Specialist Competitor Referrals: How Salespeople can Use Competitor Referrals for Nonfocal Products to Increase Focal Product Sales

Abstract

Intuition suggests that a salesperson should not refer consumers to a competitor for products that they both sell. However, myriad examples reveal salespeople doing just that. The authors study specialist competitor referrals, a sales strategy by which one increases consumers’ purchase likelihood of a focal product (e.g., a painting at an art gallery) by (1) referring consumers to a competitor (e.g., a frame warehouse store) that offers a nonfocal product (e.g., a frame) at a lower price, while (2) stating that the stores differ in their specializations (i.e., the stores concentrate their efforts on different goods). Using a study and survey with salespeople, experimental studies, an incentivized negotiation experiment, and a field study, the authors show that specialist competitor referrals can indeed benefit sellers. Specifically, they build on equity theory to show that specialist competitor referrals increase focal product sales by reducing consumers’ perceived overpayment risk for the focal product via increasing perceived equity in the exchange. The authors also show that competitor referrals for nonfocal products that do not justify the price difference on the nonfocal product are ineffective.

Why Prosocial Referral Incentives Work: The Interplay of Reputational Benefits and Action Costs

“…These patterns suggest that incentive architects may not have clear insights into the interplay of reputational benefits and action costs in this context. Future research could work to uncover the reasons why marketers do not accurately predict incentive dynamics in this and other related contexts (e.g., competitor referrals; Blanchard, Hada, Carlson 2018), providing both conceptual and practical insights about areas in which incentive design can be improved.…”

Horizontal Referrals in B2B Markets

“…Similar to the economics literature, Mayzlin and Yoganarasimhan (2012) build an analytical model and show that there are trade-offs in blogs’ referrals to other blogs (referrals promote readership, but referrals to better blogs can lead to loss of readers). In empirical research, Blanchard, Hada, and Carlson (2018) show that a salesperson giving a horizontal referral for a nonfocal product (e.g., bed frame) can increase sales of the focal product (e.g., mattress). As Table WA1 shows, horizontal referrals have not been studied extensively for existing relationships in B2B markets; hence we consider the literature that addresses suppliers’ behavior in B2B marketing relationships.…”

The future of buyer–seller interactions: a conceptual framework and research agenda

“…Using traditionally advocated competitive strategies such as starting from a really high offer to anchor the counteroffer might not be effective either, due to customer’s knowledge about the true value of a deal, and might lead to losing the deal. In general, with more powerful buyers, competitive negotiation strategies are proving less effective and might soon be replaced by more transparent, honest, and cooperative strategies such as the ones studied in recent research (Atefi et al, 2020 ; Blanchard et al, 2018 ; Mohan et al, 2020 ). Moreover, the powerful customer is driving the margins of the main interaction down, and hence sellers might pursue a different value proposition, as we allude to later in the paper.…”

“…As research on showrooming indicates, buyers may interact with sellers to extract information but purchase from another seller later (Kuksov & Liao, 2018 ). Interactions with sellers might have purely informational purposes, in which sellers’ honest provision of guidance and referral, even if it does not lead to an immediate purchase, might increase the likelihood of future business (Blanchard et al, 2018 ). Third, regarding ‘when’, buyer–seller interactions may occur at any time during the customer journey.…”

“…Representative negotiation research Summary of findings Increases in information symmetry → Roles, power, aspirations, and behavior Ahearne et al, (2019aAhearne et al, ( , 2019b, Atefi et al (2020), Ratchford et al (2003) and Zettelmeyer et al (2006) Product demonstration backfires to customers who already know what they want Increases in information symmetry creates an opportunity to build trust, as informed buyers can more easily verify the word of the salesperson and the information communicated to them during the interaction Salesperson's role in customer provision has changed since concealing information is no longer effective. Instead transparency might work better Customers are now more powerful, with more information on both the true value of a product as well as their other options; gives them more "walk away" power Challenging informed buyers more easily leads to losing them Informed customers drive the agreed-on price down, leaving less margin for the seller Increases in information symmetry → Buyer-seller interactional processes and outcomes Atefi et al (2020), Blanchard et al (2018) and Mohan et al (2020) Sellers' cost transparency with informed buyers captures their trust Bundling the negotiated product to add-on and aftermarket products or services offered by other profit centers within the firm that retain their information advantage can reduce the negative impact of negotiating with informed customers Unconventional strategies such as referrals to a competitor for non-focal products can earn customers' trust Baltes et al (2002), Daft and Lengel (1986), Dennis et al (2008Dennis et al ( , 2009, El-Shinnawy and Markus (1992), Galin et al (2007), Geiger (2014), Geiger and Parlamis (2014), Mehrabian (2017), Ophir et al (2009), Pinkley et al (1994), Purdy et al (2000), Thompson and Nadler (2002)…”