Multimedia Marketing/Marketing.iso/market/chapter7.8p

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SECTION 7.8  Sales Management--Other Steps

INSTRUCTIONS Think about how you believe that sales representatives should
be compensated. Then go through this section for insights into this topic.

EXAMPLE

A producer of corporate jets compensates its sales force with a
salary of $50,000 per year plus one percent of sales commissions.
This means that a very productive sales represetative can receive
a total compensation package close to a third of a million dollars
in a good year. Some sales representative earn amounts of approximately
that much on a regular basis. Management has considered eliminating
the commissions, as a cost-cutting device, and raising salaries.
However, they have rejected this possibility, realizing that it could
de-motivate the sales force by cutting back on their incentives.

Management's opinion is that, although this compensation plan is
expensive, it works , in terms of producing sales for the company. It
simply cannot afford to make a change.

DETAILS

An important decision area for management is determining which
representatives to assign to specific territories. Most companies
classify territories according to levels of importance and difficulty.
Auto companies, for example, generally use the following three
classes: Rural territories (comprised of small dealers with low
potential sales volumes), city territories (mostly consisting of
medium-sized dealers in moderately-sized towns with greater potential
volumes, and metropolitan territories (made up of the largest potential
volume dealers because of high population densities in their trade
areas).

For all companies, each representative's experience, ability, and
motivation should be the prime factors management considers when
assigned specific people to specific territories. Metropolitan
dealers are of the greatest importance to auto companies because
of their large volume potentials. Also, these dealers face the
greatest competitive pressures, justifying more calls than their
smaller counterparts by the most experienced and able representatives.

Rural dealers, in contrast, usually have small potential volumes and
they face less intensive competitive pressures. Morever,
travel time between them can be substantial. Thus, they provide a good
training ground for new representives. The point, of course, is that
sales management should assign the best people to the most critical
and difficult tasks.

PROBLEM 1

A computer manufacturer sells to four different markets. To which
of the following should it assign the more experienced and able
sales representatives?

A. The typewriter market.
B. The word processor market.
C. The personal computer market.
D. The business computer market.

WORKED

A computer manufacturer should assign its more experienced and able
sales representatives to the business computer market. This is a
huge market and it is growing at an even pace. Competition is severe
and most of the major rivals are very capable marketers with well-
trained and experienced sales forces. Selling computers to this
market requires a thorough knowledge of much more than computers.
Successful sales representatives must have a comprehensive knowledge
of business management and its opportunities and problems. This
market demands sales representatives who can speak the language of
business and are aware of customary patterns of negotiating and
dealing with suppliers.

ANSWER  D
INSTRUCTIONS Think about how you believe that sales representatives should
be compensated. Then go through this section for insights into this topic.

EXAMPLE

A producer of corporate jets compensates its sales force with a
salary of $50,000 per year plus one percent of sales commissions.
This means that a very productive sales represetative can receive
a total compensation package close to a third of a million dollars
in a good year. Some sales representative earn amounts of approximately
that much on a regular basis. Management has considered eliminating
the commissions, as a cost-cutting device, and raising salaries.
However, they have rejected this possibility, realizing that it could
de-motivate the sales force by cutting back on their incentives.

Management's opinion is that, although this compensation plan is
expensive, it works , in terms of producing sales for the company. It
simply cannot afford to make a change.

DETAILS

One of the most fundamental of the sales force development decisions
relates to compensation. Essentially there are three major
compensation methods; straight commission, straight salary, and a
combination plan.

Under a straight commission plan, sales reps are paid a percentage of
their sales volumes. The plan may be a simple one, where the percentage
is applied to sales dollars, or it might be more complex, where a
percentage is applied against the related contribution margin (sales
less variable costs). While requiring more recordkeeping , the latter
is generally better because it bases commissions on profits generated,
not simply revenue.

Some commission plans are tied to quotas. A quota is a target that
represents what the salesperson should be expected to reach, under
normal circumstances. Quotas can be stated in terms of total sales,
sales after returns and allowances, profit, contribution margin,
and other measures of output.

The plan has several advantages. It is especially attractive to
agressive sales representatives as it rewards them for their
efforts and it alleviates much of the sales force's fixed costs.

However, under this plan sales representataives may resist directives
by management, such as filling out forms and developing new accounts,
as time spent on these activities might negatively affect earning
commissions. Also commission structures do not reward, at least in
the short run, servicing accounts, such as helping with product
installation. Thus, there is a real potential to slide over
postsale activities.

At the opposite extreme are straight salaries, which are fixed
amounts regardless of volume. The plan offers several advantages,
but most significant is that it offers management the greatest
ability to direct people. Because the plan does not tie compensation
to sales volume, management can easily insist that attention be
placed on things like postsale activities and developing new accounts
or territories.

But, there are disadvantages with the payment scheme, especially that
it does not offer as much incentive for extra effort as does a plan
involving commissions. Consequently, aggressive salespeople with
high promotional ability tend to avoid such positions. Therefore,
straight salary plans should be used in situations where management
wishes to highly control the activities of its people and where
aggressive efforts are not required. Inside order takers, for
instance, are usually paid a straight salary.

A combination plan offers both a base salary and a commission or
bonus on volume. The idea is to enable management to control the
sales force, yet to provide incentives for good performance.

The base portion of a combination plan sometimes takes the form of
a fixed monthly salary with commissions paid above some specified
volume. An electronics producer, for instance, developed a plan
where no bonuses are paid until a representative reaches 80 percent
of quota. Above that threshold, however, the plan doubles the
average bonus in the industry. Another scheme is to offer a "draw",
which is something like a loan in slow periods against future
commissions.

A draw works like this. A salesperson is guaranteed some fixed amount
per month, say $3,000. If commissions are less than this, the sales
representative can draw the difference between the guaranteed amount
and the commission. In most cases this must be repaid to the company
out of future commissions.

PROBLEM 2

A sales representative for a meat wholesaler has a draw of $4,000
per month. The rep receives a commission of ten percent of sales.
In February, the rep's sales were $30,000. What will the rep earn
at the end of February?

A. $2,000
B. $3,000
C. $4,000
D. $5,000

WORKED

If a sales representative for a meat wholesaler has a draw of
$4,000 per month, receives a commission of ten percent of sales,
and sells $30,000 worth of merchandise in February, the earnings
for the month will be $4,000. That is the guaranteed amount. In
this case, the rep made a draw of $1,000 beause the commission was
only $3,000. If this individual sells $60,000 worth of merchandise
in March, the earnings for the month will be $6,000 in commissions
minus $1,000 (to pay back the draw for the previous month) which
equals $5,000.

ANSWER  C
INSTRUCTIONS Think about how you believe that sales representatives should
be compensated. Then go through this section for insights into this topic.

EXAMPLE

A producer of corporate jets compensates its sales force with a
salary of $50,000 per year plus one percent of sales commissions.
This means that a very productive sales represetative can receive
a total compensation package close to a third of a million dollars
in a good year. Some sales representative earn amounts of approximately
that much on a regular basis. Management has considered eliminating
the commissions, as a cost-cutting device, and raising salaries.
However, they have rejected this possibility, realizing that it could
de-motivate the sales force by cutting back on their incentives.

Management's opinion is that, although this compensation plan is
expensive, it works , in terms of producing sales for the company. It
simply cannot afford to make a change.

DETAILS

Three objectives are central in determining which compensation
method is appropriate. It should attract and keep desired people,
keep expenses under control, and help in attaining company objectives.
In general, the greater the control desired over the individuals
and the lower the promotional abilities they need, the greater should
be the tendency to pay straight salaries. The greater the need for
agressive promotional efforts, in contrast, the more important
is a commission. The most widely-used method is salary plus commission.

An important issue is the general pay level to be used. The scale
should provide enough incentive to attract and retain good people,
but it should also remain competitive to scale for jobs of similar
importance within the company. Large companies employing highly
professional people are increasingly turning to management consulting
compensation specialists to periodically update their compensation
packages.

Another important issue is the handling of "house accounts"--
very large customers which management, rather than a salesperson
serves--usually because of the large volume. In the case of a heavy
metals producer, for instance, the chairman of the board takes on
some house accounts. The question is: "Should the salesperson
assigned the territory be given credit for such sales?"

If a sales representative never had anything to do with the account,
then logically he or she should not receive credit. But some
managers convert large customers into house accounts, just to avoid
paying hefty commissions. Management should avoid this practice as
it is sure to alienate good salespeople. The best practice is to
bring in house accounts when the company promotes, transfers, or
terminates a person. Then it can design territories to treat all
sales representatives equitably.

PROBLEM 3

A book wholesaler wants its sales representatives to assist bookstores
in arranging displays and upgrading their inventory control systems.
The best sales representative compensation system for this company is:

A. Salary.
B. Commission.
C. Salary plus commission.
D. Commission plus a draw.

WORKED

If a book wholesaler wants its sales representatives to assist
bookstores in arranging displays and upgrading their inventory
control systems, the best compensation system is salary. With
this plan, sales representatives earn the same amount, regardless
of how much they sell. They should not mind helping to service the
bookstores because this interference with their selling efforts
will not affect their earnings. In the case of commission, salary
plus commission, and commission plus a draw this is not true,
however. The sales representatives are likely to resent requirements
that interfere with their sales efforts. They may simply not do
these service activities, or if they do them may do so half-heartedly.
Some good performers may leave the company if they perceive the
requirement to be unfair.

ANSWER  A
INSTRUCTIONS Think about how you believe that sales representatives should
be compensated. Then go through this section for insights into this topic.

EXAMPLE

A producer of corporate jets compensates its sales force with a
salary of $50,000 per year plus one percent of sales commissions.
This means that a very productive sales represetative can receive
a total compensation package close to a third of a million dollars
in a good year. Some sales representative earn amounts of approximately
that much on a regular basis. Management has considered eliminating
the commissions, as a cost-cutting device, and raising salaries.
However, they have rejected this possibility, realizing that it could
de-motivate the sales force by cutting back on their incentives.

Management's opinion is that, although this compensation plan is
expensive, it works , in terms of producing sales for the company. It
simply cannot afford to make a change.

DETAILS

Training is an important sales management function. At the minimum,
management should make new recruits familiar with company products,
policies, procedures, and important documents for reporting key
information. Moreover, salespeople should receive as much information
as possible about leads, prospective customer profiles, competitor
activities, company plans, new products, and ways to improve
presentations.

Some firms even train their customers' sales representatives. For
instance, a large forklift producer provides training for established
dealers sales forces to the point that they become materials handling
specialists.

Generally, all sales training programs have the following objectives:

. To inform trainees about company developments.
. To explain responsibilities and procedures.
. To provide information about customers and competitor actions.
. To help improve sales presentations.

Motivating the sales force is another key management activity.
Compensation is one important motivation source.

Management should extend beyond compensation to motivate people,
however. Pep talks, contests, meetings to build enthusiasm, and
other related techniques are all important. However, the best
single way to motivate salespeople is for management to clearly
and formally define exactly their expected tasks and how they
will be evaluated. The design of a sales job is also a factor
in motivating reps. Considerable job satisfaction is likely if
salespeople feel that their jobs encompass variety and allow
them autonomy.

A final sales management concern is that of evaluating the performance
of the sales force. Regular evaluation enables the early identification
of deviations from plans, which allows management to initiate
corrective action before it is too late for remedy. It also fosters
the identification of star and poor performers early, which helps
to develop a better sales force in the future.

Management should spend time to regularly evaluate the individual
efforts of salespeople. Formal individual reviews work best because
they let people know exactly how they measure up and what the
company expects of them in the future. When reviews are done frequently,
such as monthly or quarterly, they help management increase their
control and results. There are a number of criteria to evaluate,
including:

. Sales volume.
. Number of new accounts.
. Number of service calls.
. Batting average (number of orders divided by number of sales calls).
. Percent of quota.
. Number of lost accounts.
. Number and size of orders.
. Selling expenses.
. Calls per week.
. Total sales divided by selling expenses.

Qualitative factors, such as customer relations, eagerness, attitude,
and knowledge of both the product line and customer needs should
be evaluated as well. Management should also consider comparisons
of  sales reps against company averages and also against previous-
year results.

PROBLEM 4

An appliance dealer wants to take steps that will highly motivate
members of the sales force. The best way to do this is:

A. Pay them higher salaries than competitors.
B. Provide them with liberal fringe benefits, such as health insurance.
C. Clearly and formally define exactly their expected tasks and how
   they will be evaluated.
D. Pursue a promotion-from-within policy, so that they can advance
   into management positions if their performance is superior.

WORKED

If an appliance dealer wants to take steps that will highly motivate
members of the sales force, the best way to do this is to clearly
and formally define exactly their expected tasks and how they will
be evaluated. In order to be motivated, sales representatives need
to know what kind of role the company wants them to fulfill. If they
are unsure of this, feelings of role ambiguity arise. They may not
know if they should represent the company or the customer, for
example. Also, sales representatives should know how they will be
evaluated. Everyone, whether they are in sales or in some other
profession, has a desire to learn what steps will be made to measure
their performance. This serves as a guideline to proper performance
and helps them avoid stress which invariably accompanies ambiguity.


ANSWER  C