The size of sales incentives

2023-02-01

2023-04-30

Number of relevant bookings (i.e., bookings for the specific target destinations), revenue

Number of passengers per booking, gross margin

We measure in a survey the owners’ and sales agents’ beliefs and perceptions about our travel company and its products and their booking behavior and strategy (e.g., bookings at other tour operators).

The experiment will be conducted with a leading travel company and tour operator in Germany. The firm sells its products online but also through a large number of mostly independently owned travel agencies. These travel agencies work together with several tour operators and the respective tour operators pay the agencies through commissions typically set once a year. Common commission payments are defined as percentages of sales (where typically percentages increase in the overall sales volume of an agency).

We study the effects of top-up payments made for bookings to specific target destinations. More importantly, we vary the size of the top-up payment that the agency owner receives.

More concretely, we compare the performance (as measured by revenue and the number of bookings) in a control group of unaffected agencies to three treatment groups where
(i) a top-up payment of 3 Euros for each passenger is paid to the agency (for every booking of at least 1,000 Euros to Egypt, Greece, Spain, or UAE),
(ii) a top-up payment of 6 Euros for each passenger is paid to the agency (for every booking of at least 1,000 Euros to Egypt, Greece, Spain, or UAE),
(iii) a top-up payment of 9 Euros for each passenger is paid to the agency (for every booking of at least 1,000 Euros to Egypt, Greece, Spain, or UAE).

We further study whether the top-up payments have an impact on the number of passengers per booking. Moreover, we conduct surveys within the agencies to measure, among other things, the owners’ and sales agents’ beliefs and perceptions about our travel company and its products and their booking behavior and strategy (e.g., bookings at other tour operators).

To understand underlying behavioral mechanisms we consider potential heterogenous treatment effects in several dimensions such as the agencies’ total number of past bookings at the study firm, their baseline commission levels paid by the study firm, the prior total number of bookings to the targeted destinations, the "tightness" with which the agencies are linked to other tour operators (e.g. because of competitors’ incentive contracts, ownership, long-term cooperation, premium access to competitors' products and services). We will also study heterogeneous treatment effects with respect to the existing incentives systems within the agencies (i.e., the incentives for employees implemented by the agency owner).

We conduct two other RCTs in collaboration with the travel company during the same time frame (see the respective pre-registrations for details on the other experiments). One of these RCTs studies whether better service quality affects the agencies' performance. The other one studies whether there is a difference between giving top-up payments to the agency owner or the team of agents (through travel vouchers). The control group that we use in the current RCT will also be used in the two other RCTs. Furthermore, treatment group (ii) will be used in the other RCT on top-up payments.

As described in the above, we run three RCTs with different research questions in the same time frame. As the three RCTs consist of altogether five different treatment arms (and the control group), we randomly assigned all target stores to one of six treatment groups. To do so, we ran a stratified randomization procedure using the randomize package in Stata. As the target group consists of agencies organized in six different chains, assignment was stratified by chain.

Store/Agency

No

We only include agencies with separate independent owners in the treatments (i.e., we do not include owners who own multiple agencies). Standard errors will therefore be clustered on the level of an agency which corresponds to clustering on the level of the owner.

In total, 1821 agencies were intended to participate in all trials we conduct in cooperation with the company. Although these travel agencies are mostly independent, they are part of larger buying syndicates. Our 1821 agencies belong to six different buying syndicates (e.g. chains). We drop in total 54 agencies from the trial, because they either have more than one owner (which would comprise non-independent observations) or the agencies are blocked for sales due to payment arrears. This leads us to a total number of 1767 valid observations for all trials. For this trial, we use 1262 observations and the remaining 505 are allocated to treatment groups of other trials.

254 sales agencies in treatment (i), 252 in treatment (ii), 250 in treatment (iii), 506 in control