Reducing Product Expiration by Aligning Salesforce Incentives: A Data-driven Approach

Akkaş, Arzum; Sahoo, Nachiketa

doi:10.2139/ssrn.3040368

Cited by 6 publications

(8 citation statements)

References 8 publications

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“…Akkas et al. (2019) empirically investigate the drivers of product expiration in the consumer packaged goods industry, and Akkas and Saho (2020) focus on the impact of sales force compensation schemes on such expiration. Teller et al.…”

Section: Literature Reviewmentioning

confidence: 99%

Don't waste that free lettuce! Impact of BOGOF promotions on retail profit and food waste

Honhon

2023

Production and Operations Management

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Buy‐one‐get‐one‐free (BOGOF), a ubiquitous sales promotion scheme by which consumers get two items for the price of one, encourages consumers to buy and waste food. An alternative promotional scheme is one where consumers receive a coupon for a second item available for free at a later time. Our work is motivated by British supermarkets which, facing criticism from lawmakers for running BOGOF promotions on perishables, started a “BOGOF Later” campaign with the claim that it would reduce the amount of waste. Food waste is indeed a very pressing issue, which has not yet been explored in connection to sales promotions. We compare the impact of these promotion schemes on a retailer's profit as well as on the amount of product wasted at the retail and household levels. We consider two possible applications: unexpected high inventory of a fresh product with a short shelflife and excess leftover inventory for an item at the end of its season or product life. We propose a two‐period newsvendor model which captures the sales‐boosting effect of promotions, the postpromotion sales drop due to satiation, the coupon‐redemption behavior, and the increased consumer wastage rate from BOGOF promotions. We obtain analytical comparisons of order quantity, profit, and waste across the different promotion schemes and use numerical experiments to generate further insights. We find that, in general, BOGOF promotions are profitable ways to liquidate inventory. In many instances, the increase in waste at the consumers' homes is offset by the decrease in waste at the retail store. As a result, BOGOF promotions often constitute “win‐win propositions” by simultaneously increasing the retailer's profit and decreasing total waste. Overall, our results paint a more favorable picture of the BOGOF promotion scheme than commonly perceived and suggest that its environmental criticism emanates from a too narrow and too consumer‐centric view of the waste problem.

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Section: Literature Reviewmentioning

confidence: 99%

Don't waste that free lettuce! Impact of BOGOF promotions on retail profit and food waste

Honhon

2023

Production and Operations Management

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“…Much of the recent research on sustainable retail supply chains concerns the effect of retail operations on loss, and how retailers can benefit from implementing practices that minimize the amount of perishable goods that are either discounted, or discarded (Akkaş, 2019; Akkas et al, 2019; Akkas & Honhon, 2020; Akkaş & Sahoo, 2020; Broekmeulen & van Donselaar, 2019). Broekmeulen and van Donselaar (2019), for example, focus on two concepts, (1) the fresh‐case cover, or the multiplier over average daily demand reflected in each case size, and (2) the efficient frontier, or the minimum amount of availability required to meet demand without waste.…”

Section: Literature Reviewmentioning

confidence: 99%

“…In settings like this, individual initiative and incentive structures assume outsize importance. Akkaş and Sahoo (2020), for example, frame their analysis of salesforce compensation in terms of an agency model, in which the distributor is the principal, and the salesperson is the agent. When the salesforce is compensated based on sales, and not penalized for expired items, then the incentive to encourage waste is clear.…”

Section: Salesforce Experiencementioning

confidence: 99%

“…Finally, we contribute to a growing literature on supply chain sustainability and waste by documenting the importance of a range of managerial variables that can be modified to reduce loss in a single, two‐echelon supply chain and, by extension, may generalize to improve the sustainability of other perishable‐food supply chains (Akkaş, 2019; Akkas et al, 2019; Akkas & Honhon, 2020; Akkaş & Sahoo, 2020; Belavina, 2021).…”

Section: Introductionmentioning

confidence: 99%

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Inventory management and loss in beer retailing

Richards

Hamilton

2022

Agribusiness

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Food waste, or loss, at the wholesale and retail levels accounts for some 40% of the total amount of supply-chain waste.While zero waste is never optimal, there are managerial variables that contribute to the level of loss. In this paper, we use data from a large beverage distributor to estimate the most important causes of loss, and investigate which can be controlled in an economically-viable way. Controlling for a range of important environmental (uncontrollable) variables, we find that competitive pricing, case sets, assortment size, package size, and inefficiency are the most important determinants of loss. However, our most important finding highlights the importance of "discretion over rules" in inventory management as salesforce discretion in delivering less-than-ordered amounts is statistically important and one of the only ways management can directly influence supply-chain loss. Our findings contribute to the growing literature on food and beverage supply-chain sustainability, food loss and waste, and inventory management. As such, our findings are likely to be of interest to both managers in the food and beverage supply chain (manufacturers, distributors, and retailers) and policy makers interested in reducing food and beverage loss and improving food system sustainability.

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“…The OM literature has a large body of theoretical research in contracting and incentives, but has a few empirical studies using field data (Cachon, 2003). Notable exceptions include DeHoratius and Raman (2007) who use field data from a retailer to study the impact of incentives on store managers' effort allocation between sales and inventory shrinkage; Akkas and Sahoo (2020) who study how to reduce product waste by designing salesforce incentive scheme; and an emerging stream that examines the effects of contract design on operational performance (Chan et al, 2019;Guajardo et al, 2012;Guajardo, 2018). From a behavioral perspective, Li et al (2020) compared different types of compensation schemes for store managers using lab experiments.…”

Section: Production and Operations Managementmentioning

confidence: 99%

When do group incentives for retail store managers work?

Lee

Kesavan

Kuhnen

2022

Production and Operations Management

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Retail stores are geographically dispersed as a part of a multiunit organization. In such a setting, store managers play an important role in driving store performance. To motivate them to exert effort, retailers have provided group incentives for store managers. Using data from 75 stores of a U.S.‐based retail chain that changed its incentive plan for store managers from being purely dependent on store performance to being dependent upon both store and corporate performance, we investigate the effect of this change on store performance. We also examine the moderating role of geographical proximity among stores and past performance of the focal store. To establish a causality, we identify a control group from a matched store of another retail chain in the same industry and perform a difference‐in‐differences analysis. We find that making managers' bonus dependent on corporate goals has resulted in overall worsening of store performance. However, such an effect is contingent upon both geographical proximity among stores and past performance of the focal store. The impact of the incentive change on store performance is positively moderated by the increase in stores within close geographical proximity, while it is negatively moderated by the past performance of the focal store. This paper broadens our understanding of how incentives work in practice, and more importantly, documents how firms can design more effective incentive schemes for managers by considering relevant conditions, such as stores' geographical networks and their past performance.

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Reducing Product Expiration by Aligning Salesforce Incentives: A Data-driven Approach

Cited by 6 publications

References 8 publications

Don't waste that free lettuce! Impact of BOGOF promotions on retail profit and food waste

Don't waste that free lettuce! Impact of BOGOF promotions on retail profit and food waste

Inventory management and loss in beer retailing

When do group incentives for retail store managers work?

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