Friday, March 31, 2017

Things They Should Invent: outlaw commission

Originally I was writing a blog post about how commission-based compensation for various professionals involved in real estate transactions is a problem - it disincentivizes taking on first-time buyers of primary residences as clients (because we have less money to spend and need more hand-holding) and incentivizes taking on investors as clients (they have more money to spend, have less at stake because they don't actually live in the property, and are more likely to buy again soon). I was writing some half-formed ideas about whether this commission model might be encouraging sales to non-resident investors at the expense of regular people just trying to buy a home, especially first-time buyers.

But as I was writing this, I realized the problem is not limited to commission on real estate transactions.  The problem is commission on all sales.

I propose that it should be banned, and salespeople should be paid a salary instead (possibly with bonuses for excellent customer service.)

I'm not saying this from my point of view as a worker. (Although it certainly is a labour issue too!)  I'm saying this from my point of view as a consumer.

Even moderately experienced salespeople know far more about their products than I do. They know stuff like "If you can squeeze into a 10.5 in the Operetta shoe family but would prefer 11, then you're a 12 in the Miracles shoe family." or "If your primary motivation in looking at this $700 phone is that it has more storage, you should be aware that that $300 phone can accommodate an SD card."

But because they're incentivized to sell more rather than to provide excellent customer service, they might not want to share this expertise with us, and we might not know if we can trust the expertise they do share.

If salespeople weren't incentivized to sell more and instead were incentivized to best meet the customer's needs, then products that actually meet people's needs would sell better. Demand for products that meet needs would increase, demand for products that don't meet needs would decline, and the overall offer of products on the market would improve.

As consumers grow more confident that products they buy will meet their needs, they will grow less reluctant to shop. (I would buy so many more clothes if I knew they would work, and didn't have to keep trying on things that didn't work!) Insofar as there is disposable income, people will be happy to spend it. This will boost the economy, and make the market function more optimally.

If you ever buy things, you would benefit from the elimination of commission. If you want eliminate any consumer reluctance to shop, you should be in favour of eliminating commission. If you want the market to function as it should, with demand for things that meet consumer needs and no demand for things that don't, then you should be in favour of eliminating commission. If you're a company that produces excellent products and want your excellent products to outsell less-excellent products, you would benefit from the elimination of commission. If you're a salesperson who truly wants to use your expertise to help guide people to the right product for them and enjoy return business from happy customers, you would benefit from the elimination of commission.

Basically, unless your primary objective is to cheat, coerce and manipulate people into buying things they don't need, you would do better without commission.

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