Industrial Marketing Management 109 (2023) 232–244

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Industrial Marketing Management

journal homepage: www.elsevier.com/locate/indmarman

Choosing the discount size in the software industry: How to incentivise

the salesforce
Dominic Bergers a, Mahsa Ghaffari a, Giampaolo Viglia a, b, *, Raffaele Filieri c
a
Department of Strategy, Marketing and Innovation, University of Portsmouth, Portland Street, PO1 3DE, UK
b
Department of Economics and Political Science, Street Cappuccini 2, 11100 Aosta, Italy
c
Audencia Business School, Department of Marketing, 8 Route de La Jonelière, 44312 Nantes, France

A R T I C L E I N F O A B S T R A C T

Keywords: Despite the importance of pricing strategies in B2B sales, previous studies have devoted scarce attention to
Pricing discount strategies. Drawing on anchoring theory and employing a mixed-method sequential research design (i.
B2B sales e., two experiments and a qualitative study), we explore whether previous discount information (i.e., a reference
Status quo bias
discount) of a B2B salesperson influences the decision about the amount of discount granted to a new customer.
Anchoring effect
Reference price
We also examine the role of incentives in this relationship. The findings show the importance of reference dis­
Reference discount counts in determining the discount level given to a new customer. Specifically, salespeople's incentives reduce
this effect. Our qualitative efforts demonstrate that uncertainty reduction and self-interest are the main reasons
behind reliance on reference discounts and the efficacy of incentives, respectively. The findings of this research
highlight the consequential impacts of salespeople's past knowledge and monetary incentives on determining the
discount level.

1. Introduction previous discount information (i.e., a reference discount) on the decision

Humans often make decisions based on previous judgments, expe­
riences, and outcomes. Individuals rely on information stored in mem­
ory to avoid uncertainty (Kramer, 1999; Varadarajan, 2020). B2B
research has provided evidence that employees' future decisions depend
on previous ones (Furnham & Boo, 2011; Kahneman, Slovic, & Tversky,
1982; Klein & Oglethorpe, 1987; Samuelson & Zeckhauser, 1988).
Research on sales agents' pricing decisions shows that salespeople's
incentives (i.e., both monetary and non-monetary) influence the price
offered to new customers, which, in turn, impacts sales. Accordingly,
Kräkel and Schöttner (2020) and Lo, Dessein, Ghosh, and Lafontaine
(2016) found that sales incentives influence the discount rate granted to
customers. Despite the importance of price on business profitability
(Geiger & Hüffmeier, 2020), a discount given to customers is not always
rational nor in the best interest of the company. In fact, relying on
previous information in decision-making is not new (Bergers, 2022; Iyer,
Hong Xiao, Sharma, & Nicholson, 2015; Kidwell & Jewell, 2008).
However, discount levels should be driven by formulas based on sound
rationales and not merely predicated on rules of thumb (Shin, Sudhir, &
Yoon, 2012; Srinivasan, Pauwels, & Nijs, 2008).
Existing studies have not investigated the influence of salespersons'
about the amount of discount granted to a new customer considering the
effect of incentive schemes (i.e., monetary and non-monetary) in B2B
contexts. Therefore, adopting a scientific approach to discount decision-
making mechanisms seems imperative owing to the outsize managerial
implications an overplus discount can have. We therefore investigate
whether previous discount information of a B2B salesperson (i.e., a
reference discount) influences the subsequent discount decision for a
new customer.
In the software industry, product development comprises the ma­
jority of costs, with few additional expenses generated through pro­
duction and distribution (Herzwurm, Krams, & Pietsch, 2010; Hoisl,
2019), thus giving B2B salespeople wide negotiation latitude (Geiger,
2017). Within the negotiation process, price is one of the key factors in
securing a sale (Lo et al., 2016; Zoltners, 2006).
In pursuing our research, we first conducted a field experiment using
B2B salespeople in the software industry to explore the relationship
between a reference discount and the level of discount given to new
customers. Second, we examined the association between a reference
discount and the discount amount granted to new customers vis-a-vis
salespeople's monetary and non-monetary incentives. Third, a qualita­
tive study is used to shed light on the reasons behind salespeople

* Corresponding author at: Department of Strategy, Marketing and Innovation, University of Portsmouth, Portland Street, PO1 3DE, UK.
E-mail address: giampaolo.viglia@port.ac.uk (G. Viglia).

https://doi.org/10.1016/j.indmarman.2023.02.002
Received 1 August 2022; Received in revised form 29 January 2023; Accepted 9 February 2023
Available online 15 February 2023
0019-8501/© 2023 The Authors. Published by Elsevier Inc. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
D. Bergers et al.
discount decisions. This approach allows to provide confirmation (or
not) for the findings, increasing the possibility of actionable in­
terventions (Creswell & Creswell, 2022). Through several discussions
with practitioners working in software industry, it became evident that
they use previous discounts as a reference. For example, one of our in­
terviewees stated that he was negotiating with a new customer—car
manufacturer (A)—over a large contract. In doing so, he asked a
colleague for the discount that she had offered to an existing automotive
company (B), which was 34%. Our interviewee then ultimately set the
discount for A at 36%. It is therefore important to analyze systematically
if this a common practice in the industry and what are the mechanisms
and boundary conditions behind this reliance on previous discounts.
The findings revealed that (i) reference discounts affected the dis­
count level given to new customers; (ii) salespeople's experience influ­
enced the degree of reliance on reference discounts, such that more
(less) experienced B2B salespeople utilized a reference discount less
(more); and (iii) salespeople's incentives reduced the impact of a refer­
ence discount on the discount amount bestowed on new customers.
Moreover, our qualitative study demonstrated that salesperson uncer­
tainty reduction and self-interest were two main processes behind the
relationships described above.
Our contributions are twofold. First, the practice of using reference
discounts can negatively affect a firm's profitability. As our quantitative
work revealed, both a relatively low and a relatively high reference
discount lead to an increase in the amount of the discount granted to
new customers. To deal with this, one possibility is integrating a data-
based approach that predicates planning discount recommendations
using the data of all past sales transactions of the whole sales force.
Another option is having an approval discount process that serves as a
“devil's advocate” (Bergers & Fassnacht, 2017). Second, the role in­
centives play in the discount salespersons grant to customers can be
consequential. Specifically, compared to non-monetary incentives,
salespeople's monetary incentives lower the extent of reliance on a
reference discount via salespersons' self-interest. This finding un­
derscores the importance of using incentive management to augment
efficient pricing/discount strategies.
2. Literature review
2.1. Overview of relevant research streams
The importance of prior actions in current or future decisions is well
documented. According to the sociological theories of Luhmann (1977)
and Selznick (2015), individuals' past actions influence future decision
particularly when several options are available.
In psychological and behavioral economics research, this phenome­
non is referred to as “reference points,” “reference values,” or “anchors”
that affect the decision; these points of reference, though, may not even
be related or only marginally relevant to the circumstances of the de­
cision (Furnham & Boo, 2011; Kahneman et al., 1982; Klein & Ogle­
thorpe, 1987; Samuelson & Zeckhauser, 1988).
Table 1
Overview of relevant past anchor research streams in the sociology, behavioral economics, and marketing literature.
Research Stream Approach Author/s
Sociology Orientation of today's decisions Luhmann, 1968; Selznick,
based on past decisions 2015
Behavioral Orientation towards reference Kahneman, Knetsch, &
Economics values/ points or anchors Thaler, 1991
Kahneman & Tversky, 1979
Kahneman & Tversky, 1979
Marketing Orientation towards reference Biswas & Blair, 1991;
Management prices Lichtenstein et al., 1991
Industrial Marketing Management 109 (2023) 232–244
Pricing decisions have been explained via prospect theory (Kalya­
naram & Winer, 1995). Prospect theory postulates that in situations of
uncertainty and risk, individuals tend to weight more the risk of losing
than the benefit of gaining (Kahneman & Tversky, 1979). Drawing upon
prospect theory, Kalyanaram and Winer (1995, p. 161), developed the
concept of “reference price”, which is “an internal standard against
which observed prices are compared”. This comparison generates a gain
or a loss. Reference prices encompass prices of similar products, rec­
ommended prices stated on the packaging of products, prices depicted in
advertising, or prices that other people have reported (Biswas & Blair,
1991; Lichtenstein, Burton, & Karson, 1991). The term “reference price”
thus focuses mainly on the evaluation of absolute prices rather than on
discounts.
Table 1 presents how different disciplines have theorized the influ­
ence of a past anchor to future decisions.
2.2. Pricing in the software industry
The special cost structure of business software influences its pricing
and discounting strategy (Clement & Schreiber, 2013). The development
of the first software “unit” comprises high fixed costs. The investment
necessary for this unit's production is generally irretrievable and thus a
sunk cost (Shapiro & Varian, 1999). Each additional unit can be pro­
duced simply by copying its predecessor. A positive contribution margin
can be achieved even at low prices, owing to low unit variable costs. As
soon as fixed costs are fully covered, any additional revenue constitutes
profit (Clement & Schreiber, 2013). This situation differs from other
industries; for example, a discount of 3% in the retail industry could
eliminate any margin or even lead to a loss (D'Arcy, Norman, & Shan,
2012). Given this peculiar cost context, a software seller has a variety of
discount alternatives from which to choose, which provides B2B sales­
people wide latitude in negotiation.
2.3. Hypotheses development
2.3.1. Anchoring effect and status quo bias
We discuss how sellers are influenced by reference discounts, which
can be explained through the anchoring effect (Furnham & Boo, 2011;
Wegener, Petty, Blankenship, & Detweiler-Bedell, 2010) and the status
quo bias (Samuelson & Zeckhauser, 1988). According to Tversky and
Kahneman (1974), the anchoring effect in a pricing context occurs
subconsciously when people make purchase decisions and compare the
price of one product with the price of similar products on the shelf (e.g.,
the anchor set).
The anchor is a piece of information. In our case, it is a reference
discount that can be based on the extant circumstances, received from
another person, or discovered purely by chance, and can affect the as­
sessments of the situation resulting in a systematic distortion in the di­
rection of the anchor. For example, person A may be asked to estimate
the value of Da Vinci's Mona Lisa, and person B then comments, “Last
year, I was at an auction, and the painting cost up to 1.5 million euro.”
Findings
Time constraints make the complexity of most the people's decisions incomprehensible. The
more complex options are, the more such decisions are influenced by the past.
People prefer to behave as they did in the past, even if circumstances influencing their
decisions have changed.
An alternative action's utility is measured by variations compared to a reference point/
reference value and perceived as a gain or a loss in relation to this point/value.
When making decisions relying on previously encountered numerical values, people are
influenced by current environmental information, so-called “anchors”, without being aware
of this influence.
A reference price is a price that the customer uses as a benchmark when evaluating other
prices. It is formed based on observed prices in the purchase environment or based on price
concepts stored in people's memory.
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D. Bergers et al.
Then, according to anchoring theory, person A would orient the esti­
mation towards the 1.5 million euro range.
In practice, the anchoring effect often occurs when decisions are
made in relation to numerical values, such as reference discounts. An­
chors or reference discounts provide a starting point for the thought
process needed for a justified judgment about the current discount, thus
resulting in a distortion in the direction of the reference discount
(Gilovich, Griffin, & Kahneman, 2013).
This concept is echoed by Samuelson and Zeckhauser (1988) in the
form of the status quo bias. For example, when different software is sold
to an existing customer, a status quo exists in the form of a previously
given discount (i.e., a reference discount) to this customer. According to
these authors, the seller can be influenced by this situation and will, in
most cases, not undertake any action to change it. As such, the sales­
person will continue to prefer the reference discount (i.e., status quo) for
this particular customer rather than try to modify it.
Both the anchoring effect and the status quo bias can be explained
using prospect theory (Kahneman & Tversky, 1979). Prospect theory
suggests that people tend to regard potential losses as higher than po­
tential gains. Therefore, potential losses due to deviations from the
current choice (i.e., a reference discount or status quo) are weighted
more heavily than potential gains. As such, B2B salespeople prefer not to
alter the discount levels, hence relying on the previous discounts.
Accordingly, we hypothesize the following:
Hypothesis 1. When a salesperson determines the price for a given
customer, the level of a former (i.e., reference) discount positively in­
fluences the discount offered to that customer. Shown in Fig. 1 is an
illustration of the first hypothesis.
2.3.2. Salesperson incentives
In addition to reference discounts, incentives can play a role in
setting the discount level. Incentives are generally perceived to produce
self-interest when making a decision (Widmier, 2002). Self-interest is a
fundamental motive behind human behavior and, thus, has been widely
investigated (e.g., Blois, 2005; Miller, 1999; Munksgaard & Medlin,
2014; Rocha & Ghoshal, 2006). Researchers have found that the
perceived return and time cost are factors determining to what degree a
person acts on zir self-interest with respect to the importance of eco­
nomic activities (Young, Borgida, Sullivan, & Aldrich, 1987).
Moreover, empiricism has discerned that self-interest influences
“information processing, such that perceivers exert more effort when
evaluating messages and pay closer attention to the content of argu­
ments” (Kim, 2014, p. 101). Accordingly, sales incentives indirectly
mitigate the tendency to use the status quo (i.e., a reference discount), as
they increase the amount of attention and time spent making the current
discount decision. Dean, Kıbrıs, and Masatlioglu (2017) argued that a
key driver of an individual's preference for the status quo is whether zie
evaluates alternatives poorly. Given that a reference discount's influence
may arise from a poor assessment of alternatives, when determining a
discount for new customers, self-interest—in the form of sales incenti­
ves—could induce sales personnel to undertake more in-depth analyses
of discount levels. Thus, we propose the following:
Hypothesis 2. When determining the discount for a given customer,
reference discounts will influence salespeople less when they receive a
sales incentive that affects the outcome of their decision.
Fig. 1. Graphic of Hypothesis 1.
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Industrial Marketing Management 109 (2023) 232–244
Traditionally, monetary incentives have long been considered the
most potent influence on employee performance and other desired
outcomes (Baker, Jensen, & Murphy, 1988; Jenkins Jr., Mitra, Gupta, &
Shaw, 1998; Locke, Feren, McCaleb, Shaw, & Denny, 1980; Locke,
Shaw, Saari, & Latham, 1981; Skaggs, Dickinson, & O'Connor, 1991).
However, since the 1990s, numerous companies have embraced non-
monetary rewards (Incentive Research Foundation, 2017) as impor­
tant performance reinforcers. Scholarly work has supported that
movement. For instance, Bradler, Dur, Neckermann, and Non (2016)
and Kosfeld and Neckermann (2011) discerned that public recognition
positively influences work effort. A primary reason behind these find­
ings was that public social recognition motivated salespeople (Bandura,
1986; Haynes, Pine, & Fitch, 1982; Markham, Scott, & Mckee, 2002;
Stajkovic & Luthans, 2003).
As Stajkovic and Luthans (2003) found, however, social recognition
and feedback (i.e., two kinds of non-monetary incentives) increased
performance by 17% and 10%, respectively, but monetary incentives
augmented performance by 23%. These findings are consistent with
those obtained in other studies (Gerhart & Milkovich, 1990; Gupta &
Shaw, 1998; Lawler, 1981, 1990; Stajkovic & Luthans, 2003), thus
underscoring how monetary rewards can improve performance more
than other type of rewards.
As Biglaiser and Mezzetti (1997), Dewan & Hortala-Vallve, 2023,
Hermalin (1993), and Holmstrom and Costa (1986) found, the possible
public social recognition of non-monetary incentives leads to risk-averse
decision making. In our case, choosing the status quo (i.e., the reference
discount) lowered the perceived risk and the chances of blaming the
salesperson for the negative consequences of the decision. In other
words, the self-interest effect of the incentive still existed, but it was
likely to be weaker with non-monetary incentives compared to mone­
tary ones.
Kube, Maréchal, and Puppe (2012) investigated whether employees
preferred a monetary or a non-monetary payment if both had the same
value and the value of the non-monetary one was openly communicated
to the participant. Eighty percent of the participants chose money.
Waldfogel (1993) observed that a non-monetary reward was perceived
to be between 1/10 and 1/3 lower in value than it actually was. How­
ever, Prendergast and Stole (2001) argued that when the recipient's
preferences were well known, non-monetary benefits were perceived as
possessing higher value than monetary ones. Accordingly, B2B sales
managers ideally need to know each of their salespeople sufficiently so
that they can select appropriate non-monetary benefits for them. Kaplan
and Ruffle (2009) averred, though, that this was not usually the case.
Consequently, individuals tend to receive a non-monetary reward with a
lower perceived value than the same value in money. For non-monetary
incentives, exchanging them for money is virtually impossible, as doing
so would require the salesperson's effort, which further decreases the
perceived value of the reward. Thus, we posit the following:
Hypothesis 3. When determining the discount for a given customer,
the reference discount is less likely to influence salespeople's discount
decision when receiving a non-monetary incentive in relation to the
outcome of their decision. However, this effect is weaker than when they
receive a monetary incentive.
Shown in Fig. 2 is an illustration of the two foregoing moderation
hypotheses.
D. Bergers et al. Industrial Marketing Management 109 (2023) 232–244

Fig. 2. Graphic of Hypothesis 2 and 3.

3. Experimental studies
Table 2
Descriptive Statistics of the Chosen Discount.
3.1. Study 1
Mean Standard 95% CI Total
Deviation (N)
Study 1 explored how salespeople's previous discount decisions (i.e.,
reference discounts) influence their determination of discounts for new Lower Upper
Bound Bound
customers. We used the market research platform CINT with US par­
ticipants only. Only sales personnel were asked to participate in the Non-Existent 3.07 6.210 0.71 5.43 29
study. A filtering question in the experiment was asked to eliminate non- Existent and 7.93 1.631 7.30 8.56 28
Low
salespeople in the industry: “Are you working in B2B sales and have
Existent and 25.55 6.528 23.07 28.03 29
power about discounting decisions?” Any participant clicking “no” was High
omitted from the analyses. 86 B2B salespeople were recruited. Fifty-
eight percent of participants were male, and the majority were full-
time employees (97.7%), between 25 and 34 years old (59.3%), and discount group. The level of discount was significantly different from
earned between $50,000 and $99,999 per year. Almost all had a bach­ zero in all categories.
elor's (81.4%) or a master's degree (18.6%). Shown in Fig. 3 is a summary of the means and confidence intervals
Participants were randomly assigned to three groups. In two of three for the chosen discounts for each of the three levels of reference
cases, they were informed about a reference discount. In one of these discount.
two scenarios, the reference discount had a relatively low value (8%); in To test H1, we compared the mean discounts across the reference
the other, a relatively high value (26%). We adopted these discount discount groups (non-existent, existent and low, and existent and high)
thresholds from established literature (Di Domenico, Premazzi, & using a one-way ANOVA. According to Levene's test, the assumption of
Cugini, 2022). Participants were asked to put themselves in the position equal variances between groups was rejected (F[2,83] = 3.357, p =
of a B2B software salesperson facing a pricing decision: 0.04), which is why we adopted Welch's test, as it does not assume equal
variances. According to this robust test of means, the null hypothesis of
Imagine Carrefour, a leading supermarket chain, is searching for a new equal means was rejected (F[2, 41.9] =109.9, p < 0.001). Tamhane's test
Human Resources Software to manage their recruiting process for new was chosen for post-hoc pairwise comparisons as a conservative test in
employees. The customer now wants to know what discount you will give the presence of non-homogeneous variances across groups. All pairwise
if it chooses your software. Because the variable costs of the software are
very low, you have a lot of freedom in choosing a discount level.
[+ additional information regarding the reference discount, if applicable]
Group 2 and 3 participants received one additional piece of
information:
Last year, another of your retail customers bought the same software. You
do not remember the specific case anymore, but you remember that it
received a discount of 8%. (low reference discount; high = 26%).
Participants were then asked to select the discount size. They were
allowed to enter any percentage between 0 and 100. This led to many
decision possibilities from which to choose, reflecting the complexity of
software sales practice compared to discrete choices (Samuelson &
Zeckhauser, 1988).

3.1.1. Results
Presented in Table 2 are the means and standard deviations of the
chosen discounts with respect to their reference category (i.e., non-
existent, existent and low, and existent and high). The sample mean
was the highest (25.55) in the existent and high reference discount
group. The standard deviation was the lowest for the low reference Fig. 3. Error Bar Plot: Chosen Discount Mean (With 95% CI).

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D. Bergers et al. Industrial Marketing Management 109 (2023) 232–244

differences were significant (p < 0.05; Table 3) and had the expected [+ additional information regarding the reference discount, if applicable]
sign and magnitude. On average, those with an existent and low dis­ [+ additional information regarding the sales incentive]
count chose a 4.860 percentage point larger discount than those without
Groups 5–12 with a high or low reference discount received one
any reference discount. Those with an existing high discount, on
additional piece of information:
average, selected a 17.623 percentage point larger discount than those
from the existent and low group. Your colleague is an account executive assigned to another premium car
manufacturer, BMW. This customer bought the same finance software
3.2. Study 2 last year and received a discount of 25% (low reference discount; high =
86%).
Study 2 replicated Study 1 by exploring how salespeople's previous
Furthermore, all groups received one additional piece of information
discount decisions (i.e., reference discounts) influenced their determi­
regarding their sales incentive. The non-monetary incentive set (group 4,
nation of the amount of a discount for new customers. Additionally, it
8, and 12) read the following:
examined whether the strength of the effect of reference discounts
changed depending on the design of the sales incentive program. Please also take into account that you will receive a company car if you
A 3 (non-existent vs low vs high discount) x 2 (incentive vs no are a successful sales employee with the highest revenues for the company.
incentive) x 2 (monetary vs non-monetary incentive) experimental
The monetary incentive set (group 3, 7, and 11) perused the
design was employed (Fig. 4). In total, 569 B2B participants participated
following:
in the study, all of whom worked in B2B sales in various industries. Of
these participants, 59% were male. Additionally, 87.5% were full-time Please also take into account that you will receive a commission or a
employees; 6.5%, self-employed; and 5.6%, part-time employees. monetary bonus if you are a successful sales employee with the highest
Almost 90% had a bachelor's (58.5%) or master's (31.3%) degree; 2.6% revenues for the company.
held a PhD. Five percent earned under $25,000 per year; 33.2%, be­
Participants were then asked to select the discount size.
tween $25,000 and $50,000; 39.2%, $50,001 and $100,000; 11.6%,
$100,001 and $250,000; and 10%, over $250,000.
3.2.1. Results
Participants assumed the role of a B2B software sales agent receiving
Presented in Fig. 5 is a summary of the means and confidence in­
certain incentives. In two of three cases, they were informed about a
tervals for the chosen discounts for each of the twelve groups. The
reference discount. In one of these two scenarios, the reference discount
confidence interval for the existent and high group was always signifi­
had a lower value (25%); in the other, a higher value (86%). Because
cantly higher on the vertical axis than in the other two groups. At the
there was already support for H1 in our first study, we used Study 2 for a
same time, the presence of an incentive reduced the difference between
variation in the relatively low/high discount levels to test if the main
the existent and high group and the other two groups (p < 0.01).
effect was robust under different discount conditions. The value of 86%
Presented in Table 5 are the means and standard deviations of the
was chosen because 98% is the highest possible discount that can be
chosen discounts. Sample means were the highest in the existent and
granted in the software industry without leading to accounting issues
high reference discount group, regardless of the kind of sales incentive
(the so-called “fair value”) (Wüstemann & Wüstemann, 2014). More­
provided (p < 0.01). The chosen discount was not only the highest in the
over, as explained earlier, such high discounts are frequently granted in
case of the existent and high reference discount, but it was also the most
B2B software sales. The low reference value (25%) was 2/8 of the
homogeneous, as indicated by the lowest ratio of the standard deviation
maximum (i.e., 98%) discount value; the high reference value (86%)
to mean. When the reference discount was existent but low, the mean
was 7/8 of the maximum discount value.
chosen discount remained significantly higher than that of the no
Shown in Table 4 are the twelve groups to which participants were
reference discount condition (p < 0.01). However, the difference be­
randomly assigned. Participants were asked to imagine that they were in
tween the existent and low and no reference discount conditions was less
the position of a B2B software salesperson facing the following pricing
pronounced under monetary and non-monetary incentives (p = n.s.).
decision:
The mean discounts across the reference discount groups (i.e., non-
existent, existent and low, and existent and high) were compared
Imagine you are an account executive working in the sales department of
using a one-way ANOVA. According to Levene's test, the assumption of
a large software company managing customers in the automotive in­
equal variances between groups was rejected (F[2566] = 48.4, p <
dustry. You have already had several workshops with your customer,
0.001), which is why we used Welch's test not assuming equal variances.
AUDI, because AUDI has been searching for a new finance software so­
According to this robust test of means, the null hypothesis of equal
lution. AUDI now wants to know what discount you will give if it chooses
means was rejected (F[2363] = 4 41.3, p < 0.001). Tamhane's test was
your software. Because the variable costs of your software are very low,
chosen for post-hoc pairwise comparisons as a conservative test in the
you have a lot of freedom in choosing the discount amount.
presence of non-homogeneous variances across groups. All pairwise
differences were significant (p < 0.001; Table 6) and had the expected
Table 3 sign and magnitude. On average, those with an existent and low dis­
Post-Hoc Multiple Comparisons Based on Tamhane's T2 Test. count chose an 11.082 percentage point larger discount than those
Group 1 Group 2 Mean Std. Sig. 95% CI without any reference discount. On average, those with a high existing
Difference Error discount chose a 37.886 percentage point larger discount than those
Lower Upper
(Group 1 –
Bound Bound with an existent and low discount.
Group 2)
To test H2 and H3, a two-way ANOVA was conducted using a series
Existent Non- 4.860* 1.194 0.001 1.85 7.87
of OLS regressions with heteroscedasticity-robust standard errors with
and Existent
Low the chosen discount as the dependent variable. The reference discount (i.
Existent Non- 22.483* 1.673 0.000 18.36 26.60 e., a three-level factor variable), sales incentive (i.e., a two-level factor
and Existent variable), and their interactions were used as regressors in each model.
High As shown in Table 7, both main effects and the interaction term were
Existent Existent 17.623* 1.251 0.000 14.47 20.78
statistically significant (p < 0.05). This inferred that the use of a sales
and and Low
High incentive (i.e., no incentive vs. incentive) moderated the relationship
between the reference discount and the chosen discount.
Note. *The mean difference is significant at the 0.05 level.

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D. Bergers et al. Industrial Marketing Management 109 (2023) 232–244

H2: - H3: --

H1: +

Fig. 4. Model of the Experimental Design.

Table 4
Existence and Size of Reference Discount and Type of Sales Incentive per Participant Group.
Reference Discount in Software Sales Scenario

Non-Existent Existent and Relatively High (ref. discount = 86%) Existent and Relatively Low (ref. discount = 25%)

Sales Incentive Incentive Group 1 Group 5 Group 9

No Incentive Group 2 Group 6 Group 10
Monetary Incentive Group 3 Group 7 Group 11
Non-Monetary Incentive Group 4 Group 8 Group 12

Fig. 5. Error Bar Plot: Mean Chosen Discount (With 95% CI) for all Levels of the Sales Incentive Factor (Incentive/No-Incentive) and the Reference Discount.

According to an analysis of marginal means (Table 8), the mean
chosen discount was not significantly different in the presence and
absence of a sales incentive under the no- and low-reference discount
conditions. However, the absence of an incentive significantly (p =
0.039) increased the mean chosen discount by 14.74 percentage points
(Fig. 6). These findings supported H2 by confirming that the absence of a
sales incentive led respondents to choose a higher discount, but only
when the reference discount was high.
To test H3, we compared the subset having two levels of sales
incentives—monetary versus non-monetary incentives. As shown in
Table 9, both the main effect and the interaction term were statistically
significant (p < 0.05). This implied that a sales incentive (i.e., monetary
vs. non-monetary incentive) moderated the relationship between the
reference discount and the chosen discount.
As per the analysis of marginal means (Table 10), the mean chosen
discount between a monetary and non-monetary incentive was not
significantly different for the reference categories of no reference and
low reference discount. Moreover, the monetary incentive was signifi­
cantly associated with the higher mean chosen discount (p = 0.000), a
20.143 percentage point difference. These results are graphically plotted
using error bar plots. As illustrated in Fig. 7, the bars for the non-existent
and low reference discounts were at about the same level under both
sales' incentive conditions—monetary and non-monetary. However, the
two error bars for the high reference discount condition were located at
different levels. In line with H3, monetary sales incentives induced a
higher discount compared to non-monetary sales incentives, but only
when the reference discount was high.

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D. Bergers et al. Industrial Marketing Management 109 (2023) 232–244

Table 5 4.1. Method

Means and Standard Deviations of the Chosen Discount for Each Group of
Subjects. We conducted semi-structured interviews with 20 B2B salespeople.
No Reference Existent and Low (B) Existent and High The interviews were conducted online and lasted for an average of thirty
Discount (A) (C) minutes. The semi-structured interview approach allowed interviewees
Mean Standard Mean Standard Mean Standard to describe the reasons behind the findings from the quantitative study
Deviation Deviation Deviation (Gioia, Corley, & Hamilton, 2013).
Incentive 6.09 3.70 19.52 8.35 58.03 11.84
A AB 4.1.1. Sampling procedure and sample characteristics
No 7.66 9.27 23.71 7.37 72.77 25.21 Based on purposive sampling (Corbin & Strauss, 2008), we recruited
Incentive A AB salespeople working in the B2B software industry with a minimum of
Monetary 7.28 11.78 13.68 4.46 42.91 15.60
Incentive AB
three years of sales experience. Potential respondents were identified
Non- 8.90 15.79 15.07 8.06 54.70 13.78 through an alumni network of a sales trainee program. We stopped
monetary AB sampling after arriving at a theoretical saturation (Corbin & Strauss,
Incentive 2008).
Note. Results are based on two-sided tests assuming equal variances. For each Interviewees, both female and male, had between three and twenty-
significant pair, the key of the smaller category appears in the category with the six years of industry sales experience, with a median of eight years. All
larger mean. Tests were adjusted for all pairwise comparisons within a row of were employed in a software company having over 10 billion Euros in
each inner-most sub-table using the Bonferroni correction. annual revenue. The details of the sample are presented in Appendix A.

4.1.2. Analysis and procedure

Table 6 We created an interview guide (Appendix B) to verify the findings of
Post-Hoc Multiple Comparisons Based on Tamhane's T2 Test.
our previous experiments in the actual context of interest. We also
Group 1 Group 2 Mean Std. Sig. 95% CI wanted to understand the underlying reasons behind the use of a
Difference Error
Lower Upper reference discount, as well as the role of incentives in setting the amount
(Group 1 –
Group 2)
Bound Bound of the discount (Miles & Huberman, 1994). Following an intervention
approach (see Creswell & Creswell, 2022), we began with general
Existent Non- 11.082* 1.076 0.000 8.50 13.66
questions and then became more specific with each additional question
and Existent
Low focusing on the findings of our quantitative work. Generally, the inter­
Existent Non- 48.968* 1.647 0.000 45.01 52.92 view guide was only used as a starting point for an open discussion with
and Existent the interviewees. This conversation led to future and not previously
High
planned interview questions. The interview was conducted by the first
Existent Existent 37.886* 1.601 0.000 34.04 41.73
and and Low
author in English or German. The transcripts of the German interviews
High were translated into English and back-translated to ensure the accuracy
of the source before further examination.
Note. *The mean difference is significant at the 0.05 level.
Similar to other grounded theory approaches, the first author began
a systematic analysis by using open coding and sought similarities and
Table 7 differences in the data (Corbin & Strauss, 2015) to arrive at findings that
Tests of Model Effects (H2). went beyond the obvious (Williams & Moser, 2019). Subsequently, this
information was shared and discussed with the rest of the authors, and
Wald Chi-Square df Sig.
axial and selective coding was used to find theoretically informed
(Intercept) 1133.590 1 0.000 themes. After extensive discussion and iteration between the data and
Sales Incentive 13.517 1 0.000
Reference Discount 555.750 2 0.000
the literature, we found uncertainty reduction as the main process
Sales Incentive * Reference Discount 6.721 2 0.035 behind adopting reference discounts and self-interest due to incentives a
pivotal motivation that could reduce this adoption.
Notes. Dependent Variable: Chosen Discount; Model: (Intercept), Sales Incentive,
Reference Discount, Sales Incentive * Reference Discount.
4.2. Findings

4. Qualitative study
Our interviewees declared that the highest discount level that they
had granted or seen another salesperson give was between 80% and
We adopted a sequential explanatory study (Harrison, 2013) to find
98%, with a median of 92%. The average discount was between 12.5%
additional support for the findings of our quantitative studies. Doing so
and 30%.
would enhance understanding of the role of a reference discount in
determining the discount level given to new customers and the impact of
incentives on this relationship.

Table 8
Post-Hoc Comparisons of Marginal Means (H2).
Group 1 Group 2 Mean Difference (Group 1 & 2) Std. Error Bonferroni Sig. 95% Wald Confidence
Interval for Difference

Lower Upper

No Incentive*No Reference Discount Incentive*No Reference Discount 1.57 1.670 1.000 − 3.34 6.47
No Incentive*Low Reference Discount Incentive*Low Reference Discount 4.20 2.087 0.666 − 1.93 10.32
No Incentive*High Reference Discount Incentive*High Reference Discount 14.74* 4.895 0.039 0.38 29.11

Notes. *The mean difference is significant at the 0.05 level. Tests of model effects (H2).

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D. Bergers et al. Industrial Marketing Management 109 (2023) 232–244

Fig. 6. Error Bar Plot: Mean Chosen Discount (With 95% CI) for Two Levels of the Sales Incentive Factor (Incentive/No-Incentive) and the Reference Discount (H2).

“Before I set a price, I look at how much of a discount was given in

Table 9
the past. Some customers were quite spoiled by former high discounts”
Tests of Model Effects (H3).
(Interviewee #2).
Wald Chi-Square df Sig.
Interviewees believed that the nature of software pricing is very
(Intercept) 763.208 1 0.000
Sales Incentive 21.143 1 0.000
complex and requires consideration of many variables when arriving at
Reference Discount 246.301 2 0.000 the discount level. This creates a high level of uncertainty in which the
Sales Incentive * Reference Discount 12.574 2 0.000 discount decision is made. Hence, reliance on reference discounts was
Note. Dependent Variable: Chosen Discount; Model: (Intercept), Sales Incentive, used to reduce this uncertainty, which echoed Berger and Calabrese
Reference Discount, Sales Incentive * Reference Discount. (1975) theory of uncertainty reduction.
“When deciding about discount levels, you have to consider—at the same
“There are large software bundle contracts where I have seen a 98% time—the budget, the customer, the value of the software for this specific
discount—especially when the business year comes to an end…an customer, and so on. Most of this complex information creates high
average discount is maybe 20 percent” (Interviewee #11). uncertainty. Maybe this is the reason why we often tend to orient to
The vast majority of participants stated that they used reference information that is more certain—like from previous successful
points as guidance. Earlier discounts for other software products for the deals” (Interviewee #8).
same customer were mentioned, followed by discounts given by col­ Another finding was the relationship between the experience of B2B
leagues for the same product to similar customers. salespeople and their reliance on reference discounts reduced uncer­
“When it comes to discounts, many factors are important. For example, is tainty. Compared to senior interviewees, junior interviewees repeatedly
there a price that my predecessors may have already set for a mentioned the need to avoid uncertainty and thus make greater use of
different product for the same customer?….Of course, I always talk to reference discounts. Accordingly, interviewees utilized reference dis­
the Sales Specialist for the respective product and orient myself on that” counts to gain credibility, which was essential for the competitive
(Interviewee #1). market in which they worked (Wilden, Gudergan, & Lings, 2010).

Table 10
Post-Hoc Comparisons of Marginal Means (H3).
Group 1 Group 2 Mean Difference (Group 1- Std. Bonferroni 95% Wald
Group 2) Error Sig. Confidence Interval
for Difference

Lower Upper

Non-Monetary Incentive*No Reference Monetary Incentive*No Reference − 1.852 3.233 1.000 − 11.465 7.762
Discount Discount
Non-Monetary Incentive*Low Reference Monetary Incentive*Low Reference 7.212 3.343 0.485 − 2.731 17.154
Discount Discount
Non-Monetary Incentive*High Reference Monetary Incentive*High Reference 20.143* 3.022 0.000 11.156 29.131
Discount Discount

Note. *The mean difference is significant at the 0.05 level.

239
D. Bergers et al.
Fig. 7. Error Bar Plot: Mean Chosen Discount (With 95% CI) for Two Levels of the Sales Incentive (Non-Monetary/Monetary) and the Reference Discount (H3).
“My professional experience has played a major role in the extent to
which I followed previous discounts. At the beginning of my career, I
was even more reliant on referent discounts” (Interviewee #12).
When interviewees received incentives, they manifested higher self-
interest in a deal. Therefore, rather than merely relying on a reference
discount, they were willing to invest more time in undertaking detailed
scrutiny of the various variables to discern the discount level for new
customers. In other words, interviewees, when receiving incentives,
took more risks and accepted the uncertain nature of their work (Lazear,
2018).
“When I am thinking of my variable compensation, I am thinking of
whether the deal is worth my time or not…Overall, this results in lower
discounts and a higher absolute price…I definitely spend more time
rationally thinking about a discount when my incentive for the deal
is bigger…An incentive trip is certainly a motivator, but first of all I look
at my annual bonus” (Interviewee #19).
5. Discussion
Through a sequential mixed-method study (Harrison, 2013; Hossain,
Akter, Kattiyapornpong, & Dwivedi, 2020; Osman, D'Acunto, & Johns,
2019), we investigate the extent of discounts used in the software in­
dustry and explaine the factors affecting it. Our first experiment reveals
the main direct effect of reference discounts on determining the discount
amount for new customers. This finding aligns with previous work
describing how people refer to past decisions when making current or
future decisions (Bergers, 2022; Iyer et al., 2015; Kidwell & Jewell,
2008).
As found, if a reference discount does not exist, the discount given to
a new customer is comparably low, hence implying that reference dis­
counts increase the discount granted. This will likely contribute to a
significant reduction in profit (Simon & Fassnacht, 2019). Thus, reliance
on reference discounts needs to be monitored and managed regularly
and with circumspection.
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Industrial Marketing Management 109 (2023) 232–244
When one makes a complex decision with several options
available—as in the software context here—a person's past actions in­
fluence the decision. This echoes the sociological views of Luhmann
(1977) and Selznick (2015), as well as the psychological and behavioral
economics research discussed in the literature review (e.g., Kahneman &
Tversky, 1979; Lichtenstein et al., 1991). Reliance on a referent discount
is explained because of the high level of risk attached to making an
incorrect decision (Baker, Marn, & Zawada, 2010; Eugster, Kakkar, &
Roegner, 2000; Krishnamurthy, Johansson, & Schlissberg, 2003).
The foregoing pricing approach can be the main reason why a firm
incurs a loss (Biraglia, Bowen, Gerrath, & Musarra, 2022). There are
three drivers of profit: sales volume, costs, and price. Price is by far the
strongest one, as a 1 % price increase can result in an increase in profit
by an average of 11.1% (Simon & Fassnacht, 2019). When making
incorrect pricing decisions, the negative impact on profit is just as
important as when a firm experiences an increase in sales volume (Bij­
molt, van Heerde, & Pieters, 2005; Marn & Rosiello, 1993; Sethuraman,
Tellis, & Briesch, 2011).
Anchoring explains our findins regarding the use of reference dis­
counts (Furnham & Boo, 2011). Research has shown that anchoring is
approproate in many decision-making situations, e.g., probability esti­
mates (Chapman & Johnson, 1999; Plous, 1989), legal judgments
(Englich, 2006; Englich & Soder, 2009; Enough & Mussweiler, 2001),
purchasing decisions (Mussweiler, 2001), forecasting (Critcher & Gilo­
vich, 2008), negotiations (Galinsky & Mussweiler, 2001), and self-
efficiency (Cervone & Peake, 1986).
We find that salesperson experience influences the level of reliance
on reference discounts. In particular, the more experienced B2B sales­
people use reference discounts less than did their junior counterparts.
This is contrary to the findings of Northcraft and Neale (1987), who
observe that the anchoring effect equally affects both amateurs and
experts in a real estate market context. Hence, the nature of the market
(i.e., software industry here) plays a role in the decisions made by in­
dividuals in a given market.
Our qualitative study explores the reasons behind the foregoing
D. Bergers et al.
relationship and discernes it to be a function of uncertainty reduction.
Individuals working in uncertain situations use reference discounts to
minimize the risk attached to their decision. This is in line with uncer­
tainty reduction theory (Berger & Calabrese, 1975). This risk-averse
nature translates into a reliance on reference discounts, which can
impair company profitability. Sales interviewees support the idea that
the use of sales incentives does not lead to a reliance on reference dis­
counts, thus conceivably engendering enhanced company profit. Also,
according to interviewees, not relying on reference discounts is consis­
tent with a reduction in the discount and, therefore, a higher absolute
price level.
5.1. Theoretical contributions
Our findings make two major theoretical contributions. First, we
show the double-edged nature of reference discounts (Lowe, Barnes, &
Rugimbana, 2012). Specifically, on the one side, reference discounts can
minimize uncertainty. On the other side, however, they can reduce
profitability, so use of them appears questionable.
Second, our findings reinforce the importance of using incentives to
enhance employees' psychological ownership (Dawkins, Tian, Newman,
& Martin, 2017) and, thus, self-interest in a task (Widmier, 2002) for
increased efficiency at work. They also, however, underscore the
importance of monetary incentives in the software context. This high­
lights the importance of managing intrinsic and, specifically, extrinsic
incentives to address employees' motivations and their perceived job
efficiency (Frey & Osterloh, 2001).
5.2. Implications for practice
To prevent reduced margins by awarding outsize discounts, com­
panies should counteract the practice of using reference discounts
through debiasing techniques. According to Bergers and Fassnacht
(2017), these strategies are directed both at individual and at organi­
zational level.
Many sales organizations use customer relationship management
(CRM) as their central system for information regarding their customer's
history, as well as current sales opportunities (Rodriguez & Honeycutt
Jr, 2011). CRM can suggest to salespeople a rationally derived discount
based on an array of important factors, such as the customer's industry
and sub-industry, company size, contract history, or the discount's suc­
cess with prior deals. It can thus provide the salesforce with a more
rational reference discount derived from the large data volume of all
customers of the firm.
Additionally, interviewees in our qualitative study describe that, in
their CRM systems, they have to go through an approval process with
their chosen discount. This requires various departments, such as sales
management, control, and legal, to give their consent. However, in
practice, this is a mere formality. Instead, approvers should act as a
“devil's advocate” (Bergers & Fassnacht, 2017) and try to understand the
full sales situation and then challenge salespeople about the given
discount.
The findings about the level of salesperson experience and reliance
on reference discounts show the importance of training. Trained in­
dividuals can gain the credibility and knowledge possessed by more
experienced staff. This will help them undertake more risk, which would
lessen their reliance on reference discounts. According to Bergers and
Fassnacht (2017), the debiasing technique has the biggest impact in
creating awareness of potentially biased behavior. Because uncertainty
perceptions lead to sub-optimal choices (i.e., over-reliance on referent
discounts), companies should manage these perceptions effectively by
cultivating a risk-taking environment where employees' risk-taking
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Industrial Marketing Management 109 (2023) 232–244
behavior is praised. For example, sales managers can use success stor­
ies to motivate the sales force; such stories might highlight the risk that a
particular salesperson took that eventually led to a successful sale.
Monetary incentives create higher self-interest for salespeople,
enhancing their willingness to invest more time and effort in their job
and, thus, having less reliance on reference discounts. This phenomenon
offers an actionable implication for firms: sales managers should adopt
monetary incentives (e.g., commissions, bonuses), and/or offering sales
personnel the option to select non-monetary incentives based on their
personal preferences (Kube et al., 2012).
5.3. Limitations and future research
Our study presents some limitations that can be addressed in future
research. First, we explore a single reference discount. Therefore, future
research should consider several reference discounts in combination (e.
g., discount values used in the past that led to closing sales, plus discount
information derived from colleagues).
Second, our qualitative study reveals that, compared with their se­
nior counterparts, junior interviewees repeatedly mention the need to
avoid uncertainty and thus make greater use of reference discounts. This
implies that job experience might act as a moderator. Thus, scholars
should investigate the effect of such experience on this study's focal
relationship.
Third, our qualitative work also reveals a tendency for salespeople to
employ reference discounts towards the end of the fiscal year to achieve
their sales goals (à la sales target achievement pressure; Spiro, Stanton, &
Rich, 2007). In successful years, a salesperson may already have ach­
ieved the target sales goal before the end of the fiscal year and not feel
the need to utilize a reference discount. In other years, though, the
salesperson may perceive increased pressure towards the year's end,
thus inducing the use of a reference discount to close a deal. Pressure is a
primary factor leading to biased behavior (Kahneman et al., 1982;
Milkman, Chugh, & Bazerman, 2009). Therefore, future studies should
examine the impact of pressure on salespeople's employment of refer­
ence discounts.
Fourth, we focus on the effect of incentives in general on this rela­
tionship, and non-monetary versus monetary incentives, in particular.
Future research should explore the effect of various kinds of non-
monetary incentives (e.g., company cars, incentive trips, office size
and furnishings, free childcare, and free gym membership; Albers &
Krafft, 2013; von Rosenstiel, 1975) that may have a differential impact
on the use of reference discounts.
6. Conclusion
Our research reveals that previous discount information (i.e., a
reference discount) of a B2B salesperson influences the decision about
the amount of discount granted to a new customer. Salesperson in­
centives are found to reduce reliance on such reference discounts, which
can enhance a firm's fiscal outcomes. We also observe that monetary and
non-monetary incentives decrease salespeople's reliance on reference
discounts. However, monetary incentives show a stronger effect than
non-monetary ones. Furthermore, as the results of our qualitative study
highlights, incentives create a self-interest in the decision outcome, thus
increasing salespersons' time investment vis-a-vis the discount decision-
making process.
Data availability
Data will be made available on request.
D. Bergers et al. Industrial Marketing Management 109 (2023) 232–244

Appendix A. Participants details

Participants Job Position / Title Age Gender Years of Professional Experience

1 Industry Account Manager, Pharma 36 Male 11

2 Industry Account Manager, Public Services 28 Male 6
3 Industry Account Manager, Automotive 50 Male 26
4 Sales Specialist, Tech Platform 36 Female 13
5 Midmarket Account Executive 32 Male 11
6 Industry Account Manager, Retail 28 Male 6
7 Sales Specialist, Marketing Software 48 Male 23
8 Sales Specialist, Data Solutions 28 Male 6
9 Sales Specialist, CRM Software 37 Male 14
10 Industry Account Manager, Automotive 27 Male 3
11 Industry Account Manager, Automotive 44 Male 20
12 Industry Account Manager, Manufacturing 30 Female 6
13 Industry Account Manager, Public Services 30 Female 6
14 Sales Specialist, Supply Chain Software 29 Male 6
15 Industry Account Manager, Pharma 28 Male 9
16 Industry Account Manager, Automobile 30 Male 6
17 Industry Account Manager, Manufacturing 37 Male 13
18 Industry Account Manager, Finance 26 Male 4
19 Sales Specialist, HR Software 28 Female 7
20 Sales Team Lead, Automotive 43 Male 18

Appendix B. Interview guide

I. A brief introduction from the interviewer is offered.

II. Extended introduction of the interviewee, including zir current sales role, professional background, education, and demographics, is now
undertaken.
III. The interviewer presents a general scenario about a software sales cycle that is at the point where pricing must be communicated to the
customer. The interviewee should now be asked to explain how the price setting typically works in zir firm.
IV. If not already explained in III., the interviewer asks more specifically how the interviewee's process works in selecting a suitable discount.
V. Extensive discussion about answers from the interviewee in III. and IV. is undertaken.
VI. If the interviewee mentioned reference discounts or other anchors/reference values, follow-up questions about how these values may influence
zir decision are used. If the interviewee did not mention that influencing factor actively, more explicit questioning about the potential usage of
reference discounts is pursued. If the interviewee thought that reference discount are an influencing factor, discussion about the reasons for
focusing on such previous discounts is undertaken.
VII. Discussion about individual sales incentives of the interviewee and the potential influence on (a) the usage of reference discounts and (b) the
discount setting in general is now pursued.
VIII. The interviewee discusses the average discount for either cloud or on-premise deals
IX. The interviewee discusses the maximum and minimum discounts used in cloud and on-premise deals.
X. The interviewer discloses the research question and discusses the interviewee's answers in comparison with the answers obtained in the in­
terviewer's previous interviews.

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