and customer expansion in the form of cross-selling/up-selling, which in turn affects customers’ CLV or their profitability to the organization. This article also provides a methodology for CLV calculation and provides its key dimensions. The research identifies various drivers of unethical sales behavior, looks at the optimal design for the sales compensation plan and develops various models for enhancing ethical behavior of salespeople and ultimately CLV.