Persuasion and empathy in salesperson-customer interactions

I consider a setting where firms can ask their salespeople to spend time and effort persuading customers. The equilibrium often features heterogeneity, with some salespeople being asked to persuade customers while others are not. Persuasive messages can either increase or decrease welfare, with price and quantity data generally being insufficient to determine whether welfare rises or falls. If one supposes that salespeople with different levels of empathy sort themselves across different selling job, the cross-sectional correlation between a salesperson’s sales and his or her empathy, can be helpful in determining whether persuasion is good or bad for consumers. JEL: M31, D64, D83 ∗Harvard Business School, Soldiers Field, Boston, MA 02163, [email protected]. I wish to thank seminar participants at Boston University for helpful comments. Whether working in a retail establishment or making calls on the road, many salespeople seek to persuade people to buy the products they have on offer. Expenditure on the sales force thus bears some similarity with expenditure on advertising. There are enough differences between persuasive sales pitches and advertising, however, that the literature’s neglect of the former seems unwarranted. This paper focuses on the consequences of two of these differences, which can be thought of as variability and necessity. Because sales interactions are private, it is possible for customers to have very different experiences with salespeople. In practice, this appears to generate considerable variability in customer satisfaction with their sales encounters. Customers describe some as “delightful” while others are “terrible” (Arnold et al. 2005). Second, sales pitches often remain unavoidable, though the internet has provided an increasingly popular escape from them. In many instances, potential customers find it necessary to obtain crucial information (including price information) by interacting with a salesperson who is then in a position where he can force the potential buyer to listen to a persuasive message. The combination of variability and necessity gives sales pitches the opportunity to lower welfare in a manner that is not open to advertisements. As Becker and Murphy (1993) emphasize, most advertising messages are avoidable so that consumers do not become exposed to them unless their individual welfare is thereby increased. The result is that, within their framework, advertising reduces overall welfare only if it leads to substantial price increases. As they argue, the avoidability of advertising is consistent with the delivery of most advertising messages in media such as TV, radio and magazines where people are induced to hear these messages by the lure of enjoyable non-advertising content. Given that sales pitches are not avoidable, consumers are potentially subject to “terrible” For an overview of many persuasive methods used by salespeople, see Cialdini (2006). Interestingly, the unavoidability of some internet advertisements has generated complaints as well. Since these media outlets care about holding on to their audiences, they also prevent advertisers from using messages that these audiences would find particularly bothersome. Outdoor advertisement, while less avoidable, constitutes only a small fraction of total advertising expenditure (about 3.5% in the U.S. in 2005 according to ZenithOptimedia’s June 2012 Advertising Expenditure Forecasts). It too is subject to control and, perhaps in part for this reasons, does not seem to generate nearly as much distress as “terrible” shopping experiences.