This page intentionally left blank

DALRYMPLE’S
SALES MANAGEMENT

Tenth Edition
This page intentionally left blank
DALRYMPLE’S
SALES MANAGEMENT

Tenth Edition

William L. Cron
Texas Christian University

Thomas E. DeCarlo
University of Alabama, Birmingham

JOHN WILEY & SONS, Inc.

VICE PRESIDENT & EXECUTIVE PUBLISHER George Hoffman
EXECUTIVE EDITOR Lise Johnson
EDITORIAL ASSISTANT Carissa Marker Doshi
MARKETING MANAGER Carly DeCandia
DESIGN DIRECTOR Harry Nolan
SENIOR DESIGNER Kevin Murphy
SENIOR PRODUCTION EDITOR Patricia McFadden
SENIOR MEDIA EDITOR Daniel Haag
PRODUCTION MANAGEMENT SERVICES Katie Boilard, Pine Tree Composition, Inc.

This book was set in 10 pt. Times Roman by Laserwords Private Limited, Chennai, India and printed and bound
by R.R. Donnelley & Sons. The cover was printed by R.R. Donnelley & Sons.

This book is printed on acid-free paper.

Team exercises that appear in each chapter were prepared by William L. Cron of Texas Christian University and
Thomas E. DeCarlo of University of Alabama, Birmingham.

Copyright © 2009, 2006 John Wiley & Sons, Inc. All rights reserved. No part of this publication may be
reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical,
photocopying, recording, scanning or otherwise, except as permitted under Sections 107 or 108 of the 1976
United States Copyright Act, without either the prior written permission of the Publisher, or authorization
through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc. 222 Rosewood Drive,
Danvers, MA 01923, website www.copyright.com. Requests to the Publisher for permission should be addressed
to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030-5774,
(201)748-6011, fax (201)748-6008, website http://www.wiley.com/go/permissions.

To order books or for customer service please, call 1-800-CALL WILEY (225-5945)

ISBN-13: 978-0470-16965-0
ISBN-10: 0-470-16965-6

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1
PREFACE

In this tenth edition, we continue with our tradition of providing readers with a compre-
hensive, practical approach to sales management. In doing so, we have refined the focus of
the book by meticulously editing and rewriting each chapter with the goal of streamlining
the presentation of the topics. As always, the goal is to present the material as clearly as
possible so that students can effectively learn and apply sales management concepts to solve
business problems. While most marketing students will likely start their career as salespeo-
ple, we believe it is important to gain an understanding of the sales manager’s role in order
to function effectively in sales and prepare oneself for promotion. Effective management of
salespeople is a key weapon in marketing strategy and critical to business success because
many goods and services demand personal contacts to close the sale. However, selling costs
are growing rapidly and sales forces must become more efficient and effective. The manager
who understands how to effectively plan and direct the actions of salespeople will have an
advantage in moving up the executive career ladder.

Approach and Objectives

Sales Management begins with a review of the current business environment in which
organizations must operate and the sales force must compete. This sets the stage for dis-
cussing the possible roles of the sales force in developing and executing a firm’s strategy, as
specified in an organization’s sales program. This discussion is relevant for either existing
firms or new start-up organizations. Execution of the sales program occurs at the point of
customer contact whether this involves sales managers, as is often the case with strategic
accounts, or salespeople. This is why the next section of the text focuses on the topics of
sales opportunity, customer relationship, and customer interaction management. Particular
emphasis is given to the impact of alternative sales programs on these topics. The remainder
of the text addresses the efforts of sales management to facilitate the execution of the sales
program through recruiting, training, leading, motivating, compensating, and evaluating the
sales force.
An important objective in writing the tenth edition of Sales Management was to continue
to provide comprehensive coverage of sales management practices by combining the latest
findings in sales force management research with examples of current sales management
practices. Our approach is to not only present the theoretical concepts, but show how they
v
vi PREFACE

are operationalized with real-world examples in an easy-to-read style. One way we do this is
to embed in each chapter, as boxed inserts, short team-based exercises that are designed to
stimulate class discussion of the topics in the chapter. We also conclude each chapter with
competency-based problems and an application exercise designed to build on a featured
case study presented in the first chapter. In addition, we have included twenty-six other
comprehensive cases that provide students additional opportunities to apply what they have
learned in resolving realistic business dilemmas.

Features of the Tenth Edition

Although the basic objectives, approach, and style of earlier editions have been maintained,
several noteworthy changes have been made. First, all chapters have been thoroughly scru-
tinized and rewritten for easier reading and retention. In addition, there has been a major
updating of examples that reflect both the emerging trends in sales force management prac-
tice as well as the growing body of published research.
Second, the discussion in some chapters has been streamlined while in others it has been
expanded to incorporate new developments. For example, in chapter 7 we have incorporated
a running example using one company’s hiring procedures throughout our discussion of
recruiting and hiring. This provides a much tighter discussion of the material. In other
chapters we have added or expanded discussion in topics such as:
• Sales networks
• Customer lifetime value
• Solutions selling
• Marketing-sales interaction
• Marketing-sales shared responsibilities
• Leadership
We have also removed redundant or outdated material in an effort to focus more directly
on relevant issues. Finally, we have summarized the discussion of certain topics by using
tables and have significantly increased our use of figures and graphs, which were designed
help the reader more easily understand the relationships between key concepts.
Third, we have added a new, featured case, Shield Financial, at the end of chapter 1.
We have also preserved the running case concept from the ninth edition. In doing so, we
have added modified the situations at the end of each chapter to fit with the new case. This
unique pedagogical feature allows for a more in-depth case analysis and provides students
the opportunity to thoroughly develop a case throughout an entire course.
Finally, we have over twenty new Team Exercises that are designed to enhance in-class
discussion. In addition, two-thirds of the introductory case vignettes at the beginning of
each chapter have been reworked. The end result of these modifications is a text that is
comprehensive, but more concise and reader friendly.
Chapter Objectives. Each chapter begins with a set of objectives to show students
what they will learn. Instructors can use these to develop expectations in terms of discussion
questions and exam items.
Boxed Team Exercises. Each chapter has at least two boxed inserts that highlight
real-world issues related to one or more topics discussed in the chapter. These exercises can
be used in class as a small group assignment to stimulate discussion and enhance learning
of various chapter topics, or as assigned homework exercises.
Shield Case Exercises. As mentioned above, a feature of this edition is a running case
question included in at the end of each chapter. The questions were developed to extend
the issues in the featured Shield Financial case introduced in chapter 1 and call for students
PREFACE vii

to solve a new issue facing the firm that focuses on topics relevant to the chapter topics
discussed. That is, students will be able to apply each chapter’s material to a case they have
been familiar with all semester.
Developing Your Competencies. Each chapter includes problems related to each of the
sales management competencies. These are written to include a wide variety of questions.
Some are application questions that provide students the opportunity to solve a sales man-
agement problem. Others are thought-provoking questions that require students to reflect
on a competency-based issue related to the material they have just read. Still others are
experiential exercises that direct students to conduct active learning activities on their own.
Summaries. All chapters end with a summary for each of the chapter objectives listed
at the beginning of the chapter. These summaries are useful to ensure students understand
the key points made in each chapter.
Case Studies. Over half of the cases are new or have been significantly reworked and,
similar to the previous edition, all cases appear at the end of the book in alphabetical order.
Immediately preceding the cases is a guide designed to indicate the topics each case covers.
These meaty cases cover a number of topics and the guide can be a helpful integrative tool
for instructors and students.
Key Terms. Key terms are highlighted in the text and listed at the end of each chapter.
These can serve as a quick reference to important terms developed in the chapter.
Indexes. Cases, Author, Company, and Subject indexes help students find information
and examples.
Excel Problems. Excel-based numerical problems have been updated and refined to
help students develop their technical competency in Excel and to work with numerical
data. Edited worksheets are available for student use when working on the problems at the
end of selected chapters or when performing data analysis on the cases. The solutions to
the problems are available to instructors only. These can be downloaded from the book’s
website at www.wiley.com/college/cron.
Instructor’s Resources. The instructor’s resources include suggested course syllabi,
chapter outlines, lecture notes, lecture enhancement examples, case notes, suggested solu-
tions to the end-of-chapter competency problems and Excel problems, and in-class exercise
instructor notes. In this edition, not only have we increased the content, but we have
made significant changes to the teacher’s manual to make it even more user friendly.
For example, we have found that instructors tend to use the lecture note enhancement
examples as a stand-alone teaching tool. To this end, we have added more than fifty new
lecture enhancement examples to the Instructor’s Resource. We have included these in a
separate web link for downloading by chapter. We have also significantly revised the test
bank to include a wide assortment of new multiple-choice and true/false questions. The test
bank, along with all other instructor resources, is available to download from our Web site,
www.wiley.com/college/cron.
Powerpoint. Presentations for lecture planning and note taking are available to
both professors and students and may be downloaded from the book’s Website at
www.wiley.com/college/cron.
Personal Selling Videotapes. A set of 17 short (three- to five-minute) selling tapes
prepared by Wilson Learning Corporation. These tapes provide models of good sales skills,
mistakes to avoid, and coaching suggestions for sales managers. Ask your Wiley represen-
tative for more details.
viii PREFACE

ACKNOWLEDGMENTS
This book could not have been published without the spirited comments and suggestions
of our reviewers. A special note of appreciation is due to Joseph Fola Aiyeku, Salem
State University; F. Rick Brous, Fairleigh Dickinson University; Jeffrey Kulick, George
Mason University; Lynnea Mallalieu, University of North Carolina, Wilmington; Michael
Mallin, University of Toledo; Victor J. Piscitello, University of Arizona; Daniel Ricica,
Sinclair Community College; Ian J. Scharf, University of Miami; John Summey, Southern
Illinois University, Carbondale; and Douglas W. Vorhies, University of Mississippi.
We would also like to express our appreciation to a host of colleagues as well as
numerous reviewers on previous editions, whose comments and suggestions live on:

Avery Abernethy, Auburn University

Kenneth A. Anglin, Minnesota State University, Mankato
Anne L. Balazs, Mississippi University for Women
Tim A. Becker, Point Loma Nazarene University
Robert Cook, West Virginia University
Ned J. Cooney, University of Colorado, Boulder
Kevin Coulson, Northeastern Illinois University
Kevin M. Feldt, The University of Adron
Eli Jones, University of Houston
Maryon King, Southern Illinois University
Lewis Neisner, University of Maryland
Robert S. Owen, SUNY Oswego
Leroy Robinson, Jr., University of Houston, Clear Lake
Raymond Rody, Loyola Marymount University
Richard Spreng, Michigan State University
James A. Stephens, Emporia State University
Michael J. Swenson, Brigham Young University
Ron Taylor, Mississippi State University

Zafar Ahmed Jon Hawes Robert Roe

Ramon A. Avila Karen E. James Jose Rosa
Robert Collins Madhav Kacker Bob Smiley
Jill W. Croft Thomas Leigh Fred Smith
Daniel Gardiner Richard Leventhal Winston Stahlecker
James Gray Elaine Notorantino
Bill Greenwood Keith Paulson

A special acknowledgment is due to the sales and marketing executives and consultants
who served as chapter consultants to this book. They both reviewed the chapters and offered
PREFACE ix

important insights into the chapters’ subject matter. The result of their efforts is a text that is
both practical and cutting-edge with respect to current sales and sales management practices.
We are deeply indebted to the contributions of the following people:

Bob Braasch Elizabeth Forbes B. J. Polk

Manager Sales Planning Director, International Associate Director,
SABRE Results & Analysis Marketing
Carol Caprio GTE International Proctor & Gamble
Software Business Unit Keith Hall Distributing Co.
Executive Area Manager
Tim Prevost
IBM Anderson Chemical Co.
Director, Sales &
Randy Cimorelli David Henry Marketing
President/COD General Sales Manager Stuart C. Irby Co.
Massey-Fair Industrial, Inc. CBS Radio: KVIL
Joseph P. Clayton Jonathan Scarborough
Don James
President & CEO District Marketing
Principal
Sirius Satellite Radio Manager
Human Dimensions, Inc.
Federated Insurance
Robert Conti Christopher Jander
Vice President National Account John Schreutnyekker
The Alexander Group, Inc. Manager Partner
Nein Cronin GTE Ray & Berndtson
Director of Training and Michael Mahan Scott Smith
Specialist Manager Account Manager Vice President, Sales &
John Wiley & Sons IBM Marketing
Liz Crute George Michaud SABRE Group, Inc.
Vice President Director of Environment/
Pitney Bowes Credit Health Safety & Ethics Howard Stevens
Corporation Northern Telecom President
Kevin Cummings Chally Group
Greg Miller
National Sales Manager Senior Vice President, Paulette Turner
ABTco, Inc. Strategic Planning and Sales Operations Business
Russel Donnelly Human Resources Unit Executive
Sales Manager, Central Sunburst Hospitality IBM Corporation
Region Corporation
Ericsson Inc. Ken Whelan
George Petagrew
Director, Business
Robert P. Eschino Sales Training Manager
Development
Executive Vice President Johnson & Johnson
Medical Qwest Communications
Gold
William I. Evans David Pinals Jerry Willet
Principal President National Sales Manager
The Evans Group TTG, Incorporated Software Spectrum

We also want to thank all the people at John Wiley & Sons who helped develop this book.
Carissa Doshi, our Assistant Editor, worked tirelessly to upgrade and improve the tenth
edition. Our Production Editor, Trish McFadden, has also been a great help in guiding the
book through the many steps of the production process.
Finally, we want to thank our wives, Deborah and Tiffany, for their help and encour-
agement.
This page intentionally left blank
ABOUT THE AUTHORS

William L. Cron is Professor of Marketing in the M. J. Neeley School of Business at

Texas Christian University. He received his MBA and DBA from Indiana University and
his BSBA from Xavier University in Cincinnati, Ohio. Professor Cron has also taught at
Southern Methodist University, the University of Wuhan, Universitat Bern Switzerland,
and the University of Dijon France. His research on motivation in general and a variety
of sales force issues has been published in the Journal of Marketing Research, Journal of
Marketing, Academy of Management Journal, Journal of Applied Psychology, Journal of Psy-
chometric Classifications, Harvard Business Review, Journal of the Academy of Marketing
Science, Journal of Personal Selling & Sales Management, Journal of Vocational Behavior,
and Journal of Occupational Behavior among others. Professor Cron has been a member of
the Editorial Review Board for the Journal of Marketing, Journal of the Academy of Mar-
keting Science, Journal of Personal Selling & Sales Management, and Journal of Business
and Industrial Marketing. He has also coauthored four sales management books.

Thomas E. DeCarlo is the Ben S. Weil Endowed Chair of Industrial Distribution at the
University of Alabama at Birmingham. He received his Ph.D. from the University of Geor-
gia and his BA from North Carolina State University. Professor DeCarlo has also taught at
Iowa State University and the University of Wuhan. His research in sales force management
and related topics in marketing communications has been published in the Journal of Mar-
keting, Journal of Consumer Psychology, Journal of International Business Studies, Journal
of Personal Selling & Sales Management, Journal of Service Research, Industrial Marketing
Management, Marketing Letters, and others. Professor DeCarlo is currently a member of
the Editorial Review Board for the Journal of Personal Selling & Sales Management. He
has also coauthored a personal selling textbook.

xi
This page intentionally left blank
 BRIEF CONTENTS

1 Introduction to Selling and Sales Management 1

2 Strategy and Sales Program Planning 30

Sales Management Resource: Estimating Potentials and

Forecasting Sales 59

Sales Management Resource: Sales Force Investment and Budgeting 74

3 Sales Opportunity Management 87

4 Account Relationship Management 110

5 Customer Interaction Management 130

6 Sales Force Organization 153

Management Resources: Territory Design 178

7 Recruiting and Selecting Personnel 192

8 Sales Training 217

9 Leadership 237

10 Ethical Leadership 259

xiii
xiv BRIEF CONTENTS

11 Motivating Salespeople 277

12 Compensating Salespeople 301

13 Evaluating Performance 323

Notes 346

Cases Analysis 361

Credits 481

Key Term and Subject Index 485

Author Index 493

Company Index 497

Case Index 499

 CONTENTS

1 INTRODUCTION TO SELLING AND SALES MANAGEMENT 1

Chief Sales Executive Forum 1
Personal Selling 3
A Changing Marketplace 4
The Sales Management Process 10
The Sales Management Competencies 12
Team Exercise: “Who to Promote?” 13
Team Exercise: “The Prima Donna” 16
Team Exercise: “How to Handle Rumors” 17
Career Paths 19
Preparing for Sales Management Success 21
Featured Case: Shield Financial 24

2 STRATEGY AND SALES PROGRAM PLANNING 30

An Award-Winning Account 30
Business Strategy 32
Marketing Strategy 34
Strategic Implementation Decisions 36
Team Exercise: “Web Sales” 40
Sales Force Program Decisions 47
Team Exercise: “Looking Forward to Next Year” 50
Featured Case: Shield Financial: “A Different Kind of Customer” 58

SALES MANAGEMENT RESOURCE: ESTIMATING POTENTIALS AND

FORECASTING SALES 59
Why Forecast? 59
What is Market Potential? 59
Qualitative Sales Forecasting 63
Quantitative Sales Forecasting 65
MAPE 67
Selecting Forecasting Methods 71
xv
xvi CONTENTS

SALES MANAGEMENT RESOURCE: SALES FORCE INVESTMENT AND BUDGETING 74

Sales Force Investment 74
Developing a Sales Budget 83

3 SALES OPPORTUNITY MANAGEMENT 87

Prioritizing Opportunities at Hill-Rom 87
A Process for Generating New Accounts 89
Managing Existing Accounts 92
Team Exercise: “Working Hard or Working Smart?” 98
Sales Versus Profits 100
Team Exercise: “Destructive Discounting” 101
Time Management 102
Featured Case: Shield Financial: “Lead Generation” 109

4 ACCOUNT RELATIONSHIP MANAGEMENT 110

Growing the Relationship 110
Purchasing Process 112
Buying Center 117
Team Exercise: “Different Strokes” 120
Evolution of Relationships 121
Relationship Binders 122
Team Exercise: “A Favor” 123
Featured Case: Shield Financial: “A Customer Request” 129

5 CUSTOMER INTERACTION MANAGEMENT 130

A Thirty-Million-Dollar Sale 130
Basic Types of Selling Models 132
The Preinteraction Phase: Planning Skills 134
The Interaction Phase 136
Team Exercise: “What Does Ms. Williams Hear?” 138
Team Exercise: “Relating Skills” 139
Team Exercise: “Why Beat a Dead Horse?” 141
The Postinteraction Phase 146
Team Exercise: “Unkept Promise” 148
Featured Case: Shield Financial: “A Vendor Problem” 151

6 SALES FORCE ORGANIZATION 153

Xerox Reorganizes 153
Generalist Versus Specialist Structures 155
Strategic Account Management Program 161
Team Exercise: “The Optimal Sales Organization” 162
Telemarketing 165
Some Additional Issues 167
Independent Sales Agents 167
Emerging Sales Force Organization Issues 170
Team Exercise: “A Global Assignment” 173
Featured Case: Shield Financial “A Special Assignment” 177

MANAGEMENT RESOURCES: TERRITORY DESIGN 178

Three Reasons Why Proper Territory Alignment Is Important 179
CONTENTS xvii

When Do Territories Need To Be Realigned? 180

Territory Design Procedures 181
Designing Territories By Computer 189

7 RECRUITING AND SELECTING PERSONNEL 192

Federated Insurance’s Recruiting Process: a Model for Success 192
Planning Process 194
Team Exercise: “Turnover and Counteroffers” 195
Recruiting 200
Selecting Prospects 204
Team Exercise: “Questions About Interviewers” 206
Validating the Hiring Process 212
Featured Case: Shield Financial: “Hiring Pressures” 215

8 SALES TRAINING 217

Sales Training Pays Off 217
Why Train Salespeople? 218
Planning for Sales Training 221
Team Exercise: “Sales Training for Profits” 222
Developing the Training Program 224
Evaluating Sales Training 230
Followup 232
Featured Case: Shield Financial: “Training Woes” 235

9 LEADERSHIP 237
Leading the Independent Spirit 237
Leadership 239
Team Exercise: “Avoiding a Bidding War” 243
Effective Leadership Styles 243
Important Leadership Functions 245
Sales Force Personnel Issues 251
Featured Case: Shield Financial: “Confidential Documents” 258

10 ETHICAL LEADERSHIP 259

Why Ethics Are Important 259
Principles of Ethical Decision Making 261
Making Decisions on Ethical Problems 263
Common Sales Ethics Issues 265
Team Exercise: “Customer Gifts versus Company Policy” 266
Team Exercise: “Special Support” 269
Government Regulation 270
Building A Sales Ethics Program 271
Featured Case: Shield Financial: “Overheard Trade Secrets” 276

11 MOTIVATING SALESPEOPLE 277

The Drive To Excel 277
What Is Motivation? 278
A Model of Motivation 283
Team Exercise: “Expectancy Theory” 286
Self-Management 286
xviii CONTENTS

Quotas 287
Team Exercise: “Sales and the Web” 292
Incentive Programs 293
Recognition Programs 294
Featured Case: Shield Financial: “Motivation and Role Conflict” 299

12 COMPENSATING SALESPEOPLE 301

Compensation Objectives 301
Team Exercise: “Changing Sales Compensation Plans” 303
Compensation Methods 303
Team Exercise: “Incentives for Team Selling” 311
Expense Accounts and Benefits 312
Assembling the Plan 314
Evaluating the Plan 316
Featured Case: Shield Financial: “The Elusive Commission–Now You See It,
Now You Don’t” 320

13 EVALUATING PERFORMANCE 323

Sales Performance Review 323
The Big Picture 325
Expense Analysis 326
Evaluating Salespeople 327
Team Exercise: “Evaluating for Profit” 328
Behavior-Based Evaluation 330
Outcome-Based Evaluations 332
Team Exercise: “Measuring More Than Sale Quotas.” 333
Using Models for Evaluation 335
Featured Case: Shield Financial: “Missed Quota” 345

NOTES 346

CASES ANALYSIS 361

1 The Case Method 363
2 Adams Brands 366
3 Arapahoe Pharmaceutical Company 371
4 Atomic Company 375
5 Conner Labs Corporation 380
6 Crestfield Furniture (A) 387
7 Crestfield Furniture (B) 395
8 Dave MacDonald’s Ethical Dilemmas 397
9 Erekson Industrial Supply 400
10 First National Bank 402
11 General Electric Appliances 409
12 Hanover-Bates Chemical Corporation 417
13 Hyde-Phillip Appliances 420
14 Inject Plastics 422
15 Milligan Pharmaceuticals 424
16 National Mutual Funds 430
17 Power and Motion Industrial Supply 441
18 Quado Systems Group 445
19 Romano Pitesti 451
CONTENTS xix

20 Skata, Inc. 454

21 Tekspan Corporation 458
22 The Sullivan Group (A) 461
23 The Sullivan Group (B) 463
24 Venture Insurance Corporation 465
25 White Electronics 473
26 Winston Liu, Bookman 477

CREDITS 481

KEY TERM AND SUBJECT INDEX 485

AUTHOR INDEX 493
COMPANY INDEX 497
CASE INDEX 499
This page intentionally left blank
CHAPTER

1 INTRODUCTION TO
SELLING AND SALES
MANAGEMENT
If you sincerely believe that “the customer is king,” the second most important person in
this kingdom must be the one who has a direct interaction on a daily basis with the king.
Michael Bon
Chairman & CEO, France Telecom

Chapter Consultant:
Paulette Turner, Sales Operations Business Unit Executive, IBM Corporation

LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Describe the major changes taking place in selling and the forces causing these
changes.
Define sales management.
Describe the sales management process.
Discuss the competencies required to be a successful manager.

CHIEF SALES EXECUTIVE FORUM

At a recent Chief Sales Executive Forum, executives from leading companies responded to
some fundamental questions about their sales forces. The executive panel consisted of sales
leaders, vice president and higher, from Honeywell, Siemens AG, General Electric, Oracle,
and Xerox. Let’s listen in on some of their answers.
“As sales leaders, what is the biggest challenge facing you today?”
• (General Electric) Without a doubt, the biggest challenge for GE is making the sales force
realize that we’re in a global business. Not everything is invented in America. There’s a
lot of work to be done outside the United States, and we’re really focusing a lot of energy
on emerging markets.

1
2 CHAPTER 1 INTRODUCTION TO SELLING AND SALES MANAGEMENT

• (Xerox) At Xerox, we are putting much more experienced sales leaders on our largest
global accounts to focus on that globalization. We’re also moving resources. I just assigned
someone to work in Singapore to coordinate activities in that growing market. I think this
whole focus on globalization is huge.
• (Siemens AG) Selling is no longer about the portfolio and quarterly performance; it’s
about an ongoing relationship with the customer. Our mission is to become a trusted
advisor to our top customers, and that becomes more difficult when you’re working on a
global scale.
• (Oracle) One thing we’re struggling with at Oracle right now is finding the right level of
specializing to ensure that we’re giving customers what they want and need, and we’re
really exploiting all the products that the sales reps carry in their portfolio, but balancing
that with not having too many people calling on the same customer.
“Is this a good time to be in sales?”
• (Honeywell) At Honeywell, sales eats first. We are in charge until someone says we’re
not. Other divisions in the company will have to take that ring away from sales, and
believe me, they won’t.
• (General Electric) At GE, it is a wonderful time to be a salesperson. We have no issue
with top-level buy-in since our CEO (Jeffrey Immelt) came up through the ranks as a
salesperson. As a result, I think we are a lot more customer-driven than we have been
in the past. Sales leaders have the ability to say to product design, “That won’t fly with
our customers.” That’s a powerful thing to have in your favor. We have to make sure our
sales force realizes that we’re there to help our customers solve their problems instead of
just trying to sell them product.
“Have the responsibilities of the sales position expanded at your company?”
• (Siemens AG) That’s absolutely right. Our account executives plan a business strategy
for each of their accounts. Then we require them to sit down and do a four-year business
plan, and that’s been very effective. It puts them in the other seat. What we’re really
trying to do is avoid the “one-size-fits-nobody” style of selling.
• (Xerox) I’m a believer in allowing the people who are actually managing the customer to
make more decisions about how to handle an account. I think we should be empowering
our teams more. Xerox customers have many different corporate structures, and I think a
lot of times we try to do a cookie-cutter approach. It just doesn’t work.
• (Xerox) I see a bigger issue in getting more people into management, accelerating the
development of top salespeople, moving them along quicker. I think we tend to keep
people in their jobs too long at the first-line level.1
These are very exciting times to be in sales and sales management. According to a
recent survey, the average pay for a salesperson is $94,872, while sales executives earn
on average $150,882.2 Beyond compensation, this is an exciting time of change in the
sales profession. Many organizations are finding that sales force changes are needed for
more demanding customers in an increasingly competitive world. Giant retailers such as
Wal-Mart and Target are leveraging electronic data technology and are requiring manufac-
turers sales forces to assume responsibility for “just-in-time” inventory control, ordering,
billing, sales, and promotion. Like other companies, Hewlett-Packard now rents an office
in a key customer’s headquarters building and stations an account manager there.
These innovations in the way suppliers and customers interact have necessitated changes
in the way sales forces are organized, compensated, developed, and evaluated. Our goal in
this textbook is to explain how the sales team operates in this new environment and how
they may be supervised for maximum efficiency and effectiveness. We begin by defining
personal selling and describing its role within a firm’s promotion mix. We then turn to
PERSONAL SELLING 3

some of the changes taking place that have had an important impact on the sales function.
Next, we direct our attention to the sales management function by describing the activities
they perform, a process of sales management, and the competencies needed to successfully
perform these activities and the sales management process. The final section of the chapter
profiles career paths that you may find in your first sales job.

PERSONAL SELLING
According to the U.S. Department of Labor’s Bureau of Labor Statistics, people working in
sales number close to 12 million, or about 10 percent of the total workforce in the United
States. Personal selling is critical to the sale of many goods and services, especially major
commercial and industrial products and consumer durables, and can be defined as:
Direct communications between paid representatives and prospects that lead to transactions, cus-
tomer satisfaction, account development, and profitable relationships.

The relationships between selling and other elements of the marketing mix are highlighted
in Figure 1-1.
Marketing programs are designed around four elements of the marketing mix: products
to be sold, pricing, promotion, and distribution channels. The promotion component includes
advertising, public relations, personal selling, and sales promotion (point-of-purchase dis-
plays, coupons, and sweepstakes). Note that advertising and sales promotions are non-
personal communications, whereas salespeople talk directly to customers. Thus, where
advertising and sales promotion “pull” merchandise through the channel, personal selling
provides the “push” needed to get orders signed. With public relations, the message is per-
ceived as coming from the media rather than directly from the organization. Personal selling
involves two-way communication with prospects and customers that allows the salesperson
to address the special needs of the customer.
It is often the job of a salesperson to uncover the special needs of the customer.
When customers have questions or concerns, the salesperson is there to provide appropriate

Marketing
mix

Products Prices Promotion Distribution

Public Personal Sales

Advertising Internet
relations selling promotion

Sales
management

Planning Motivating
Budgeting Compensating
Recruiting and selecting Designing territories
Training Evaluating performance

F I G U R E 1-1 Positions of Personal Selling and Sales Management in the Marketing Mix
4 CHAPTER 1 INTRODUCTION TO SELLING AND SALES MANAGEMENT

explanations. Furthermore, personal selling can be directed to qualified prospects, whereas

a great deal of advertising and sales promotions are wasted because many people in the
audience have no use for the product. Perhaps the most important advantage of personal
selling is that it is considerably more effective than advertising, public relations, and sales
promotion in identifying opportunities to create value for the customer and gaining customer
commitment.
The person responsible for management of the field sales operation is the sales manager.
He or she may be a first-line manager, directly responsible for the day-to-day management
of salespeople, or positioned at a higher level in the management hierarchy, responsible
for directing the activities of other managers. In either case, sales management focuses on
the administration of the personal selling function in the marketing mix. This role includes
the planning, management, and control of sales programs. Sales management can thus be
defined as:
The planning, organizing, leading, and controlling of personal contact programs designed to
achieve the sales and profit objectives of the firm.
Regardless of whether the sales manager directs salespeople or other sales managers,
all managers have two types of responsibilities:
• Achieving or exceeding performance goals for the current period.
• Developing the people reporting to them.
Each of these responsibilities includes a number of more specific activities that will be
discussed throughout this book. It is important that you understand the context in which
sales managers execute these two responsibilities. In the next section we discuss some of
the more consequential changes taking place in the marketplace and in selling operations.

A CHANGING MARKETPLACE
It is certainly a time of change. Powerful forces are at work that are irrevocably chang-
ing the way that salespeople and sales managers understand, prepare for, and accomplish
their jobs. Few sales forces will be immune. Some of the more important competitive and
customer-related forces of change are illustrated in Figure 1-2. In this section we briefly
examine these forces and the consequent changes in selling processes.3

Competition Customers
• Global competition • Fewer suppliers
• Shorter production cycles • Rising expectations
• Proliferation • Increasing power

Selling process
• Solutions selling
• Sales teams
• Sales networks
• Productivity metrics

F I G U R E 1-2 Marketplace Changes and Selling Consequences

A CHANGING MARKETPLACE 5

Competition
The 1980s and early 1990s were generally a seller’s market. Today, the number of competi-
tors in most markets has literally exploded. In this section, we explore three key reasons
for this development—globalization of markets, shorter product cycles, and a blurring of
market boundaries.

Globalization. Companies that compete only in the United States or even in a region of the
United States are feeling the effects of globalized competition. It is not unusual to compete
with companies from other countries, to use suppliers located in other parts of the world, or
to sell to customers that are selling in other countries. Any of these situations may result in
intensified competition and require that the sales force adjust from a local to a global focus.
The most obvious need for a global perspective is for those companies competing in
other countries. World trade accounts for more than 20 percent of U.S. gross national product.
This is because almost 95 percent of the world’s population and 75 percent of its purchasing
power are outside of the United States. The majority of sales by such well-known companies
as Coca-Cola, Colgate-Palmolive, and Avon Products are made outside the United States.
Chief Sales Officers (CSOs) know that their companies’ growth is likely to depend on how
well they manage customer relationships in global markets. This means more traveling,
hiring the right people, defining new roles and duties, and developing a global perspective
and world-class skills at addressing an increasingly eclectic sales force.

Shorter Product Cycles. The rate of technology transfer is increasing. Process and products
that were once proprietary are quickly becoming available to competitors. As a result of
the porousness of technology, product cycles are shorter, imitation is more rapid, and as a
consequence, the window of product differentiation has narrowed considerably. This devel-
opment has important implications for sales management. Sales and customer relationship
skills are most important when a product is new and again when it is late in its life cycle.
New products need careful presentation because a buyer’s risk is highest owing to lack of
experience with the product. The sales force’s task is to help customers understand that
the benefits of the new product outweigh the risks and costs associated with the requisite
business changes. In the late stages of the life cycle, the salesperson again becomes very
important. With very few important differences in competing products, the personal rela-
tionship and intimate customer knowledge of the sales force become the primary point of
differentiation and leverage for a supplier. As a consequence, sales forces are constantly
balancing competing and changing sales priorities.4

The Proliferation Challenge. Recent advances in technology, information, communica-

tions, and distribution have created an explosion of new sales and service channels, media,
products, and brands. Consider the wireless-telecommunications market. The number of
discrete offerings has ballooned into the hundreds: prepaid and postpaid calling plans;
family-friendly and nights-and-weekend plans; text-, data-, and message-capable mobile
telephones; video and music phones, and so on. The number of distribution touchpoints has
increased from three to more than ten, including company-owned stores, shared and exclu-
sive dealers, telemarketing agents, affinity partners, and the Web. As a result, the number of
price points exceeds 500,000. The same picture holds for most other businesses as diverse
as packaged goods, pharmaceuticals, retail banking, and others. The number of chocolate
candy brands in the United States increased from 407 to 537 over a four-year period of
time.5
The implications for sales and sales management are profound. Product and competitor
knowledge demands on salespeople are greater. Developing solutions for customer problems
becomes more complex as does the need for better understanding of customer needs. Most
6 CHAPTER 1 INTRODUCTION TO SELLING AND SALES MANAGEMENT

fundamentally, the sales force increasingly must understand their company’s marketing
program in order to successfully execute the firm’s marketing plan in the field. The remainder
of this book will discuss efforts by companies to successfully meet this challenge.

Customers
The increase in competition clearly calls for new selling and sales management approaches.
However, identifying the correct selling and sales management approach is further compli-
cated by customer developments such as purchasing from fewer suppliers, rising expecta-
tions, and increasing power.

Fewer Suppliers. The traditional practice of buyers rotating purchases across multiple
supplier sources is increasingly being questioned in many industries. Motorola’s Personal
Communications Sector group, for example, has reduced its supplier base from 300 to 100
suppliers.6 On September 29, 2005, the Wall Street Journal ran a front-page story on Ford
Motor Company’s decision to reduce its supplier base from 2,500 vendors to 1,000. The
lucky survivors will be given long-term contracts and a larger share of the $90 billion Ford
spends on global purchases annually. Everyone else will be on the outside. Keep in mind
that Ford has been working on this consolidation process since the late 1980s, when it
had over 13,000 vendors. Xerox Corporation, GE, General Motors, and most other major
corporations have followed suit in reducing their supplier base by one-half or more. These
companies are finding that the costs of maintaining relationships with a large number of
suppliers far exceed any possible price savings. Consider the results of a Department of
Defense study that found that it costs hospitals $1.50 in administrative costs associated with
$1.00 worth of medical supplies.
At first glance, customers purchasing from fewer suppliers would appear to benefit
suppliers. But what if you are not chosen as one of the “in suppliers”? Among wholesalers
of periodicals and magazines, for instance, the shift by large retailers to single-sourcing
has resulted in intense consolidation. Contract-winning wholesalers rapidly acquired former
competitors in an effort to cover larger territories and service larger accounts. As a result,
the number of wholesalers in the United States has dropped to one-third of the number
operating in 1990. In other words, the revenue stream from individual customers had become
so important that survival had become dependent on maintaining the supplier-customer
relationship.

Rising Expectations. Despite a focus on quality and service, customer satisfaction remains
low, according, to research by J. D. Power and Associates. Customer satisfaction is difficult
to manage because as customers receive good treatment, they become accustomed to it and
demand even better treatment. In other words, the bar is being constantly raised. Customer
expectations are raised not just by how well a business performs versus competitors, but
also by the higher standards set in other industries. People are aware of the standard in the
consistency of service at McDonald’s, the cleanliness at Disney, and the product quality
at Sony. Customers are aware of the product and service quality they receive from these
companies and are holding everyone else to a higher standard.
The good news is that these rising expectations are very apparent. Customers expect
salespeople to be professionals who are adept at identifying and satisfying their buying
needs. The H. R. Chally Group, a sales and sales management consulting firm, conducted
extensive research into customer purchasing behavior. Figure 1-3 lists some of the most
important expectations of salespeople in the customers’ own words.

Increasing Power. Fewer than 10 percent of all retail stores, for instance, account for more
than half of U.S. retail sales. Wal-Mart, Target, Sears, Costco, and many other dominant
A CHANGING MARKETPLACE 7

“Be personally accountable for our desired results”

“Understand our business”
“Be on our side”
“Design the right applications”
“Be easily accessible”
“Solve our problems”
“Be creative in responding to our needs”

F I G U R E 1-3 Customer Expectations of Salespeople

retailers have grown bigger and more powerful than the manufacturers that supply them,
and they are now dictating the supplier-customer relationship.
This shift to large powerful customers has had dramatic impact on suppliers. Procter &
Gamble, for example, has well over 100 people located in Bentonville, Arkansas, to sell and
service Wal-Mart. When the accounts are huge, consumer goods companies are finding that
marketing and sales must make joint decisions about product, price, brand, and all kinds of
support. Pricing, product and service customization, and merchandising programs cannot be
entrusted to either marketing or sales alone. The economic impact of these large accounts
requires an integrated approach.

Selling Process
The changes discussed so far are rapidly dooming the traditional sales attitude of “I can sell
anything to anyone.” The financial stakes are too high and the problems too complex for
a single salesperson to handle. In this section we briefly discuss several important changes
that are taking place in many companies’ selling efforts: relationship selling, sales teams,
inside selling, and productivity metrics.7

Solutions Selling. The traditional selling model emphasizes selling products in the short
term. The value added by the sales force was in communicating the benefits of the product
or service to the customer, helping customers make a purchase decision, and making the
whole process convenient and easy for the buyer. In many situations, especially when the
product or service is not of strategic significance to the buyers, this type of relationship
is appropriate. However, many buyers and sellers are finding that this selling model does
not work for all customers, particularly those that are most important. This has led to
the development of an alternative selling model referred to as solutions selling. Solutions
selling involves creating customer value by addressing important customer problems and
opportunities through a supplier-customer relationship that is much more intimate than that
of traditional transactional selling. In a recent survey of sales executives, 64 percent rated
implementing a solutions selling model as one of the top three challenges facing sales forces
today.8 Figure 1-4 contrasts some of the differences between the traditional transactional
selling model and the solutions selling model.
Perhaps the best way to understand what is meant by solutions selling is by describing
one company’s experience in transitioning from a traditional to a solutions selling model.
Procter & Gamble’s (P&G) sales model with retailers was traditionally transactional. As a
result, buyers and P&G salespeople operated at an arm’s-length buying-selling environment.
The sales force took orders and aggressively pursued shelf space, while buyers negotiated
8 CHAPTER 1 INTRODUCTION TO SELLING AND SALES MANAGEMENT

Transactional selling model Solutions selling model

• Selling skills • General business skills

• Responsive to customer needs • Engages cutomer as a collaborative

partner
• Selling product, price, and service • Selling customer solutions

• Differentiation through products • Differentiation through people

• Sales revenue focus • Customer lifetime value

• Buyer-seller relationship • Trusted business advisor

F I G U R E 1-4 Contrasting Transactional and Solutions Selling Models

fiercely for lowest prices and sought the highest shelving allowances in the form of fees for
premium shelf facings. In contrast, solutions selling involves a collaborative effort to create
added value from this synergy. P&G has reorganized into Customer Business Development
Teams composed of a variety of functional areas and organizational levels focusing on
individual customer needs. This system has increased customer product turnover by 20 to
30 percent, and the retailer often sells the inventory before paying for it.9 Of course, for
this program to be successful, customers must share critical inventory data with P&G and
trust that P&G will operate in the customers’ best interest.
The factors associated with success in selling are also changing as sales forces change
from a transactional to a solutions selling model. In a recent survey of over 200 sales
executives in a variety of industries, the top five factors judged to be important to success
in sales were the following in order of importance:
Listening skills
Follow-up skills
Ability to adapt sales style to the situation
Seeing a task through to its completion
Well organized10
This is a vastly different list from that associated with success in the traditional transactional
selling model and is reflective of the greater sophistication and business knowledge that
today’s salespeople must possess in order to provide their customers with solutions. The
qualities of top sales professionals run a close parallel with the qualities of top leaders.

Sales Teams. As the P&G experience suggests, the importance of the “lone-wolf ” sales-
person winning and losing on the strength of his or her own efforts and skills is likely
to diminish in the future. In the case of relationship selling, no one person possesses the
necessary knowledge and resources to address the bigger opportunities to create value that
go beyond selling the product. Figure 1-5 illustrates the change made by P&G. Under the
traditional buyer-seller interface model, all of P&G’s capabilities and communications with
the retailer were funneled through one salesperson whose customer contact was a purchas-
ing agent. With sales teams, the model is reversed, with multiple contacts being established
between P&G and retailers. This model allows for a broader transfer of capabilities and
communications. Notice also that both the seller and buyer must change, so the degree and
extent of interaction expand dramatically. Obviously, not all buyers and sellers are prepared
to make these adjustments.
A CHANGING MARKETPLACE 9

Traditional buyer-seller Buyer-seller interface

interface team

Sales Customer
Sales Purchasing
team team

Supplier Customer Supplier Customer

F I G U R E 1-5 Traditional Buyer-Seller Interface versus a Team Interface

The switch to sales teams incorporating a relational sales orientation has a number of
critical consequences for a firm’s sales program and management processes. Sales teams
require changes in a firm’s organization structure, selection process, training program, com-
pensation plan, and evaluation processes. Even with strong top management commitment
and support, it took P&G five years to transition relationship selling and sales teams, and
there is still a commitment to constantly revisit progress and make further adoptions. In
recognition of its importance, we will discuss team building later in this chapter as an
important competency for sales managers.

Sales Networks. Anyone in sales will tell you that networks are critical to his or her
success. The more contacts you have, the more leads you generate, and ultimately the more
sales you’ll make. While this is true, the situation today is more complex because of the
changes noted previously with customers and the marketplace. Today, sales networks are
needed to not only prospect for new customers, but networks are also often required for
closing the complex deal and for providing customer solutions. To complicate matters even
more, research is finding that the type of sales network needed to find prospects is different
from that needed to close the deal and to provide customer solutions.11
Specifically, successful prospecting depends on the salesperson’s acquiring precise and
timely information about opportunities from contacts outside the seller’s organization. We
discuss this type of sales networking more in Chapter 5, Customer Interaction Management.
The sales network for closing the complex sale, however, is quite different. At this point
the salesperson needs to secure meetings with key decision makers so that the proposal gets
serious consideration. This involves knowing who in the customer’s company makes the
decisions, who has influence, and who is involved in implementing and working with the
solution. Because answers must come from inside the customer’s business, the salesperson
must develop a network inside the business to help achieve the sales goal. This type of
networking is discussed in greater detail in Chapter 4, Account Relationship Management.
Yet a third sales network is needed to provide the customer solution because rarely does
the salesperson come up with the complete solution in a complex sales situation. Success
depends on the salesperson knowing where within his or her own organization the solution
resides.12 Consider the following example involving 3M and IBM:
• The 3M account manager for the IBM account discovered that one of IBM’s major
manufacturing problems involved electrostatic discharge. Thinking that proprietary 3M
technologies might help address the problem, the account manager brought in a core
group of four people from 3M’s Technology Group to study and solve the problem.
The group spent over two years addressing the problem and was able to significantly
reduce IBM’s problem, translating into several million dollars of savings for IBM. As
a result, IBM asked 3M to supply the manufacturing system components throughout its
worldwide operations. As a result, 3M increased sales to IBM by 300 percent over two
years, generating more than $10 million in incremental revenue. This increase in revenue
10 CHAPTER 1 INTRODUCTION TO SELLING AND SALES MANAGEMENT

occurred because the account manager was able to convince people inside 3M that a
team of specialists should be assigned to the IBM’s San Jose facility to address the
manufacturing problem.
Companies are beginning to realize that in many cases sales success depends as much on
successful inside networking as it does on external customer-focused networking. Sales-
people will need to work with a number of functions across an organization if they are to
develop successful long-term relationships with clients like the one between 3M and IBM.
Inside selling is especially important for strategic and global account selling.13

Productivity Metrics. Historically, sales performance metrics were simple—increase rev-

enue over the previous year. Sales managers typically rewarded and compensated salespeople
by evaluating sales volume over a certain period of time. Although sales volume is still
important, companies are discovering that not all sales are equally profitable. Profitability
often depends on the following:
• The amount of time necessary to complete the sale
• The gross margins associated with the sale
• The level of price discounting
• The amount of promotional support
• The amount of post-sale support
• The potential for future sales
The sales force has an important influence on all these issues through their account selection,
account penetration, account retention, pricing, and servicing decisions. In effect, salespeople
are resource allocators. First, they decide on which customers and prospects they will spend
time selling and how much time they will allocate to each customer. These decisions and
the metrics for making them are discussed in Chapter 4. Second, the sales force also has an
important role in the allocation of marketing resources to individual customers.
For example, sales forces for large food manufacturers selling through grocery stores are
responsible for trade promotion spending decisions, such as coupon promotions, newspaper
advertising, display racks, and price promotions. These trade promotions typically account
for close to 50 percent of the marketing budgets for consumer goods companies. Spending
this money effectively is critical to these firms’ profitability. As a result, salespeople are
being evaluated on a wider array of performance metrics, which places greater emphasis on
gathering more and better performance data. We discuss these performance metrics further
in Chapter 13.
As indicated at the beginning of this chapter, it is an exciting time to be in sales
and sales management. The breadth of skills and knowledge required to excel in sales has
increased dramatically. As a consequence, sales is becoming an important proving ground
for top marketing and operating officers in many companies. In the next section we try to
provide a picture of what sales management is all about by first describing the functions
they perform, followed by a discussion of the activities in which they are involved, and
finally the competencies a successful manager needs to develop.

THE SALES MANAGEMENT PROCESS

As stated earlier, the two primary responsibilities of sales managers are to achieve their
firm’s goals for the current planning period and to develop the people reporting to them.
One field sales manager described the job as follows:
People development is my main mission in life: 50 percent people development, 30 percent sales
and product leadership, 10 percent administration, and 10 percent compliance—you go to jail if
you are not the policeman on the block.14
THE SALES MANAGEMENT PROCESS 11

To better understand how sales managers execute these responsibilities, in this section
we describe a fundamental process for sales management, the activities in which sales
managers are engaged, and the competencies needed to be a successful sales manager.
The sequence of activities that guides managers in the creation and administration of
sales programs for a firm is known as the sales management process. This text is organized
around the steps in this sales management process. Each step is briefly described here.

Focusing on the Big Picture

An effective sales force is a powerful asset for any company. Physicians have consistently
ranked Pfizer’s sales force as one of the best in the pharmaceutical industry. As a result,
when Parke-Davis launched its blockbuster cholesterol-lowering drug, Lipitor, it entered
into an alliance in which Pfizer’s sales force pitched the drug to physicians throughout the
United States.
A company’s management process is fundamentally affected by the firm’s overall busi-
ness strategy and its strategy for accessing its target markets. The relationship between
business strategy, a firm’s marketing strategy, and a firm’s strategic sales force program
is discussed in Chapter 2. Two management resource presentations follow Chapter 2: sales
force investment and sales forecasting. Put together, Chapter 2 and sales forecasting and
sales force investment constitute the “big picture” focus of top sales force executives.

Roles of the Sales Force

To be successful and produce profitable results, a firm’s business strategy and market
access strategy must be implemented by the sales force. In other words, strategic plans
are implemented through the activities and behaviors of the sales force. Key sales force
behaviors include calling on certain types of customers and prospects, managing customer
relationships, and creating value for individual customers. The role of the sales force in
implementing a firm’s market access strategy is the focus of the second section of this text.
This section is organized hierarchically to first look at managing multiple sales opportuni-
ties (Chapter 3), account relationships (Chapter 4), and customer interactions (Chapter 5).
Together, these chapters examine the activities and behaviors of successful sales forces.

Structuring the Sales Force

To meet customer needs efficiently and effectively and to sell the firm’s products and
services, a sales force must be well organized. Sales force structure decisions influence
how customers see the firm because sales force structure will affect the selling skills and
knowledge level required of salespeople. In turn, sales management activities such as com-
pensation, recruitment, training, and evaluation are affected. Alternative sales force structures
are presented, and their implications are discussed in Chapter 6. Following this chapter is
a management resource describing a process for aligning sales territories, that is, assigning
customers to salespeople.

Building Sales Competencies

Sales managers are responsible for hiring salespeople with the appropriate skills and back-
grounds to implement the sales strategy. Good sources must be found for new hires, and
those who are weak in these areas must be carefully screened out. These and other recruiting
issues are covered in Chapter 7.
In addition to hiring qualified people, salespeople’s competencies are usually developed
through training before they are sent into the field. Sales managers are responsible for
making sure that training is completed, and they often conduct some of the classes.
12 CHAPTER 1 INTRODUCTION TO SELLING AND SALES MANAGEMENT

Most initial training programs are designed to familiarize salespeople with the company’s
products, services, and operating procedures, with some time devoted to development of
selling skills. Because sales training is expensive, the sales manager is responsible for
selecting the most cost-effective methods, location, and materials. A detailed discussion of
training is given in Chapter 8.

Leading the Sales Force

Effective sales managers know how to supervise and lead their salespeople. Sales managers
provide leadership by inspiring people to grow and develop professionally, while achieving
the revenue goals of the firm (Chapter 9).
In addition to leading the sales force in business results, sales managers are also expected
to lead by example in encouraging ethical behavior within the sales force. Salespeople are
continually confronted with ethical dilemmas; Chapter 10 provides some background on
these problems so that informed decisions can be made.
Sales managers use a variety of tools in their efforts to motivate salespeople to work
more efficiently and effectively. Chapter 11 describes a proven process for achieving
goal-directed effort. The chapter also discusses other techniques that have proved to be
effective motivators, including sales meetings, quotas, sales contests, and recognition awards.
The most powerful motivator for salespeople is often a well-designed compensation
package. Money is an important consideration for attracting and motivating people to work
hard (Chapter 12). A key task for sales managers is to devise an effective mix of salary,
bonuses, commissions, expenses, and benefits without putting the firm’s profitability in
jeopardy.
The final step in the sales management process is to evaluate the performance of the sales
force and develop the skills of their people. This involves analyzing sales data by account,
territory, and product line breakdowns (Chapter 13). It also means reviewing selling costs
and measuring the impact of sales force activities on profits.
Based on the prior discussion of the sales manager process, which person would you
promote in the Team Exercise “Who to Promote?”

THE SALES MANAGEMENT COMPETENCIES

We’ve talked about the sales management process, but you may be wondering what it takes
to be an outstanding sales manager. So, let’s look more closely at the competencies that
managers need in order to succeed.
Sales management competencies are defined as sets of knowledge, skills, behaviors, and
attitudes that a person needs to be effective in a wide range of industries and various types
of organizations.15 People use many types of competencies in their everyday lives. Here we

Strategic
action
competency
Technology Coaching
competency competency
Sales
management
Global effectiveness Team-
perspective building
competency competency
Self-management
competency

F I G U R E 1-6 A Model of Sales Management Competencies

THE SALES MANAGEMENT COMPETENCIES 13

TEAM EXERCISE
“Who to Promote?”

Your company has experienced fantastic growth during the past year, with sales jumping an
average of 60 percent per month because of the added exposure a new product, StarDuster,
has given to all of the company’s other products. Introducing the new product has also had
salespeople working double-time.
Assume you are the vice president of sales. Lately, you have been spending most of your
time interviewing and hiring new salespeople. After adding ten new salespeople, you realize
that you need to promote one of your senior reps to be an area sales manager. You want to
choose the person who will keep sales growth high and the reps motivated, but also someone
who can maintain records and budgets as if the area were his or her own business. You have
narrowed your choices down to the following two people. Which would you choose to promote
to manager and why? Remember to consider the duties of a sales manager and the skills that
sales managers need to perform effectively. You also do not want to lose one rep by promoting
the other, so how would you handle the discussion with the person you do not promote?
LISA BELL Lisa is very persistent, won’t take “no” for an answer, and is one of
your best closers. She has been a President’s Club member (top 10
percent in sales each year) every year since she was hired five years
ago. Her dynamic personality is an inspiration to other reps, and she
has had great success with the two rookie reps she has mentored. Her
“take-charge” personality has been of benefit to you and you have often
asked her to help you plan sales meetings.
STEVEN BELLACH Steven is a six-year veteran with the company and a solid producer
who is looked up to by many of the younger reps. He is great at
building customer relationships and always has supportive words and
suggestions for his peers on how to improve their sales techniques. He
is surprisingly detail oriented for a salesperson; his sales reports are
always filled in perfectly and turned in on time.

focus on six competencies (Figure 1-6) that you will need for today’s sales management
responsibilities. Exercises are included at the end of each chapter focusing on each of the six
competencies. Let’s examine the dimensions of each of these competencies more closely.

Strategic Action Competency

Understanding the overall strategy and goals of the company and ensuring that your actions
and those of the people you manage are consistent with these goals involves strategic action
competency. Strategic action competency includes:
• Understanding the industry
• Understanding the organization
• Taking strategic actions
Today’s sales managers are being challenged to think strategically in order to improve
their job performance. One dimension of strategic thinking is to anticipate strategic trends
in the industry and to make the appropriate adjustments to take advantage of these changes.
Failure to do so may be very costly.
The plight of Encyclopedia Britannica Corporation is a good example of the possible
penalty for ignoring important industry trends. First published 225 years ago in Edinburgh,
Scotland, sales of Encyclopaedia Britannica peaked in 1990 at $650 million. As CD-ROM
technology gained acceptance, however, Britannica’s management failed to respond and
14 CHAPTER 1 INTRODUCTION TO SELLING AND SALES MANAGEMENT

continued to market through a direct sales force of 2,300 people. Part of the reason Britannica
found it hard to change is that a typical sale pays the salesperson a commission of $300.
With CD-ROM encyclopedia packages priced from $99 to $395, commissions would have
dropped significantly. It also would have required marketing through competing channels of
distribution such as retail outlets, direct mail, and telemarketing, a change the powerful direct
sales force would have resisted. As a consequence, however, sales declined dramatically,
profitability has been a problem, and the sales force has been reduced to less than half of
its former size. Britannica has also reduced its price and production costs, and developed
electronic versions on CD-ROM, DVD, and the World Wide Web.16
This competency also involves understanding the organization—not just the sales unit
in which the manager works. Goals and standards will cascade from above. Unless you are
well connected and can influence them, your point of view goes unheard at the top. The first
five chapters of this text are organized to reflect the hierarchical nature of goals, strategies,
and tactics. After examining the competitive environment (Chapter 1), a strategy or plan
for achieving specific goals must be developed (Chapter 2), which will have implications
for how resources are allocated across various market opportunities (Chapter 3), what types
of customer relationships are developed (Chapter 4), and how the account interaction is
executed (Chapter 5).

Coaching Competency
Comparisons are often made between the competitive worlds of sports and business sales.
Athletes compete against opposing players to win the game, whereas salespeople compete
with other companies’ salespeople to win accounts. Like the athletic coach, the sales man-
ager plays an important role in this competition by helping to develop the skills of the
sales team.17 The president of a large distribution company developed the habit of calling a
district sales manager into his office and bringing up an account on his computer. He then
asked the manager to comment on what he or she had done to support the salesperson’s
relationship-building efforts in that account. He didn’t tell the district managers how to help
salespeople build better account relationships. He wanted to reinforce the importance of this
management responsibility. At first, managers were unprepared, but as soon as the message
was understood, helping salespeople build better customer relationships became a prior-
ity among the district managers. Soon other senior officers began copying the president’s
actions.
Coaching is defined as a sequence of conversations and activities that provide ongo-
ing feedback and encouragement to a salesperson or sales team member with the goal of
improving that person’s performance. Performance improvement is achieved by
• Providing verbal feedback
• Role modeling
• Building trust
Coaching helps salespeople develop through one-on-one feedback and encouragement.
The best coaches don’t tell salespeople what to do; rather, they collaborate with them to
achieve mutually agreed-upon goals. In this role, a sales manager works with each person
to create and implement a developmental plan to improve performance. This process often
includes providing ongoing training and coaching in selling skills, sales strategy, and product
and market knowledge.
Sales coaching, however, involves more than just providing verbal feedback on what a
salesperson has done. Successful sales coaches also provide a role model of positive example
through their own behavior or that of others. According to one successful sales manager:
I believe in the power of personal example. You can rant and rave and threaten, but the most
effective way to get results is to show someone what you want done.18
THE SALES MANAGEMENT COMPETENCIES 15

Many sales managers believe that being a good role model is the most effective way to gain
the respect of their salespeople.
Still, a salesperson must be open to coaching, taking feedback constructively, and fol-
lowing the sales manager’s example. This requires a level of trust between a salesperson and
a sales manager.19 A climate of trust is created when a manager is honest and reliable, and
shows a genuine concern about the needs of the salespeople. This is achieved by listening
and maintaining an open, two-way channel of communications. As the saying goes: “They
won’t care what you know, until they know you care.”

Team-Building Competency
Accomplishing tasks through small groups of people who are collectively responsible and
whose work is interdependent requires a team-building competency. Sales managers in
companies that utilize sales teams can become more effective by
• Designing teams properly
• Creating a supportive environment
• Managing team dynamics appropriately
Over the past decade, companies have increased their use of teams. In sales the primary
reason for the use of teams is to improve customer service and sales force productivity. To
help its customers focus on patient care, Allegiance Healthcare includes a wide range of
functional experts on its customer teams. Financial experts monitor regional economics,
for instance, while information service specialists help customers with their information
systems needs. Marketing liaisons analyze product-specific data such as usage trends and
pricing options, and the logistics experts help customers streamline their logistical processes.
A well-designed team is capable of high performance, but it needs a supportive
environment to achieve its full potential. In a supportive environment, team members
are empowered to take actions based on their best judgment. This means that it is very
important to hire people who can get along with others and who work well within a
team environment. These salespersons are quite different from the traditional salespersons
who survived by relying solely on their own abilities. A recent study concluded that
approximately 25 percent of the performance of sales teams was a function of the
diversity within the sales team, with more diverse sales teams expressing greater job
satisfaction.20 Successful team development undoubtedly will require team training, which
is necessary to allow team members to assume each other’s roles and to work inter-
dependently.
Conflicts and disagreements among team members are natural, which means that man-
aging team dynamics is necessary for effective team building. Essentially, this means
maintaining cooperative relationships while pursuing a common goal. If managed well, con-
flict can be productive; if managed poorly, however, it can destroy the team. Demonstrate
your team building skills on the Team Exercise: “Prima Donna.”

Self-Management Competency
Taking responsibility for your actions at work and elsewhere involves self-management
competency. When problems arise, people often blame their difficulties on the situation
or on others. Effective managers don’t fall into this trap. Self-management competency
includes
• Integrity and ethical conduct
• Managing personal drive
• Self-awareness and development
16 CHAPTER 1 INTRODUCTION TO SELLING AND SALES MANAGEMENT

TEAM EXERCISE
“The Prima Donna”

You manage a team of salespeople located throughout a twelve-state area in the Midwest. You
stay in touch with your people via regular conference calls and weekly progress reports. Fran
Lowe, your star salesperson and a bit of a prima donna, often misses meetings and is late with
reports because her territory is particularly difficult. You are starting to sense some resentment
from your other salespeople that Lowe gets a free pass on her administrative duties because
of her sales success. What should you do?

Sales managers are in a particularly sensitive position with respect to integrity and
ethical conduct. To achieve success, the sales force must trust and respect a sales manager.
How is it possible to respect people you feel have no integrity and do not conduct them-
selves ethically? As a person who influences or controls the rewards salespeople receive, a
manager’s ethics and integrity are constantly under review. As the leader of the sales team,
salespeople take their cues from the sales manager with respect to the ethical treatment of
customers. If salespeople are aware of instances in which a sales manager has bent the rules
to make a sale to one customer, they are more likely to model this behavior. At the same
time, there is increasing emphasis on ethical professional behavior, and important penalties
are associated with unethical behavior.
Business is responding to the public’s increasingly negative view of business ethics
due to recent scandals by developing and enforcing codes of ethics, instituting formal ethics
training programs, and maintaining standing ethics committees. Evidence of industry’s inter-
est in ethics is also seen in the establishment and continued growth of the Ethics Officers
Association (EOA), which is dedicated to promoting ethical business practices.21
A sales manager’s job is more than just balancing the many issues that arise each day.
The most important part of his or her job is achieving a balance between personal goals
and those of the organization and of the people he or she manages. After being promoted
to sales management a year earlier, one manager responded as follows to the question of
what satisfied him:
What satisfies me about the job? Well, you do get feedback. Every month you can see how much
your team has generated and you can see which people have developed and maybe even been
promoted. You know you are doing something that is important to the company, something that
needs to be done—both making money and helping people grow and move—both aspects bring
their own satisfactions.

Self-awareness is a critical element of being a good sales manager. This begins with
the reason for wanting to be a sales manager in the first place. People are attracted to man-
agement for a variety of reasons, including being tired of their present job, the opportunity
to assume more authority and make more money, and the opportunity to exercise power
and influence. New managers quickly discover that these reasons don’t help them much in
the day-to-day life of a sales manager, which often leads to self-doubts and a focus on the
question, “Will I be good at it?” Following are comments from three new sales managers
regarding what they discovered about themselves through their salespeople:
• I saw my style as very aggressive, demanding, interested, and involved. They saw me as
a dictator, a tyrant on their backs.
• I was just being myself. But after three weeks on the job, it was coming back to me that
people thought I was harsh, harsh. I needed to soften.
THE SALES MANAGEMENT COMPETENCIES 17

• What an eye-opener. People were trying to tell me I was too indecisive. I made them
nervous because I seemed timid. No one had ever called me timid before.22
To help you in your own self-awareness, a number of self-assessment exercises have
been included in the following chapters. The best way to develop self-awareness, however,
is to do something: take some action. A number of experiential exercises are suggested
at the end of the chapters along with in-class exercises in which the feedback from other
students and your instructor will be helpful in developing self-awareness. The Develop-
ing Your Competencies section at the end of this chapter poses challenging problems and
self-assessment exercises. Real-word, practical challenges are also posed in each chapter’s
Team Exercises, which are designed for small teams to tackle. How would you handle the
issues posed in “How to Handle Rumors?”

TEAM EXERCISE
“How to Handle Rumors”

One of your salespeople tells you about an interesting conversation he had this morning with
a long-time customer about a competitor’s salesperson who used to work for you, but was
discharged for underperforming. The sales rep had criticized your company and you, as a sales
manager. He told the customer that the quality of your company’s products had diminished
significantly in recent years and that consequently your salespeople were having a hard time
selling to prospects and are relying on past reputations to sell to current customers. He also
added that your make-quota-or-leave mentality is forcing reps to push products that customers
don’t really need, such as updates of new parts before old parts are worn out. Your salesperson
indicated that this particular long-time customer was unmoved by the competitor’s accusations
and, in fact, thought that his approach was in bad taste. She also was insulted by the suggestion
that she’s one of the customers being duped by your company, which implies that she isn’t
doing her job properly.
After thanking your salesperson for telling you about this, you head back to your office
to consider what to do with this information. Will other customers react as this one has? What
about prospects—how will they react? Have other customers heard this story and not told your
salespeople? What, if anything, should you do now? In addition, should you say anything at
your next Monday morning sales meeting with your sales team? If so, what will you say?

Global Perspective Competency

Drawing on human, financial, information, and material resources from multiple countries
and serving customers who span multiple cultures requires a global perspective competency.
Not all companies compete in global markets or service customers who sell throughout the
world, but during the course of your career, it’s likely that you will work for an organization
that has a global sales component. To be prepared for such an opportunity, you should begin
to develop your global perspective competency, which in sales is reflected in
• Cultural knowledge and sensitivity
• Global selling program
By the time you become a sales manager in your home country, your own culture has
become second nature to you. However, unless you have traveled extensively, or studied
other cultures as part of your education, you probably have much less general knowledge
18 CHAPTER 1 INTRODUCTION TO SELLING AND SALES MANAGEMENT

and understanding of other countries, even those that share a border with your own country.
Yet because business is becoming global, many managers are now expected to develop
a knowledge and understanding of at least a few other cultures, such as where the com-
pany is marketing its products or where customers are selling their products. For example,
Wyeth-Ayerst International sells pharmaceuticals in 100 countries and employs 50 inter-
national sales trainers. The skills component of their training programs emphasizes that
listening, asking the right questions, and probing for needs are the same throughout the
world. Nevertheless, the company adapts training to local conditions in response to cultural
differences. Salespeople are taught when to drink tea, when to schedule appointments, and
when to close.23
Selling globally or to global accounts affects almost everything a sales manager does.
Selection, for instance, becomes more difficult. One study reported that sales executives
rated only half of expatriates as effective.24 Coordination also becomes problematic as
issues arising between sales efforts at global headquarters and in individual regions and
locations are exacerbated. In recognition of this complication, global issues are discussed
in each of the following chapters.

Technology Competency
Understanding the potential for technology to improve sales force efficiency and effective-
ness and knowing how to implement the integration of technology into the sales force is
referred to as possessing technology competency. Consider the following examples in which
technology has significantly increased sales force productivity:
• The TaylorMade Company, a marketer of golf equipment, increased sales force produc-
tivity by 25 percent through the use of a handheld wireless activity inventory system to
take the inventory of retail stores automatically, allowing salespeople more time to focus
on helping retailers increase sales.
• The Vanguard Group offers a Web interface that is accessible to both customers and the
sales force. Customers use it to open new accounts, purchase and redeem fund shares, and
gain access to account performance. The sales force is freed up to devote time to higher
value interactions. Vanguard’s Web customers invest 150 percent more than non-Web
customers, and the cost to serve them is just 5 percent of what is spent with a human
interface.
Technology competency includes:
• Understanding the productivity potential of new technology
• Implementing sales force automation (SFA)
• Implementing customer relationship management (CRM)
Many experts consider the integration of communications technology, more commonly
known as sales force automation (SFA), as not only a source of competitive advantage but
increasingly as a necessity to stay competitive. According to a recent survey of top sales
executives, 83 percent of respondents’ companies plan to upgrade existing sales and market-
ing service and customer relationship management systems. The average budget companies
have slated for these initiatives is $1.5 million.25
Sales and marketing adoption of technology tends to evolve over the years. In the
first stage, sales force automation systems often focus on efficiency and consist of call
reporting systems focused on tracking activities that are designed to automate repetitive
and error-prone sales tasks such as order processing. In the next stage, a company may
adopt an electronic territory management system to increase sales force effectiveness by
assisting with targeting and customer profiling. In the third stage, a company may adopt
a customer relationship management perspective to technology in recognition that a firm’s
CAREER PATHS 19

relationship with a customer is a many-to-many relationship. Sales, service, marketing,

finance, product development, as well as a company’s partners, all need to collaborate
and share information in order to meet customer needs. A major focus of CRM systems
is to ensure a consistent experience for a customer across multiple sales channels. If a
customer gets product information over the Internet, makes an inquiry over the phone,
sees a technical specialist for product design assistance, and sees a salesperson for pricing
information, CRM systems seek to ensure that all the parties have the same information for
seamless collaboration. This helps companies be more effective in communicating with a
customer and more efficient in transacting business.
When implemented correctly, SFA and CRM can streamline a company’s entire selling
process. Although most companies can’t afford not to automate, an estimated 61 percent of
automation projects fail to deliver the expected benefits.26 According to experts, company
efforts to automate are jeopardized by one of three reasons, each of which causes sales force
resistance. One reason for resistance is that the sales force does not understand how SFA
and CRM will help them in their efforts to sell. Research indicates that appropriate tech-
nology training and improved salesperson effectiveness will cause resistance to technology
and job insecurity to abate.27 In other words, management has not clearly identified and
communicated what they want to accomplish. Second, sales management may expect SFA
and CRM to allow better control of remote and mobile salespeople. Experience shows that
when the balance shifts to management control and data collection from increasing sales-rep
productivity, the sales force will resist. Third, resistance is likely when top management is
not committed to automation by adapting technology themselves. Unfortunately, it is still
almost a badge of honor among top corporate officers to not know how to use their own
personal computer.
Proficiency in working with and presenting numerical information is increasingly
demanded of new sales hires in many companies. To help you in developing this
proficiency, problems have been included in the appropriate chapters accompanied by
Excel spreadsheets. The companies we have talked with and the sales managers who have
been chapter consultants for this text have indicated that they expect their new hires to
have a basic proficiency in the use of spreadsheets, which is why we have included the
problems along with Excel files for your analysis.

CAREER PATHS
Sales is a great way to start a career. We believe it is important for students to understand how
someone moves into the position of sales manager and what the opportunities are for further
advancement. Sales managers almost always begin their career paths as salespeople. The
median age of newly appointed first-line field sales managers is about 30 with about three to
five years of prior sales experience with the company. Many selling and sales management
experts will testify that there is a significant positive correlation between salespeople’s
success and the quality of their sales manager.28 Because of their enthusiasm and fresh
ideas, new sales managers are often able to boost the sales of the salespeople they supervise.
The bottom line is that you can make a difference with a career in sales management. That
the average total compensation for sales managers is over $150,000 also testifies to the
importance of this position.29 Following is one person’s story.

The Path to CEO

Lisa Cash started in sales with Club Corporation of America in the early 1980s. She worked
her way up to regional sales and marketing manager by 1991. In 1992, she joined Bell
Atlantic, now Verizon, where she managed two separate $100 million divisions. Intrigued
20 CHAPTER 1 INTRODUCTION TO SELLING AND SALES MANAGEMENT

by the fast-growing high-tech sector, Cash took a position with a software company. She
was hired as East Coast sales manager of Princeton Softech in 1997. After a short time,
she started taking on additional projects that utilized her experience. One of these projects
was implementing a telemarketing channel (outbound sales calls) for the company, which
eventually led to an appointment as vice president of sales in 1999. When the company’s
CEO decided to leave, it was Cash he recommended to replace him. According to Cash,
“I think we are seeing more CEOs from sales and marketing because they have highly
developed communication and persuasion skills. And they have a high level of awareness
about the importance of the customer.”30

Procter & Gamble

Sales careers with consumer product firms begin in the field. At P&G, the role of sales is
to deliver brand volume and market share at a competitive cost. The sales force is a part
of the Market Development Organization, which is organized as shown in Figure 1-7. As
you can see in the figure, there are only four levels of management below the executive
management level. An account manager, either as a part of an account team or a geographic
unit, is responsible for influencing decisions affecting P&G brands at individual retail
outlets. An account manager is expected to develop and execute merchandising and
promotional programs that grow the profits and sales for the customer and the brand.

Executive management
Function management–general management

Director
Customer Sector/ Human
business multi-sector resources
development sales

Worldwide Other
assignments functions
• Advertising
• Canada Associate director • Product
• Latin America supply
• Asia/Pacific Customer Sector/ Sector/ Human
• Management
• Europe business multi-sector sales resources
system
• Middle East development bus. devel. merchandising
• Human
& Africa resources
• U.S. • Finance
• Other
Manager
Operations Geographic Other field or
manager or team general office
account roles
executive

Account manager
Operations Geographic Other field or
manager or team general office
account roles
executive

F I G U R E 1-7 Career Paths at Procter & Gamble

PREPARING FOR SALES MANAGEMENT SUCCESS 21

The account executive level influences P&G brand decisions at the customer headquarter
level, while also coordinating local store activities of the account managers. An associate
director is responsible for all the brand, customer, and functional strategies in a particular
business sector, such as major food distributors, national chains, wholesale clubs, and
discounters in a particular region of the country. A director leads the sales organization
of multiple sectors and influences brand merchandising strategy and customer strategy. A
director would be involved in decisions such as the overall structure of the sales force, the
development of sales force competencies, and performance emphasis.
Opportunities for personal growth and development may be found within each of the
four organizational levels at P&G. So, a new recruit might start as an account manager in
the Midwestern Kroger customer team. After several years, he might be promoted to head
up the Southeastern Safeway customer team as an account executive. This promotion might
be followed by an assignment in Europe or in human resources as a trainer. A key advantage
of a career at P&G is the wide variety of positions available that provide experience needed
to climb the ladder of success.

PREPARING FOR SALES MANAGEMENT SUCCESS

Sales Management was written to prepare you for a successful sales management career. To
accomplish this objective, its chapters provide comprehensive coverage in a manner that is
both interesting and engaging. In addition, each chapter has been reviewed and enhanced
by the experiences and suggestions of highly successful people in sales and marketing,
including, among others, Paulette Turner, Sales Operations Business Unit Executive, IBM
Corporation; B. J. Polk, Director-Sales-Marketing, Procter & Gamble Distributing Company;
and Joseph Clayton, Chairman of the Board, Sirius Satellite. They have passed along the
lessons they have learned to help you be a success.
Success in business is directly related to the competencies that you develop. The remain-
ing chapters build on the competencies introduced in this chapter. These six competencies
have been identified as important for success in management. At the conclusion of each
chapter, exercises for developing each of the six key competencies are presented. Each
exercise relates to the chapter’s topic and is designed to help you build your competencies
so that you are prepared to assume sales management responsibilities when the opportunity
is presented.
To further help in your development, each chapter includes several Team Exercises
describing typical situations in the day-to-day life of a sales manager. Each situation calls
for you to decide the most appropriate action to be taken and often includes the opportunity
to think about the words and phrases you would use when talking with the other people in
the exercise. Because more than one person is usually involved, this exercise lends itself
well to a team or group discussion and role playing of conversations between individuals.
Each chapter begins with a company or individual vignette introducing many of the
concepts and issues discussed in the chapter in a live situation. On the first page of each
chapter is a list of Learning Objectives for that chapter. A Summary at the end of each
chapter revisits each learning objective, along with a brief description of the topic. Key
terms are presented in italics and are listed at the end of each chapter. Comprehensive cases
are presented at the end of the book.
Following this chapter is the Shield Financial case describing Doug Bloom’s first days
after being promoted to sales manager in a financial services company. This first case
describes the company, its products, and organization, as well as the “growing pains” Doug
goes through in those first months as a sales manager. You are given the opportunity to
grow with Doug as he faces challenges described at the end of each chapter. Again, you are
asked to make decisions based on the background information presented in the chapter. By
22 CHAPTER 1 INTRODUCTION TO SELLING AND SALES MANAGEMENT

the end of the book, you will have matured along with Doug and will have gone through
the full cycle of issues common to the sales manager position. In short, by reviewing the
material in the chapters and addressing the challenges presented within and at the end of
each chapter, you will be much further along the path to success in sales management.

SUMMARY
This chapter has introduced the topics of personal selling and sales management. Where
personal selling focuses on direct contacts with prospects, sales management is concerned
with the planning, organizing, leading, and controlling of personal contact programs to
satisfy customers and achieve the objectives of the firm. You should now be able to do the
following:
1. Describe the major changes taking place in selling and the forces causing these
changes. The competitive marketplace is becoming more globalized, product life cycles
are getting shorter, and competitive boundaries are blurring. At the same time, customers
are buying from fewer suppliers, their service and performance expectations are increas-
ing, and their power is increasing so that they can not only demand but also obtain
higher service and offerings from suppliers. As a result of these forces, the selling pro-
cess is becoming more focused on relationship selling, selling teams are often necessary
to fully address customer needs, people are spending more of their time on internal
selling and marshaling resources to develop customer solutions, and sales force suc-
cess is increasingly measured in terms of productivity and profits as opposed to top-line
revenues.
2. Define sales management. Sales management is defined as the planning, organizing,
leading, and controlling of personal contact programs designed to achieve the sales and
profit objectives of the firm.
3. Describe the sales management process. For pedagogical purposes and by way of
organizing the variety of activities involved in sales management, the sales management
process is grouped as follows: seeing the big picture and developing strategic sales plans,
defining the role of the sales force in executing a firm’s business plan, structuring the
sales force for efficiency and effectiveness, building the sales competencies necessary to
implement the firm’s business strategy, and leading the sales force to achieve success.
Although these steps are not usually performed in sequence, this organization of sales
management activities provides a good overview of the decisions in which sales managers
at all levels in the organization are involved.
4. Discuss the competencies required to be a successful sales manager. To be an effec-
tive sales manager in a dynamic environment requires six competencies: strategic action,
coaching, team building, self-management, a global perspective, and a technology com-
petency. You can develop these competencies through study, training, and experience.
By doing so, you can prepare yourself for a variety of sales and sales management posi-
tions in various industries and countries. You can continue practicing your managerial
competencies by completing the exercises at the end of this and subsequent chapters.

KEY TERMS
Career paths Sales management Sales teams
Globalization Sales management competencies Solutions selling model
Personal selling Sales manager Transactional selling model
Sales force automation (SFA)
DEVELOPING YOUR COMPETENCIES 23

DEVELOPING YOUR COMPETENCIES

1. Technology Competency. When JVC Company of America, an audio and visual equip-
ment manufacturer, decided to explore sales force automation (SFA) with its 200-plus
reps, mostly working from their homes, it asked them two questions: “What would you
like to have on your desk at home?” and “What questions do you get asked?” JVC
reps wanted to be able to provide answers to their customers’ queries about purchase
orders and inventory. JVC implemented a software program that lets reps download that
information from a mainframe every day, providing them with instant information and
saving them considerable time in having to call headquarters and customers the next
day. What did JVC do right in this SFA effort, and what other things could they have
done to ensure a successful SFA implementation? For more on JVC Company, visit the
company’s home page at www.JVC.com.
2. Team-Building Competency. GoldMine Software Corporation is a leading developer of
software solutions for sales and marketing teams. Firms like GoldMine that sell complex
analytical software are relying more on sales teams to work with customers, partly
because a single salesperson can never know everything about the product. Nonetheless,
companies have found it difficult to transition to a sales team-selling effort from a more
traditional model. What are some of the problems that GoldMine is likely to encounter
with a team sales operation? For more information on GoldMine Software Corporation,
visit the company’s home page at www.goldminesw.com.
3. Coaching Competency. Which sales force situation do sales executives prefer?
• Average salespeople and an excellent manager
or
• Excellent salespeople and an average manager
Consultants have asked hundreds of sales vice presidents, national sales managers, and
regional sales managers this question. Which one would you prefer if you were the top
sales executive of your company?
4. Strategic Action Competency. Carter Diamond Tool has been a leader in manufac-
turing and has been designing high-quality synthetic and natural diamond cutting tools
and dressers since 1920. Until recently, it employed ten salespeople to call on accounts.
Dissatisfied with the results, Carter Diamond discharged all ten in favor of eight inde-
pendent manufacturer’s representatives. (Manufacturer’s reps are not employed by the
company; they sell for a number of companies.) The reps in this case sold other industrial
products along with the Precision line to the same customers. Immediately, sales began
to increase, old business was retrieved, and new accounts were acquired. What possible
reasons might explain this? What are the advantages and disadvantages of manufacturer’s
reps compared to an in-house sales force? For more on Carter Diamond Tool, visit its
home page at www.carterdiamond.com.
5. Self-management. A good way to learn about sales management is to spend a day
with an actual sales manager. Contact a sales manager and arrange to observe his or
her activities during a typical day. Ask him or her what it was like becoming a sales
manager. Why did this person want to be a manager? What did he or she think it would
be like? What was it like during the first six months? How did he or she come to his or
her present perspective? If possible, keep a log of how the sales manager’s time is spent.
If you have difficulty finding a cooperative sales manager, contact the local chapter of
the Sales and Marketing Executives Club or the American Marketing Association, or ask
your instructor for help. A good way to get started is to visit the American Marketing
Association home page at www.marketingpower.com.
24 CHAPTER 1 INTRODUCTION TO SELLING AND SALES MANAGEMENT

6. Global Awareness. All multinational companies face pressures from customers for glob-
alization and global integration, but the amount of pressure varies by industry. For
example, many computer suppliers, such as Hewlett-Packard and IBM, have created
some of the most extensive and successful global account management programs. At
Hewlett-Packard and IBM, the global account managers have significant line authority
relative to national accounts managers. That is, they get involved in the evaluation, com-
pensation, and management of local sales efforts. In contrast, Citibank’s long-running
“parent account” global management program gives only coordinating responsibility
to the parent account managers. That is, they provide information to the local coun-
try Citibank employees and gather information from these same people. They are not
responsible for hiring, managing, or evaluating local Citibank employees. Why is there
this difference between Hewlett-Packard, IBM, and Citibank? The three companies have
mostly the same global customers, but the global account managers are given very
different responsibilities.

FEATURED CASE SHIELD FINANCIAL

I
was having another good year in sales. I’ve been Iowa, but the timing was perfect. Lady luck was shin-
one of the top four reps at Shield Financial, aver- ing on me again. I was finally going to get in the
aging $150,000 per year for the past four years, management game, and I was ready for the move.
and it looked like I would do it again this year. I’ve I had a good shot at landing the job, since Shield
always taken pride in getting great results while doing had an unwritten policy to try and hire from within, and
things my way and not necessarily by the book. I really I was probably the top producer applying for the job.
liked the competition and the excitement of sales, but I did some checking into the position and according
lately I’d been thinking about moving to the next level. to the company statement, the previous manager left
After all, many of my college buddies were making it because “a change was needed to take the branch office
in management. If they could do it, why couldn’t I? into a new direction.” But I heard through the grapevine
Plus, I liked the thought of Doug Bloom—Manager that the manager was fired because sales were off the
emblazoned on my door. As far I as I could tell, a previous years. That might have explained the mini-
good sales manager would only work a little harder at mal competition from other eager sales reps who were
the same things I’m doing now, but with more power, ready to spread their management wings. Maybe they
control, and autonomy. Just work with the worst reps knew something I didn’t. It was too late though; men-
a while, show them how it should be done and bring tally, I already had my bags packed.
them up to speed, and everyone would be happy. The
more I thought about it, the more I wanted it.
HISTORY OF SHIELD FINANCIAL COMPANY
In 1919, entrepreneur Howard Driver Sr., of Brooklyn,
OPPORTUNITY KNOCKS who just returned from World War I, joined with Tom
I was prepared to leave Shield within six months if I Mader to found Shield Financial. Howard’s vision of
received a management offer from another insurance an insurance company was closely tied to the emerg-
brokerage firm. I didn’t want to leave; Shield had been ing popularity of the automobile industry and auto
very good to me. As luck would have it, the very next dealerships.
week a branch sales manager opening was posted in the In subsequent years, the company grew into an
company newsletter for the Midwest region. I wasn’t insurance group, adding subsidiaries through stra-
excited about leaving Atlanta to go to Des Moines, tegic acquisitions that enhanced its geographic reach,

This case was prepared by Thomas E. DeCarlo of the University of Alabama at Birmingham and William L. Cron of Texas Christian University.
Copyright © by Thomas E. DeCarlo and William L. Cron.
SHIELD FINANCIAL 25

EXHIBIT 1 Sampling of Business Products

Accounts Receivable Brands and Labels Business Property
Protects against inability to collect Pays the cost of removing the brands Pays for property (e.g., inventory, office
outstanding balances as a result of lost and labels from damaged stock so that furniture, etc.) if damaged by fire or
or damaged account records. it can be salvaged. other covered loss.

Business Income Sales Rep Protection Computer Fraud

Reimburses earnings when a shutdown Protects business items, samples, and Protects against “electronic” theft of
is caused by a covered cause. laptop computers when traveling. property through a computer.
Contract Penalties Denial of Service Attack Dependent Properties
Pays penalties when contract promises Protects against computer attacks that Insures against loss of income when a
are not met due to covered cause. prevent normal business operation. major supplier suffers a covered loss.

Electronic Vandalism Employee Dishonesty Equipment Breakdown

Protects against hackers sabotaging the Covers loss of money or property due Repairs or replaces damaged equipment
company’s computer system. to employee dishonesty or fraud. (e.g., computer, phones, etc.)

Forgery Good Faith Advertising Money and Securities

Protects against forged or altered Covers advertising needed to restore Covers lost, stolen, or destroyed money
checks, credit card receipts, or bank reputation after a covered attack. and securities.
drafts.

Newly Acquired Property Replacement Cost Web Site Income

Covers newly acquired buildings, even Covers property without deduction for Protects against loss of income due to
when under construction. depreciation. web provider disruption.

strengthened its selling and marketing capabilities, and of management orientation. The training schedule was
broadened its product offerings. The most recent acqui- chaotic, to say the least. I think they relished the idea
sition was the 1998 purchase of substantially all of the that more information was better. The manuals alone
Commercial Lines Division of Great American Insur- reached close to 3 feet high when I stacked them up in
ance Company. my hotel room. I could have read the materials non-
Shield specialized in servicing the insurance needs stop all week and still only be half finished. They gave
of all sizes of commercial enterprises by offering cus- us manuals on strategic analysis, competitor analysis,
tomized insurance and risk management programs. external environment analysis, product positioning,
Shield has products in a variety of areas, including pricing, promotion, personnel problems, coaching,
property, auto, general liability, and workman’s com- feedback, performance evaluation techniques, and hir-
pensation. Exhibit 1 describes a sample of the programs ing and firing tips. Other than the consultants who
Shield offers to businesses. wrote these books, I doubt anyone in the company has
Headquartered in New York City, the company read them cover to cover. It didn’t matter, they would
was organized into four regional areas with a regional look impressive on my office shelf.
vice president heading each region. Spread throughout The majority of the new manager training amounted
the regions are 84 sales offices headed by a branch to Shield’s rollout and promotion of the new First-Plus
sales manager responsible for supervising office opera- account program. Basically, it was a renewed effort
tions and from 8 to 12 salespeople. The company also by Shield to increase revenues by encouraging sales
sold through independent brokers in the less populated
reps to focus on larger accounts. All-Safe, our major
states of Montana, Idaho, Wyoming, Utah, and Col-
competitor in the full service market, had already
orado. Two broker sales managers were responsible for
implemented its version of First-Plus and now Shield
supervising and managing these independent brokers.
was repositioning itself as well. The VP of Market-
ing expected us to redirect our staff’s selling efforts on
this new product line as soon as we started our jobs. I
SALES MANAGER TRAINING
thought to myself, how in the world am I going to get
After signing my new contract on February 1, the all 25 salespeople interested in selling this new pro-
company flew me and six other manager wannabes to gram? I remember that I felt intimidated by the larger,
Shield’s headquarters in New York City for five days more sophisticated accounts back when I first started.
26 CHAPTER 1 INTRODUCTION TO SELLING AND SALES MANAGEMENT

In those days the smaller accounts were my bread and understand why she wasn’t getting as excited as I was.
butter. I knew this was going to be a big change for I got the sense she had heard this all before from pre-
some people. vious managers. As I was finishing the last bite of my
On the last day, George Treadgold, Shield’s CEO, chocolate torte, she summed everything up by stating,
showed up to make a few remarks and shake our hands “Doug, I like everything that I’m hearing; just remem-
to wish us luck. As he was shaking my hand he smiled ber, though, you are accountable for the production of
and offered his life-in-the-trenches line, “bring in the this office. I’ll give you whatever support you need.
numbers every month and everything else takes care You just get the reps to come up with the numbers and
of itself.” He also mentioned using the company pol- everything else should take care itself.” I thought, first
icy manual to avoid any personnel problems. I thought the CEO, now the district manager; is that the company
to myself what an odd combination of send-off mes- slogan, or what?
sages. The VP of Human Resources, Ray Cody, gave
me his card, slapped me on the back, and told me to
call anytime if I had any problems. I had met him dur- MY FIRST SALES MEETING
ing my interview process five years ago; he said the After lunch, I spent the rest of the afternoon organizing
same thing then. He didn’t remember me. a presentation to the sales staff about the new First-Plus
account program. I built in some humor, stories from
my background, and a model on how to operationalize
MOVING TO DES MOINES
the new strategy. I was thinking, what’s not to like?
When I returned to Atlanta, I spent the next few days This was going to be the perfect introduction—a new
finalizing the details of my move to Des Moines. It was manager and a new direction. Liz was planning to intro-
a hectic time. I had to bring the Atlanta office up to duce me, then I would take over and not look back. I
speed with my accounts, break my lease on my apart- was starting to get the feeling that management just
ment, notify everyone of my new address, close bank might be my calling.
accounts, shut off utilities, and find a new apartment Liz gave me a great introduction. As I walked up
in Des Moines. At first, moving sounded like a good to the podium, I could feel that all eyes in the room
idea, but after all the small hassles, you understand why were sizing me up. I wondered if everyone could see
people stay where they are. Plus, I was really going to how nervous I felt. I launched into the new strategy
miss Atlanta, I had some good friends there. and provided color graphs, charts, and percentages on
When I arrived in Des Moines near the end of how the new program works and how sales reps, if they
February, I felt like I had moved to the North Pole. followed just the minimum of my performance model,
It was 10 degrees below zero. My first stop was to would be compensated. Some people were actually tak-
the nearest mall to buy the warmest coat I could find, ing notes, some were staring blankly. I thought, good
then to the office to scope it out. Shield’s branch office time to get them involved. “Any questions?” I asked.
was on the 27th floor of a new high-rise office tower Big mistake. Tiffany Williams, the top performer for
that overlooked the Des Moines River. I had a corner the past eight years, raised her hand and said, “Doug,
office with a huge picture window overlooking the city. I make more than ten times the income level you just
I thought, this is it. The big time. My hoop dream was described, and I have a lot of smaller to medium-sized
becoming reality and I couldn’t wait to get started. As accounts that have taken me years to cultivate. They
I was unpacking and organizing my office, Liz Shute, throw off a ton more commissions to me than my larger
my district director, walked in. We exchanged chitchat accounts. Why would I want to follow that model?”
for a few minutes, then she invited me to lunch to get The room was silent. I cleared my throat. “This isn’t
acquainted. my idea, the directive came from corporate.” Tiffany
During lunch I tried to impress her with my under- responded, “I can’t see why corporate would want us
standing of sales management. I made sure that she to completely abandon the smaller accounts.” I pointed
understood that I was going to be an action-oriented out that Shield doesn’t want us to neglect the smaller
manager and that the majority of my job is sales accounts, but the company was moving in a new direc-
and sales leadership. The next biggest part of the job tion. Someone in the back snickered. More questions
is fire fighting and solving salespeople’s problems. followed, some of which only Liz could answer. Over-
Maybe 5 percent is human relations and counseling all, not what I had planned. I knew I had to do some-
and another 5 percent is other administration duties thing to stop the flood of questions. I recommended
such as recruiting. She smiled and nodded. I didn’t that people hold their remaining questions for the
SHIELD FINANCIAL 27

individual meetings planned for Thursday and Friday TRYING TO KEEP UP

so we could finish on time. One by one the hands went
down. The first few weeks flew by, and I was putting in a
lot of overtime. I routinely stayed after 5:00 p.m. Mon-
day through Friday and worked most of the day on
MEETING THE REPS Saturday. I always felt it was the manager’s duty to
The rest of the week I spent preparing for the meetings. set the example and, as a sales rep, I lost respect for
I pored over each rep’s account history and revenue managers who would leave at 5:00 p.m. while others
numbers for the past year to find ways to sell each one were still working. Plus, the workload was much more
on the new program. I knew that if I could find ways than I expected, so it wasn’t merely an act. In between
to get most to buy into the plan, then everyone else the 25 reps constantly vying for my time, I had to
would eventually get on board. I scheduled the lower deal with system crashes, approve salesperson expense
performers for my first meetings on Thursday morn- reports, review budgets, and prepare a three-year strate-
ing. I figured they would help me warm up and gain gic plan due to the home office at the end of the next
confidence for the bigger hitters to follow. I was pretty month. I could have worked 24 hours a day and still
sure I could get the lower performers to refocus their not be caught up. I felt like I was speeding along a
efforts on my model, but the higher performers might curvy highway at the top of a mountain at night with
take more persuasion. Based on what I’ve seen, how- no signs such as slow, curve, narrow bridge, and stop.
ever, everyone would benefit by implementing aspects If I drove off a cliff, the entire branch office would
of the First-Plus program into their sales strategy. I just follow me right over too.
had to show them how. The results for my first month were not good—
Around 8:00 a.m. Thursday morning I was think- revenues slipped 15 percent. I felt like my wheels
ing how excited and nervous I was to be having my were slipping off the road. Based on the numbers,
first official one-on-one meeting as a sales manager. though, the sales force was not implementing the new
Bill Johnson, my lowest performer, was first. I had program. I knew the reps would not like the First-Plus
plans for this guy and I couldn’t wait to see him begin program to be forced down their throats, but I didn’t
implementing this new strategy. But before I could talk want a repeat performance next month, so I had to take
about my ideas, Bill starts telling me how the First-Plus action. It was time I showed them who was running
program won’t work. He said he was on the verge of the office. I fired off a memo to all sales personnel
a breakthrough and that changing course now would requiring them to complete a weekly sales planning
destroy all of his hard work. I couldn’t believe what report, including their First-Plus activities for the week.
I was hearing. If the worst performer was telling me Although I didn’t need additional work, I was sure
this, I could be in for a long two days. After he fin- they would read between the lines and start focusing
ished, I gave him my pitch for the future and how he on the First-Plus program. The next morning Tiffany
could become a player by changing strategy with his Williams called me from her car phone. “Doug,” she
larger accounts. He said he would give it a shot and said, “I got your memo yesterday.” “Good, looking
left. As he was walking out, I thought, he wasn’t going forward to seeing your plan,” I said. She said, “Look,
to change a thing. I made a note to myself that I was Doug, I can’t control when my clients want to meet
going to have to spend more time with him to show with me and I’m just a little bit too busy to be filling
him how the program would work. out reports about how I’m going to spend my time.”
Much to my surprise, most of the remaining meet- Based on the sarcasm in her tone, I could tell she
ings went smoother. A few were excited about the wasn’t happy about the memo. I explained that some
change, some just wanted to know how I pulled off the reps (including Tiffany) reached their overall quota,
promotion, others wanted specifics about my expecta- but everyone was behind on their First-Plus targets
tions. One thing struck me though: I was not at all last month and that people need to take some steps to
prepared for the individuality of my reps. No two were work toward those goals. She responded by informing
alike. Each one had different motivations and talents, me that she single-handedly produced 20 percent of
and I spent most of each meeting figuring out each the office’s revenue last year, so she was exempting
rep’s hot buttons. I felt like I was dealing with 25 herself. I said, “I don’t think so, Tiffany, have it on my
customers. When the final sales rep left on Friday after- desk first thing in the morning.” As I hung up, I stared
noon, I was worn out. Some meetings went better than at the phone thinking, why did I say that? I shouldn’t
others, but all in all, not too bad. have demanded she fill it out, but too late.
28 CHAPTER 1 INTRODUCTION TO SELLING AND SALES MANAGEMENT

HELPING REPS RESCHEDULE THEIR TIME resignation. What a relief. It was just a matter of time
before I had to let him go. I immediately called the top
The following Monday everyone, except Tiffany,
rep at AllSafe, our biggest competitor, and tried to lure
turned in their weekly reports. I worked through lunch
him away with the promise of his own corner office
making comments and reprioritizing the reps’ week.
and an excellent compensation package. I had met him
I couldn’t believe the inefficiencies in their sched-
at a conference a few years ago, and I knew I could
ules. Some were spending too much time with smaller
work with him. He accepted immediately. I think he
accounts. Others had large chunks of time devoted to
liked the idea that if he continued to perform as he
“administrative.” No wonder we didn’t make quota
did at AllSafe, he would be the highest paid rep in our
last month. It felt like this was my first real manage-
office. The very next day, Tuesday, rumors were flying
ment breakthrough. Later that afternoon Bill Johnson
around the office that I hired my buddy and threw lots
appeared in my office, obviously upset. I had com-
of guaranteed cash at him. Needless to say, most of the
pletely reorganized his schedule. He said, “Doug, what
reps were not happy about it—Williams in particular,
are you trying to do?” I told him I was just trying to
though she didn’t say anything.
help. His voice rose. “Maybe I’m not the best rep in
The rest of the quarter was a constant struggle to
the office, but I’m not incompetent. I’m close to getting get something completed. Someone always needed a
things turned around.” I told him I wasn’t suggesting “minute” to resolve a crisis—which usually meant sort-
that, I was just showing him how to implement the ing out head-on collisions reps had with clients. But
First-Plus account management principles. He clenched there were malfunctioning computers, squabbles over
his jaw and said, “Let me know when you want to accounts and commissions, and basic jealousies I had
take over my accounts too.” He threw the reorganized to constantly deal with. I thought that a sales manager
schedule on my desk and stormed out of the room. I sat had the primary responsibility for taking care of the
in my chair in disbelief for a few seconds; I could feel customer, but I wasn’t prepared for the sheer volume
myself tightening up. I dashed after him and motioned of fires to be put out every day. I could count on about
him back into my office. I lost it. I started hollering, fifteen totally different conversations within any 2-hour
“You’re lucky I’m even helping at all.” He looked com- time span. The only place where I could get some peace
pletely surprised. I continued: “Corporate wants you was the men’s room. Not only was I falling even far-
fired. But I’ve been covering your ass.” The rest was a ther behind on paperwork, but I needed to update the
blur. It felt like I was on the outside looking in while reps on some new policies and come up with a new
this lunatic occupied my body. It wasn’t me. sales idea for our Friday afternoon sales meeting. At
I figured a salesperson has to always be as cool times I felt like a babysitter who was also running his
as a cucumber while dealing with problem clients, but own $30 million business.
it’s nothing compared to management. One of the fun- The day after my first quarterly numbers came in,
damental lessons in management training was that the Liz called me. “Bloom,” she said, “you’re under quota.
manager, more than anybody else in the branch, stands What are your plans for turning it around next quarter?”
for professionalism. Finding and maintaining compo- A fair question, I thought, but I didn’t like the tone of
sure under every situation are all you’ve got. But, it her voice. I told her I’d looked over the numbers and a
was too late and I couldn’t have a “do over.” I wished few of the reps are close to landing some big accounts.
the entire Human Resources Department was working If I have to, I’ll close those accounts myself. I also said
down the hall. that my reps don’t like having the First-Plus program
pushed on them. She said, “Look, Bloom, this is our
new direction. It’s your job to sell it to the reps and
BILL JOHNSON RESIGNS get the branch back on track with First-Plus account
The next Monday I got a call from Liz to let me know volume. If you need anything from my end, just call.”
that she’d had complaints from corporate. I wasn’t get- “Will do,” I said.
ting my expense forms in on time. I told her I’ve been
swamped. Not only was I busy working with the reps
CLOSING THE TOP 10 FIRST-PLUS ACCOUNTS
so we could make our quarterly quota, but that I was
also trying to be meticulous before I sent them over to My first plan of action was to identify the top 10
corporate. She shot back, “You’re job is to make quota unclosed First-Plus accounts with the most revenue
and have the reports in on time.” As soon as I hung up potential. I couldn’t afford to lose those accounts. As
the receiver, my secretary brought in Johnson’s letter of a sales rep, I was the big account guru, so why not
SHIELD FINANCIAL 29

handle those accounts personally? Plus, the customer was walking out the door, “Doug, this isn’t a threat,
would love it if the sales manager was their primary but I can guarantee you that if you keep pulling this
contact person. If I was going to get fired, it wasn’t stuff, you’ll find yourself taking over more accounts
because my office couldn’t sell the large accounts. than you can handle.” This is getting ridiculous; as a
I knew some reps weren’t going to be happy, but at rep I would have accepted it and moved on. These
this point I didn’t care whose toes I stepped on. They ungrateful reps were resenting the fact that they were
would just have to understand. The following Mon- going to get a big account handed to them on a silver
day morning I circulated a memo explaining the new platter after someone else closed it.
policy for the ten accounts. Later that same morning,
just as I have started working on some salesperson
expense reports that were already a month overdue, DOUG BLOOM PLANS FOR THE FUTURE
Williams and another rep named Bill Barone walked
into my office. They had the memo in their hands and I was glad when the month ended. Not because I made
were obviously upset about it since two of the biggest quota for the first time, but because I had a chance
accounts came from them. Williams started out, “Doug, to rethink this whole management thing. I didn’t want
what’s going on here?” I said, “For two months now to quit, but I’d rather quit than get fired and I saw
I have been trying to get people to close more First-Plus nothing but a downward trend. I was working 80-hour
accounts, but it’s not happening. Corporate wants me weeks, but I constantly felt like I was treading water.
to take responsibility, so I am.” Bill responded, “Every- Plus, Williams was probably going to leave soon, and it
body in the office is pissed about the lost commissions would take time to replace her volume. I also got word
on the account.” I said, “As of right now, nobody is that some of my other reps had been looking around.
getting any commissions on those accounts because no If I stay, I’ve got to do something about Williams and
one seems able to close them. Once they’re on board, the other reps who might leave. I had to get a handle
everyone will get them back.” I thought, didn’t they on my time and most of all, put the fun back into my
even bother to read the memo? Williams said as she job. Was it possible?
 CHAPTER

2 STRATEGY AND SALES

PROGRAM PLANNING
“Sharing a Vision”
Two men were struggling to get a large crate through the door. They struggled and strug-
gled, but the crate would not budge. Finally, one man said to the other, “We’ll never get
this crate in.” Replied his partner, “I thought we were trying to get it out.”

Chapter Consultants:
Scott Smith, Vice President—Sales & Marketing, SABRE Group, Inc.
Joseph P. Clayton President and Chief Executive Officer, Sirius Satellite Radio

LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Describe the major elements of business strategy.
State the basic elements of strategic marketing planning.
Explain what is meant by strategic implementation process decisions.
Describe the purpose of a sales force program and list its major elements.
Tell what an account relationship strategy is and explain its purpose.

AN AWARD-WINNING ACCOUNT
Reynolds and Reynolds is a $1 billion company headquartered in Dayton, Ohio, providing
integrated information management solutions. The Enterprise Solutions Group at Reynolds
is responsible for sales to Reynolds’ customer accounts generating more than $90 million
in annual revenue. The Group has 15 Partnership Executives who work with the 20 largest
automotive retail and distributor groups in North America, helping them achieve outstanding
business results.
The Strategic Account Management Association recently presented the Account Per-
formance Award to the Reynolds-Southeast Toyota Distributors (SET) account, located in
Deerfield Beach, Florida.1 SET has 163 dealer locations in the southeastern United States
with an annual sales volume of $7 billion. Reynolds put together a dedicated account team
from nine functional areas, including sales and marketing, Web services, financial services,
CRM solutions, and software solutions. Together with this account team, Reynolds’ Partner-
ship Executive developed an account playbook for SET that laid out how Reynolds needed
to sell, deliver, and support its business solutions. SET bought the Reynolds dealer man-
agement system because it was a critical step in a long-range strategy that would lead to a
30
A N A W A R D -W I N N I N G A C C O U N T 31

solid partnership and greater business results for many years. The basis for the partnership
was the account team selling SET corporate on developing the next generation of the dealer
management system.
Over the next two years Reynolds installed its dealer management systems in 80 percent
of the SET dealerships. While these installations were going on, Reynolds people were
interviewing more than 200 SET associates to capture their requirements and to develop
the next generation of solutions and services. After the systems had been in place for a
period of time, SET and Reynolds sat down together to quantify the value that Reynolds
had delivered to SET. Some of the performance metrics utilized in this review were annual
net profits and new business from the Internet lead generation system. It was discovered
that dealers using the Reynolds system were, on average, realizing $200,000 more in annual
net profits than dealers not using the system.
The benefits of the relationship to Reynolds are equally impressive. After the partnership
began, Reynolds’ sales to SET jumped from $1.8 million to more than $16 million in five
years, resulting in a compounded annual growth rate on sales of 53 percent per year.
The Reynolds account team is currently implementing a plan to provide financing and
support services to all SET dealers for Toyota’s Technical Information System. This is
the first time Reynolds has ever financed and supported a third-party system. Reynolds’
goal continues to be that of helping SET meet its business objectives. SET is also a solid
reference for new Reynolds prospects.
The Reynolds-SET account case exemplifies many of the changes in the sales force
role that will be discussed in this chapter: sales teams, selling to top management, partner-
ing for mutual benefit, and extraordinary supplier-customer intimacy. It is also important
to note how the role of the salesperson, the account executive in the Reynolds case, has
changed. Salespeople still communicate and close the sale with the customer, but notice
that salespeople must also spend much more time getting to know the account and working
with many different areas of the account. The other side of the coin is that the account
executive is also spending more time gathering and coordinating the resources and exper-
tise inside Reynolds that can be brought to bear on a customer opportunity. The financial
commitments being made to the account and the revenue opportunities are very significant
and important to Reynolds’ overall performance. The actions of the account executive and
account team therefore must be consistent with Reynolds’ overall business and marketing
strategy. Achieving this consistency and its impact on the sales force is one of the primary
focuses of this chapter.
There is a recommended sequence when making sales force and sales program decisions
as depicted in Figure 2-1. The level 1 decisions, business and marketing strategies, are
made by the firm’s top management along with the participation of the top sales executive,
sometimes referred to as the chief sales officer (CSO). Level 2 decisions are concerned with
implementing a firm’s business and marketing strategy. Because strategy implementation
is likely to be cross-functional, top sales executives participate along with managers from
other functional areas in the firm in making these decisions. Level 3 decisions are largely
under the control of the sales management team and are the focus of the remaining sections
of this text. This hierarchical sequencing of decisions also guides the organization of the
book.
This chapter shows that a firm’s business and marketing strategy and implementation
decisions impact sales force program decisions. In other words, a firm’s strategy and imple-
mentation decisions provide the context within which sales program decisions are made
and implemented. We do not attempt to fully explain business or marketing strategy; this is
better accomplished elsewhere. Instead, we offer an overview of marketing strategy, while
focusing mostly on the four-strategy implementation decisions because they more directly
influence a firm’s sales force program.
32 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

Level 1
Business Marketing
Top management strategy strategy
decisions

Customer
Go-to-market relationship
strategy management
Level 2 (CRM)
Strategy
implementation Supply chain Product
decisions management development
(SCM) management
(PDM)

:
cess Stru
s Pro ties ctu
e vi re
al cti
A
S

Level 3 Account
Sales force relationship
program strategy
om
C

decisions i

p
p et e rs h
e n cie
s Lead

F I G U R E 2-1 The Sales Force Decision Sequence

Following this chapter, two Management Resources are presented: “Estimating Potential
and Forecasting Sales” and “Sales Force Investment and Budgeting.” These are considered
important resource topics because sales executives need to know how to perform these
activities when either starting up a new sales force or completing their annual planning
exercises.

BUSINESS STRATEGY
Strategic planning is employed to make better use of company resources and to create and
sustain an advantage over the competition. Business strategy involves defining and artic-
ulating an overall business mission, developing specific business goals, and designing a
strategy for achieving these goals. The factors influencing the strategic management plan-
ning process are depicted in Figure 2-2. Both marketing and sales personnel should be
intimately involved in an organization’s strategic planning process because they understand
the customers’ requirements and the sales force is often responsible for implementing key
aspects of a firm’s strategic plan. This is especially the case when the product is expensive,
complex, and of high risk to the customer.2

Business Mission
A well-defined business mission provides a sense of direction to employees and helps guide
them toward fulfillment of the firm’s potential. The basic character of an organization’s
business is defined by the three Cs—customers, competitors, and the company itself. Top
BUSINESS STRATEGY 33

Environmental constraints
Legal and regulatory
Demographics
Economic conditions
Technology
Competitive conditions
Sociocultural factors

Distinct competencies Resouces

Marketing Financial
Financial Strategic management R&D
Technology planning Personnel
Information Brand equity
Production

Firm’s history
Management culture

F I G U R E 2-2 Factors Influencing Strategic Management

managers should ask, “What is our business?” and “What should it be?” A business mission
statement should include information regarding (1) the types of customers it wishes to serve,
(2) the specific needs to be fulfilled, and (3) the activities and technologies by which it will
fulfill these needs. Thus, organizations will not only know the focus of their business, but
they will also be able to identify strategic opportunities.

Establishing Goals
Once the mission for an organization has been decided, the next step is to translate the
mission into the organization’s goals—specific objectives by which performance can be
measured. These objectives are usually stated in terms of profits, sales revenue, unit sales,
market share, survival, and social responsibility. Firms will typically pursue multiple objec-
tives. Procter & Gamble, for example, has historically sought a 10 percent after-tax profit
and a 6 percent increase in revenues each year. In a recent survey, 200 B2B senior execu-
tives indicated that their most important goal for the current year was increasing sales and
revenues.3
When priorities change, the sales force is often affected. Faced with major competitors
such as Procter & Gamble, demanding retailers, and mature markets, Scott Paper Company
switched its mission from gaining volume at any cost to profitability. This called for massive
changes in how Scott’s 500 salespeople related to the retail trade. “It’s no longer a volume
or promotional approach to customers,” states one Scott marketer, “it’s a lot more than that.
It’s understanding brands and how the consumer’s response to various actions on our part
is timed so we can eliminate waste and improve profit.”
The Scott Paper example illustrates another important characteristic of organizational
goals: the hierarchical nature of the goals. Measurable organizational goals must be com-
municated down the organizational structure. Figure 2-3 illustrates this point by showing
how an organizational sales goal is translated into a major account goal.

Strategies
Once business objectives have been identified, the next step is to translate them into strate-
gies. A strategy is the means an organization uses to achieve its objectives. Several strategy
34 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

Corporate goals
Increase shareholder wealth by 10%

Business unit objectives

12% revenue growth
Grow pretax profits by 18%

Marketing objectives
Increase product A’s market share by 2 points
Grow contributions after sales & marketing by 20%

Sales department objectives

Achieve sales revenue of $210 million
Grow contributions after sales expenses by 25%

Sales district objectives

Achieve sales revenue of $10.5 million in product A
Obtain $7 million contributions after direct selling

Salesperson objectives
Achieve sales revenue of $1.2 million in product A
Obtain $0.8 million in gross margin dollars

Major account objectives

Achieve sales revenues of $95,000 in product A
Obtain an average gross margin of 80%

F I G U R E 2-3 Hierarchy of Sales Objectives

typologies have been developed to describe the overall thrust of a firm’s strategy. One of
the most popular is Porter’s generic business strategies.4 According to Porter, all successful
businesses focus on creating superior customer value by achieving one of the following
market positions: low cost, differentiation, or a niche. Each of these positions is described
in Figure 2-4.
To successfully execute a firm’s strategy in the marketplace requires that the sales
force program be properly aligned with the strategy. This assertion was recently tested with
a sample of business-to-business organizations. The results supported the idea that different
sales programs are associated with high-profit execution of each of these strategies.5 The
high-profit sales program characteristics associated with each strategy are summarized in
Figure 2-4.

MARKETING STRATEGY
Marketing strategy is the set of integrated decisions and actions a business undertakes to
achieve its marketing objectives by addressing the value requirements of its customers.
MARKETING STRATEGY 35

Low-Cost Strategy: High-Profit Sales Programs:

Vigorous pursuit of cost reductions from • Extensive use of independent sales agents
experience and tight cost control. • Focused on transactional customer relation-
ships
• Structured so that managers supervised a large
number of salespeople
• Compensation was largely incentive based
• Salespeople were evaluated primarily on their
sales outcome performance

Differentiation Strategy: High-Profit Sales Programs:

Creating an offering perceived as being unique, • Selective use of independent sales agents
leading to high brand loyalty and low price • Focused on long-term customer relationships
sensitivity. • Structured so that managers intensely super-
vised a limited number of salespeople
• Compensation was largely salary based
• Salespeople were evaluated on their behaviors
as well as their outcomes.
Niche Strategy: High-Profit Sales Programs:
Servicing a target market very well, focusing all Experts in the operations and opportunities
decisions with the target market needs in mind, associated with a target market. Otherwise the
dominating sales with the segment. firm adopted the program characteristics
associated with the appropriate value creation
strategy above.

F I G U R E 2-4 Business Strategies and High-Profit Sales Force Programs

As such, marketing strategy is concerned with decisions related to market segmentation and
target marketing, as well as development and communication of a positioning strategy.6 Each
of these decisions has important selling and sales management implications, as discussed in
this section.

Segmentation and Target Marketing

Because marketing programs require a customer focus to be effective, companies segment
the market and select target markets on which they will concentrate their marketing efforts.
Market segmentation involves aggregating customers into groups that (1) have one or more
common characteristics, (2) have similar needs, and (3) will respond similarly to a marketing
program. Target marketing refers to the selection and prioritizing of segments to which the
company will market.
The Graham Company, a Philadelphia-based commercial insurance broker, provides a
good example of how important target marketing is to the company and the job of the sales
force. Graham, an insurance broker in the United States, has an annual premium volume
of more than $200 million. Remarkably, Graham generates these premiums from only 200
clients. It typically contacts only 350 prospective clients a year, seeks relationships with only
35 of those prospects, and earns the business of 28. In pursuing clients, Graham invests
substantial resources diagnosing the customer’s situation. The broker sends a sales team
that may include, in addition to an account manager, attorneys, risk managers, engineers,
CPAs, and experts in the customer’s business to evaluate the prospect’s insurance issues
and exposures. How well does such a selling strategy work? Graham enjoys a 75-percent
conversion rate in an industry with a 15-percent average and maintains a 98 percent customer
retention rate.7
36 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

Positioning Strategy
Having settled on specific marketing goals and identified target markets, the third step in the
planning process is to develop and implement a positioning strategy based on product, price,
distribution, and promotion decisions. Positioning occurs in the mind of the consumer and
refers to how the consumer perceives the product, brand, and company vis-à-vis competitors.
Some of the fundamental questions that customers ask about brands are: (1) Who are you?
(brand identity); (2) What are you? (brand meaning); (3) What do I think or feel about
you? (brand responses); and (4) What kind of association and how much of a connection
would I like to have with you? (brand relationships).8
A clear and strong position in the customer’s mind is achieved by designing the proper
marketing mix—price, product, promotion, and channels. A significant change in any of
these elements will usually have ramifications for the sales force program. When a new
product is introduced, for instance, it is often necessary to establish new sales quotas, adjust
the sales force compensation plan, and create new sales support material.
In some cases, repositioning involves helping your channel partners to reposition them-
selves as well. Due to commoditization of its network products, Cisco found it necessary
to reposition itself to providing network-related solutions for leveraging voice-, video-, and
data-based applications. To accomplish this repositioning, Cisco needed to help its more than
36,000 resellers redefine their business as providers of value-added network-based solutions.
Cisco now helps each reseller partner select appropriate target markets, and then it provides
the reseller with the appropriate training, tools, and support to succeed.9
Up to this point we have talked about Level 1 decisions, business and marketing strategy,
and how these decisions will impact the sales force. Although sales executives have a voice
in Level 1 decisions, they have a much greater voice in Level 2 decisions, which focus on
the implementation of an organization’s strategy. The Strategic Implementation or Level 2
decisions require cross-functional cooperation and coordination. Sales executives will likely
work with top executives from marketing, finance, operations, logistics, engineering, cus-
tomer service, and other areas of the organization in making these decisions. We now turn
our attention to these critical Level 2 decisions.

STRATEGIC IMPLEMENTATION DECISIONS

Strategic implementation decisions refer to a set of processes that organizations will develop
to create customer value and achieve a competitive advantage. The fundamental decisions
that most companies will have to make with respect to these level 2 processes include:
(1) How will customers be accessed? (go-to-market strategy); (2) How will new offerings be
developed and existing products be improved? (product development management [PDM]);
(3) How will physical products be created and delivered to the customer? (supply chain
management [SCM]); and (4) How will customer relationships be enhanced and leveraged?
(customer relationship management [CRM]).10 We address these interrelated strategic pro-
cess decisions in this section. Although we will discuss each of these decisions in sequence,
it is important to realize that decisions in one area will likely have an impact on the other
areas.
How a company chooses to develop and execute each of these processes will have an
important influence on the activities required of the sales force and around which the sales
program is built. In this section the implications of these Level 2 decisions for the sales
force are discussed. In addition to the sales force’s traditional role of articulating the value
proposition to customers, the sales force is being asked to provide customer and market
information to their companies to facilitate development of key processes and to orchestrate
and coordinate the company’s efforts to create customer value.
STRATEGIC IMPLEMENTATION DECISIONS 37

1. What is the best way to segment the market?

2. What are the essential activities required by each segment?

3. What non- face-to-face selling methods should perform these activities?

4. What face-to-face selling participants should be used?

F I G U R E 2-5 Steps in Developing a Go-to-Market Strategy

Go-to-Market Strategy
A world-class sales force is a powerful resource for any company, but the sales force is
only one of the options companies have for going to market. In addition to direct sales
force, advertising and promotions, value-added resellers, the Internet, and telemarketing can
all play roles in connecting a supplier with its customer base. An essential set of activities
must be performed in order to attract and retain customers. A go-to-market strategy defines
who will perform these activities and for which customers. The process for determining a
go-to-market strategy consists of answering the four major questions shown in Figure 2-5.11

Segmenting the Market. The first step is to identify market segments. As described earlier
in this chapter when discussing marketing strategy, market segmentation involves identifying
different groups of customers with similar characters, product needs, and responsiveness to
marketing efforts. Since segments are identified in developing an overall marketing strategy,
we can also see here the fundamental relationship between a firm’s overall marketing strategy
and its go-to-market strategy.
Customer segments and go-to-market strategies will vary depending on the product sold.
Adult diapers and baby diapers are very similar in how they are manufactured, but they
have very different go-to-market strategies. Most adult diapers are sold in bulk to nursing
homes via distributors, and with very little advertising. Most baby diapers are sold at retail
with massive advertising support.
Customer characteristics commonly used to segment a market for purposes of develop-
ing a go-to-market strategy include, but are not limited to, the following:
• Industry What business is the customer in?
• Size What is the revenue size of the customer? How many employees? What is the sales
potential?
• Geography Where is the customer located? Does the customer have global operations?
• Behavior Who are the key decision makers? What are their adoption tendencies? Does
the customer currently use our product? A competitor’s product? Does the customer buy
centrally for all its plant locations?12
For purposes of developing a go-to-market strategy, the best approach to segmenting a
market is one that generates groups of customers whose members require similar customer
attraction and retention activities. For example, some segments may require significant
prospecting and attraction activities because the customer is still learning about the offering,
while other segments may require significant servicing activities because they are already
current customers.
38 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

Interest
creation

Postpurchase Prepurchase

Purchase

F I G U R E 2-6 Essential Activities

Sales Process Activities. From the first time a prospect is identified to the first time a
customer hears about a product, to the first sale, to the last service and system upgrade call,
many activities must successfully take place. The sales process activities consist of all the
activities needed to serve a customer properly.
Essential activities can be divided into four groups: interest creation, prepurchase, pur-
chase, and postpurchase. These activities roughly mirror the selling cycle and are shown
in Figure 2-6. Notice that the activities recycle, because good postpurchase activities and
support can lead to interest creation, building a continuing relationship with the customer.
Interest creation activities include all the ways that customers can learn about the
benefits of the product and the company. After all, only customers who want to buy will
buy. Specific activities involved in interest creation include prospecting, generating leads,
creating awareness and interest, and providing information about the company’s products
and services. The prepurchase phase is different from interest creation in that customers are
actively considering and evaluating competitive product offerings. Essential activities in the
prepurchase phase include explaining features and benefits, qualifying prospects, assessing
customer needs, cooperating in problem solving, and demonstrating company and product
capabilities. The purchasing phase includes the set of activities culminating in a purchase.
As such, it is the set of activities most likely to involve direct salespeople. Activities in this
phase include negotiating, bidding, finalizing terms and conditions, and writing proposals.
The essential work does not conclude with the purchase. The postpurchase activities may
include delivery, installation, and servicing of products; addressing customer questions that
need answering; providing information about new features; and collecting payment. These
and other essential activities are discussed further in Chapters 3 through 5.

Go-to-Market Participants. Once the set of essential activities has been identified, the
next question is, who will participate in performing these activities? Figure 2-7 provides
several go-to-market participants, including the Internet, telemarketing, advertising, promo-
tion, direct mail, and face-to-face selling (including a direct sales force, independent agents,
distributors, integrators, and alliances). Most large companies today access their markets in
more than one way. To defend their customer base, expand market coverage, and control
costs, companies today are adopting multiple methods for reaching different target mar-
kets. IBM, for example, once sold all its computers through the company’s 5,000-person
sales force. When low-cost computers hit the market, IBM reacted by expanding into new
channels. Now they sell through dealers, value-added resellers (VARS), catalog operations,
direct mail, telemarketing, and the Internet. In total, IBM added over eighteen new channels
in addition to its own sales force to communicate with customers.
STRATEGIC IMPLEMENTATION DECISIONS 39

Customer and Prospects

Agents Advertising
Direct Sales Tele-
Distributors Integrators Alliances Promotion Internet
Force marketing
Retailers Direct Mail

Direct Indirect

Sales Force Options Non-Sales Force Options

Company

F I G U R E 2-7 Potential Go-to-Market Participants

The combination of go-to-market participants that is most appropriate for each customer
segment and type of essential activity will depend on a number of factors, including cost,
efficiency, and effectiveness. The efficiency of a participant refers to its ability to generate
customer contacts for the money spent. On the other hand, the more results created from the
number of customers contacted, the more effective the participant is. Figure 2-8 illustrates
the relative efficiency and effectiveness tradeoff for the major go-to-market participants.
Following is a brief discussion of the major non-sales force go-to-market options: advertising
and promotions, telemarketing, and the Internet.

Advertising and Direct Mail. Advertising and direct mail consists of instruments
such as broadcast media, magazines, trade publications, newspapers, and direct mail. As
shown in Figure 2-8, advertising and direct mail is very efficient in that it is inexpensive
per customer contact. It is estimated to cost around 32 cents per contact to reach business
markets through specialized business publications.13 Direct mail is estimated to cost only
$1.68 per business contact. Although advertising and direct mail are efficient, they are
not always very effective. This is why companies ask these marketing instruments to raise
awareness and interest, and then utilize other means to drive the purchase behavior. Consider
Hewlett-Packard’s go-to-market efforts in a recent introduction of a new printer. First,
Hewlett-Packard sent sales kits to customers and dealers, followed by a mailing program
and telemarketing. Next, it sent sales reps to the dealerships to make follow-up calls and

Low Cost
per Exposure
Advertising

Direct Mail

Internet

Efficiency
Telemarketing

Face-to-Face
Selling

Effectiveness High Sales

per Exposure

F I G U R E 2-8 Comparing Various Go-to-Market Alternatives

40 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

give management briefings. This marketing program required a coordinated effort among
advertising, sales promotion, channels of distribution, and the sales force.

Internet. The extensive use of the Internet to gather information and to make pur-
chases is a key business go-to-market development. As household penetration of computers
increases and the speed of the information access over the Internet increases, the impor-
tance of this channel of distribution also increases. The Internet can be used in all phases of
essential activities that need to be performed. Its advertising and streaming qualities can be
used on a company’s Web site to create interest. Prepurchasing and purchasing activities are
accomplished on e-commerce buying sites. Automated reordering, tracking of transactions,
billing information, and other post-transaction activities are also efficiently and effectively
executed on the Internet. Although the Internet costs a little more per contact than direct
mail, overall it is more effective at generating desired customer behaviors.

TEAM EXERCISE
“Web Sales”

Creative Communications Inc. (CCI) is an Atlanta-based manufacturer of consumer electronic

devices, most notably digital audio players. In recent years, these devices have exploded in
popularity with their increase in memory capacity and as prices declined to affordable levels. A
key element in the CCI success story is the growth of major retailers such as Wal-Mart, Target,
and Best Buy. CCI uses major account teams to serve these and other major retailers, which
account for 60 percent of CCI’s sales. The remaining sales come from smaller retailer accounts
who have traditionally purchased from independent reps with whom CCI has a contract for a
commission of 4 percent of sales.
In an effort to reduce costs, last year CCI established a Web site as an alternative channel
for small retailers. Cost of sales on the Web site was a modest 2 percent of sales. Sales volume
on the Web site amounted to 3 percent of CCI’s sales last year, but it is forecasted to increase
to 7 percent this year, and perhaps as much as 15 percent the following year.
Many of the salespeople selling to smaller accounts are upset by the move to Web sales
since they receive no commission on these sales. Although not all of CCI’s product line is
offered over the Web, this did not appease the salespeople. Some of the stronger salespeople
are threatening to go to a competitor who is offering compensation on Web sales.
As national sales manager for CCI, you have been asked to keep sales costs at 5 percent
of sales. Sales force costs are running at 7 percent for the major account sales teams, and
90 percent of the cost is compensation related—salary plus incentive pay. How would you
assess CCI’s alternative sales channel over the Web? What changes would you recommend to
minimize conflict with the independent reps and still stay within your budget?

Even companies that are 100 percent committed to the Internet are finding that they
need to understand their customers better. An executive at Intel noted, “Today we notice that
trying to get our customers to purchase through the Web has not worked. But we do know
that buyers will make their purchasing decisions because of the Internet. They continue to
want to talk to our salespeople about price—maybe if we had a ‘haggle’ button on the Web,
they’d use it.”14

Telemarketing. Telemarketing refers to customer contacts utilizing telecom-

munications technology for personal selling without direct, face-to-face contact.
Business-to-business telemarketing is estimated to cost $31.16 per contact. It is growing
STRATEGIC IMPLEMENTATION DECISIONS 41

at a rate of 30 to 40 percent a year and generates sales in excess of $100 billion yearly.15
The greater effectiveness of telemarketing is indicated by the over $1,000 value of the
average business-to-business telemarketing sale. Corporations such as IBM, Procter &
Gamble, Chase Manhattan Bank, and Union Pacific Railroad have all developed extensive
telemarketing systems.

Face-to-Face Selling Alternatives. Upon deciding that a face-to-face sales force

should perform some of the essential activities, a company must still address another ques-
tion. Should the selling be performed by a direct company sales force, a selling partner, or
some combination? The main outsourcing options available to most companies are agents,
resellers, integrators, and alliances. A brief discussion of these indirect sales options follows.

Independent Sales Agents. An important alternative to the direct sales force is to hire
independent sales agents (sometimes referred to as manufacturer’s reps, reps, or brokers)
to perform the selling function. Independent sales agents are not employees, but rather
independent businesses given exclusive contracts to perform the selling function within
specified geographic areas.

Resellers. Resellers are channel members, retailers, and distributors, who take title
to the offerings they sell to end-users. They perform many functions within the channel,
including warehousing, breaking bulk, extending credit, and providing information, but one
of their primary functions is to market their suppliers’ offerings to their own customers.

Integrators. In a number of industries new channel members have arisen called inte-
grators. An integrator is a service supplier unaffiliated with specific products, whose advice
end customers has sought to help them with a complex choice. Earlier in this section we have
already introduced one of these integrators, value-added resellers (VARS) in the computer
industry. They may advise a client to buy an IBM computer one day and advise another
client to purchase a Dell computer the next day. Other examples of integrators are Personal
Financial Advisers, Building Contractors, and Systems Integrators.

Alliances. An increasingly popular alternative for accessing markets is to establish an

alliance with another organization in a joint venture to sell products to specific markets. This
strategy has often been used to expand globally. AT&T, for example, negotiated a variety of
sales partnerships with companies in France, Germany, Italy, Belgium, and the Netherlands.
General Mills and Nestlé SA have set up a joint venture to form a separate company for
marketing breakfast cereal throughout Europe. Alliances have also been formed to sell new
products. This has become a fairly common practice in the ethical drug market.
When Parke-Davis launched its blockbuster cholesterol-lowering drug, Lipitor, it
entered into an alliance for Pfizer’s sales force to perform many of the essential sales
activities.
The number of different go-to-market arrangements continues to mushroom. The net
effect has been extremely important to the sales force and sales management. First, many
large firms have reduced the size of their field sales forces by focusing them on only certain
essential activities and on medium- and large-size accounts. Second, efforts to coordinate
the various participants have affected the sales force. IBM, for example, attempts to limit the
direct competition between its value-added resellers and its direct sales force by crediting 85
percent of the volume generated by resellers in the salesperson’s territory against the sales-
person’s annual sales quota.16 Third, valuable company resources must be allocated to the
various channel partners. In the commercial airline industry, for example, one of the biggest
challenges is allocation of passenger seat inventory to Internet sellers, travel agencies, and
42 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

bulk buyers, such as corporate customers. Airlines are finding that their “distressed” inven-
tory is a valuable commodity to resellers because of the market draw potential. Depending
on one’s view, this may be a marketing decision, but this sort of channel allocation has
huge ramifications to the sales organization as well.17
When designing a sales force program, management also needs to consider the inter-
actions and relationships that the sales force should have with other functional areas within
the organization. The next sections describe three core processes that firms must develop to
create customer value—product development management, supply chain management, and
customer relationship management—and the role of the sales force in these processes.

Product Development Management (PDM)

The success of a company often depends on how it develops, produces, and markets new
product offerings. This is why 3M, for instance, encourages its researchers to spend up to 15
percent of their time on projects of their own choosing. They call it “bootlegging time.”18
At the same time, studies indicate that new product failure rates are around 50 percent of
all launched products and that on average it takes 3,000 new product ideas to produce one
successful new product launch.19
Figure 2-9 lists some of the subprocesses involved in PDM. The arrows in the figure
indicate that the sales force is most likely to be directly involved in the initial and final steps
of the process. Although the sales force has traditionally played a large role in the introduc-
tion of new products, especially business-to-business products, its role in identifying new
and modified product opportunities is growing with the emphasis on customizing products
to address individual customer needs. In fact, executives in business-to-business firms rate
the sales force as the most important source of information for new product development,
more important even than primary research.20
One notable example of sales involvement in new product development is the case of
an alert U.S. Surgical Corporation (USS) salesperson. The salesperson saw an opportunity to
satisfy a surgical need that was not being met with existing products as a result of working
closely with surgeons in operating rooms. The salesperson observed surgeons inserting a
tiny television camera into a body with very small laparoscopic instruments. USS responded
quickly to the need by designing and introducing a laparoscopic stapler for skin closure.
The product is now used regularly for internal surgical applications.21
The other phase of the PDM process in which the sales force is most likely to be
directly involved is the launching of a new product into the marketplace. The sales force
will almost always play a major role in the launching of new products. Some of the changes

Identifying customer needs for better solutions

Discovering and designing new product solutions

Developing new solution prototypes

Managing internal departmental priorities and involvement

Designing activities to speed up development process

Launching new and redesigned offerings

F I G U R E 2-9 Product Development Management Subprocesses

STRATEGIC IMPLEMENTATION DECISIONS 43

companies are likely to make in their sales force programs when introducing important new
products include the following:
• Sales quota systems, most likely adjusted upward to include new product sales.
• Training program adjusted to develop new sales competencies.
• Supervision program is altered to allow management to spend more time accompanying
salespeople on sales calls for purposes of training and coaching.
• Compensation plan changes including commission rates, sales incentive programs, and
guarantee draws.
• Sales force organization structure is changed, often to organize around different types of
customers.
The next section addresses another key management process, supply chain management
(SCM), that is becoming increasingly important in today’s competitive environment.

Supply Chain Management (SCM)

In recent times, many companies have experienced the whiplash of too much or too little
inventory to satisfy demand, missed production schedules, and ineffectual transportation
and delivery schedules. To get a handle on the problem, companies are turning to supply
chain management. Supply chain management is the integration and organization of infor-
mation and logistics activities across firms in a supply chain for the purpose of creating
and delivering goods and services that provide value to customers.22 In short, supply chain
management is about producing world-class products that are available at the right time, at
the right place, and in the right form and condition.
How is the sales force involved in supply chain management? Figure 2-10 lists some of
the subprocesses involved in SCM and the arrows suggest that the sales force’s involvement
is largely at the tail end of the process when interfacing with the customer and channel
members. This generalization, however, is changing somewhat as companies adopt more
of a market-driven focus to SCM. This entails a shift from sourcing inputs at the cheapest
possible prices to designing, managing, and integrating the firm’s supply chain with that of
both suppliers and customers. The benefits experienced by the end customer is becoming the

Selecting and managing supplier relationships

Managing inbound logistics

Managing internal logistics

Managing outbound logistics

Designing product assembly and batch manufacturing

Managing process technology

Managing order, pricing, and payment terms

Managing channel partners

Managing product installation and maintenance

F I G U R E 2-10 Supply Chain Management Subprocesses

44 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

driving objective, as opposed to internal goals such as delivery cycles, production schedules,
and operating costs.
Lucent Technologies, for instance, has developed one of the most advanced supply
chain capabilities. Lucent has created a position called a customer general manager (GM)
whose job is to identify ways in which the supply chain can help customers address their
issues. The GM is an advocate of the customer inside Lucent23 and is getting involved in
bids and demand planning and developing the implications for the back end of the supply
chain. The customer now has one point of contact for all its supply chain issues.
As the Lucent case suggests, a shift to an SCM perspective raises the level of complexity
that salespeople must face. Following are some of the important implications of SCM for
the evolution of the sales force.
• Knowledge of the entire upstream and downstream supply chain. The experience of
a leading consumer foods processor is a good example of the opportunity that is available
to firms. This company makes a perishable product with no more than a twelve-month
safe shelf life. As a consequence, it shipped the product two to four days after its manu-
facturing. What it didn’t know was that the distribution chain was exceptionally sluggish.
It took anywhere from two to twelve months for the item to reach grocery shelves.
• Thinking strategically about partnering. Consider again the case of the food processor.
The most important “success item” for this company’s sales force should not have been
generating more orders, but working with distributors and retailers to decrease the time it
took for the product to get to the grocery shelf. This necessitates talking to people other
than the purchasing agents and merchandisers for their product, the traditional customer
targets for this sales force.
• Establishing good lines of communications and influence with senior corporate man-
agement. In a benchmark study by consultants Meritus-IBM, suppliers and customers all
recognized and emphasized the importance of openness, honesty, good communications,
and mutual strategy creation. But the study found that in reality, suppliers and customers
were rarely entirely open and honest with each other and often didn’t even try. To under-
stand why this is the case, consider the example of the retailer who planned a special
promotion but refused to tell the beverage bottler which of its products was involved. Why
would the retailer not share this information? Because he was afraid that details would leak
out to other retail competitors. So the bottler had to build up inventory levels of several
possible products and be prepared to incur extra costs of fulfilling late-breaking orders.
Naturally, after the promotion was launched, the bottler ended up with excess inventory
for several weeks, or even months, in those products not selected for the promotion.
Although the sales force is mostly involved in the downstream processes of the supply
chain, high-performance supply chains are not likely to come into existence without a fun-
damental change in the role and style of the sales force. As mentioned earlier, Lucent has
made a commitment to supply chain management such that it organized a separate special-
ized sales function, a customer GM, to address supply chain issues for specific customers.
Although this organization may not be right for all companies, it does suggest the critical
role the sales force can play in executing a world-class SCM program.

Customer Relationship Management (CRM)

With product advantages reduced in many industries, companies are realizing that customer
relationships are assets that have to be managed for increased value. Many companies are
focusing their attention on customer relationship management (CRM) as a strategic compe-
tency. This is a major shift in thinking for most companies, and one that is being fostered
by the investment community and enabled by technology.24 Figure 2-11 lists the major
STRATEGIC IMPLEMENTATION DECISIONS 45

Identifying high-value prospects

Learning about product usage and application

Developing and executing advertising and promotion programs

Developing and executing sales programs

Developing and executing customer service programs

Aquiring and leveraging customer contact information systems

Managing customer contact teams

Enhancing trust and customer loyalty

Cross-selling and upselling of offerings

F I G U R E 2-11 Customer Relationship Management Subprocesses

subprocesses involved in CRM. The sales force is involved in many of these subprocesses
as indicated by the arrows.
What is CRM? Although its implementation may differ among companies, it is essen-
tially a comprehensive set of processes and technologies for managing relationships with
potential and current customers and business partners across marketing, sales, and service
regardless of the communications channel. Successful CRM efforts depend on a combina-
tion of people, processes, technology, and knowledge. At the heart of the CRM process
is information. As one executive has put it, “Information is the currency of the relation-
ship.” Information must be readily benchmarked, analyzed, critiqued, and shared among all
the constituencies in the buying process. The processes involved in customer relationship
affected by CRM technology include:
Marketing Targeting and acquiring prospects through data mining, campaign management,
and distributing leads to sales and service.
Sales Developing effective selling processes using proposal generators, knowledge manage-
ment tools, contact managers, and forecasting aids.
Service Addressing service and support issues with sophisticated call center applications
and Internet-based customer service products.
As the functional unit often held responsible for all customer relationships, the sales
force is intimately involved in a company’s CRM efforts, and CRM has likewise had an
important impact on the sales force. The nature of this impact, however, is likely to differ
between companies according to how far the company has progressed in the CRM process.
According to CRM Group Ltd., CRM efforts tend to evolve through three phases. First,
companies look to manage customer relationships as a driver of revenue. The focus is on
utilizing cross-selling and up-selling opportunities and on finding new solutions to customer
situations that could be packaged as new offerings.
In the second phase, companies look for possibilities to manage customer relationships
as drivers of profits. Successful CRM initiatives have focused on using customer knowledge
and emerging new channels to decrease cost to serve and frequently on using advanced
price mechanisms. A good example of a second-phase CRM program is the Major Business
Division of BT plc (formerly known as British Telecom). It concluded that it was relying
too heavily on a long-standing face-to-face selling model and was also paying too much
46 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

for it. Research indicated that many of BT’s largest accounts were having difficulty resolving
routine service and account management issues. The field salesperson in charge of helping
a customer implement a complex new customer-contact system, for example, was also
in charge of overseeing the addition of new phone lines. To solve the dilemma caused
by balancing these two very different opportunities, BT decided to add low-cost, efficient
channels such as the Internet and Telemarketing to handle simple transactions and free up
field sales time for larger, more complex deals. Integrating each of these channels to provide
better service at a lower cost required that a complex information backbone be added to
BT’s CRM program.25
Some of the most advanced companies have now reached a third phase of CRM,
which is to view the management of customer relationships as a driver of economic value
added (EVA). At this stage, customer relationships and sales are regarded as a true driver of
shareholder value. The market value of the company is considered the sum of the net present
value (NPV) of all current and future customer cash flows. The CRM task in this phase is to
increase shareholder value by leveraging the customer base. The driver of business profits
in this phase is based on improving the profitability of customers. A phase 3 CRM sales
professional adds value by being a customized solutions provider and a business relationship
manager who oversees and nurtures all the players and processes in the sales, marketing,
and customer service continuum.
The GartnerGroup recently studied the skills that distinguished top salespeople in a
phase 3 CRM environment. Some of the traditional skills are still on the list, but they are
enhanced by new, critical management skills. The four skills most important to top sales
professionals in a phase 3 CRM environment are the following:
• Collaboration Truly having each stakeholder’s interest in mind—customers, the selling
team, the enterprise—is needed for true collaboration. Management must make sure that
compensation and motivation strategies reinforce good collaboration fundamentals. At the
same time, IT systems for sharing customer information such as Opportunity Management
Systems, Web Chat, and collaboration platforms must be in place to provide the necessary
infrastructure for broad collaboration.
• Relationship Management One of the most critical skills needed in selling today is
management of business relationships. The skills needed are effective listening, diagnos-
tic analysis, and interpersonal communications. Sales executives are emphasizing good
listening skills in their interviews. As one said, “I look for salespeople that rarely make
statements, but orient client communication in the form of a question.”
• Finance and Business Skills The effective salesperson must speak the vocabulary of
business and analyze customer needs in the context of financially viable solutions. Pricing,
logistics, inventory management, and customer service must fit into the context of the
selling proposition and the related financial proposition to position the offerings well with
senior business executives.
• Consultative Skills In many industries, the salesperson must apply consultative skills in
analyzing customer needs, processes, and operational requirements. A Xerox executive
put it this way, “Our business is no longer about selling boxes. It’s about selling digital,
network-based information management solutions, and this requires a highly customized
and consultative selling process.”26
In short, companies will need to develop a CRM strategy and define the sales force’s
role within the organization’s strategy. The sales force’s role will dictate the skills the sales
force needs.27

Summary. Much of today’s business literature focuses on Level 2 strategic implementa-

tion decisions that companies make to fully implement their overall strategies. It is not an
exaggeration to suggest that these are the most important decisions a firm makes and are
SALES FORCE PROGRAM DECISIONS 47

instrumental in determining the financial and competitive success of most organizations. As

the previous discussion suggests, the sales force is most intimately involved in go-to-market
and customer relationship management decisions. As an important source of customer infor-
mation and contact, the sales force is also involved in a firm’s supply chain management
and product development processes. Although top sales executives are likely to have an
important voice in these decisions, these processes are cross-functional in nature and are
likely to involve executives from across the organization. In other words, they are not likely
to be solely or even largely under the control of a firm’s sales management team.
We turn our attention to the sales force program or Level 3 decisions. There are two
distinctions between Level 3 decisions and Level 2 decisions. First, the Level 3 Sales Force
Program is developed within the context of previous strategic decisions. That is, the various
elements of the sales program are based on an understanding of the sales force’s role in the
Level 2 decisions and the firm’s overall objectives and strategies. For instance, a decision
to emphasize supply chain management will usually necessitate a certain type of customer
relationship. An emphasis on CRM will also affect most every element of the sales force
program. Second, unlike Level 2 decisions, the sales management team is largely responsible
for developing and executing the sales program, though the sales force must still coordinate
its decisions and actions with the other functional areas of the firm.

SALES FORCE PROGRAM DECISIONS

A sales force program is a tool for planning how the sales force will perform its role in
achieving the firm’s objectives. This book is organized around the sales force program.
The major elements of the sales force program and how they are related are illustrated in
Figure 2-12. The process begins with a careful consideration of the objectives and target
markets specified in the marketing plan and estimates of the sales potential and forecast
for various market segments. The tools and techniques for estimating sales potential and
forecasting sales are discussed in Management Resource: Forecasting Sales and Potential
following this chapter. Resulting from the sales forecast, but also influencing the final
forecast, are sales force sizing and budgeting decisions. These decisions and techniques
for making these decisions are discussed in Management Resource: Sales Force Investment
and Budgeting following this chapter. To better appreciate the significance of budgeting
decisions see the Team Exercise “Looking Forward to Next Year” on page 50 and the
budgeting issues related to selling in new geographies.
The next step of the process is deciding on an account relationship strategy, which
involves determining the kinds of relationships the organization wants to build with its target
markets. This decision is critical in that it influences and frames decisions with respect to
the remaining four elements of the sales program.28 This is why the account relationship
strategies are discussed next in this chapter.
The other elements of the sales force program—selling actions and behaviors, organi-
zational structure, competency development and leadership system—are developed in the
remaining chapters of this textbook.

Account Relationship Strategy

A firm’s account relationship strategy refers to the type of relationship it intends to develop
with its customers.29 This decision encompasses plans for acquiring, maintaining, and devel-
oping customers. Most important, this decision determines which customers can be profitably
served because it calls for very different levels of investment into customer relationships.
Some firms, for instance, take a transactional approach to customers because customers
48 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

Marketing objectives, strategy, and

strategy implementation program

Estimates of sales
potential and Account relationship strategy
sales forecast

Desired selling actions

and behaviors

Estimates of sales force

Organizational structure
size and budget

Competency development program

Leadership system

Feedback

F I G U R E 2-12 Sales Force Program

can quite easily switch their business from one supplier to another, depending on which
supplier offers the lowest price. Other firms may establish relationships with their key cus-
tomers involving a close integration of their operating processes. To further complicate the
situation, many firms have decided to establish one type of relationship with certain cus-
tomers and a different type of relationship with other customer groups. Selection of the
right customers for the right type of relationship is strategic for both the customer and the
supplier.
Account relationships may take a variety of forms, each having major implications for
the sales force with respect to recruiting and selection, compensation, necessary competen-
cies, and behaviors. Although many types of relationships are feasible and successful, for
illustrative purposes we confine our discussion to three general types of account relation-
ships, as shown in Figure 2-13. Notice that both the supplier and the customer must choose
the type of relationship in which they will engage for the relationship to be successful, it
is not just a seller’s decision.30 Notice also that the three relationships in Figure 2-13 are
depicted on the diagonal. This suggests that an appropriate convergence of selling and pur-
chasing approaches is needed for a particular relationship to be successful. It might surprise
some to see that the customer must also invest in the relationship more for consultative
or enterprise-type relationships, which are higher on the diagonal. You might get a better
idea of the nature of this customer investment by considering the words of a chief informa-
tion officer when talking about what the customer must do for the supplier in a successful
consultative relationship:
Give the supplier unfettered access to your operations. Let them see what’s going on inside your
processes. Tell them what you want, how you will measure their performance. In short, train them
in your business, so that they know what the solution is supposed to do.31
SALES FORCE PROGRAM DECISIONS 49

e
ris ip
e rp nsh
t o
En lati
Re
Investment e
by tiv
l ta ship
Supplier u
ns ion
Co elat
R
l
na
t io hip
c
sa ns
r an atio
T el
R

Investment by Customer

F I G U R E 2-13 Alternative Type of Account Relationships

So the investment is not just money, but also time and information. You would be correct
in concluding that few firms have the time or inclination to make this level of investment in
all their supplier relationships. This is why there must be a coming together or congruency
between the investments of the supplier and the customer for each type of relationship to
be successful.
To get a better idea of the investments involved, the nature of the relationships, and the
role of the sales force, we will discuss each of the three types of relationships described in
Figure 2-13.32

Transactional Relationship. Most business-to-business transactions take place as part of an

ongoing relationship between supplier and customer. A transactional relationship is one in
which the relationship is based on the need for a product of acceptable quality, competitively
priced, and a process and relationship convenient for the buyer. Often a good transactional
relationship involves a personal relationship between the buyer and the seller. This type of
relationship, like all relationships, is based on the nurturing elements we will describe in
Chapter 4, including a history of building trust, creating value, and meeting or exceeding
customers’ expectations. What distinguishes the transactional relationship from the others is
that it is usually based on a personal relationship between individual buyers and sellers. As
a Scandinavian executive remarked, “You know, I personally have never bought anything
from someone I didn’t like.” This is at the heart of a transactional relationship—personal
relationship.
The advantages and limitations of a transactional-type account relationship are illus-
trated by the efforts of a salesperson with Holston Building Supply, Jim Roberts, to sell oak
balusters and other staircase parts to a chain of lumberyards in eastern Tennessee. Although
having long purchased other Holston products, the customer informed Jim that it was quite
satisfied with its present supplier of staircase parts and had excellent profit margins on these
items. Jim persisted, saying, “Just give me a chance to prove that you could sell even more
50 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

TEAM EXERCISE
“Looking Forward to Next Year”

Last year had been a very good year. Sales had increased by 10 percent to $134 million, due
mostly to increased sales to existing customers. Tom Thornton, president and CEO, is even
more excited about the coming year because of an exciting new product development and
plans for a geographic expansion beyond last year’s Southeast Atlantic Coast sales area. He is
meeting with you, the vice president of sales and marketing, to discuss next year’s budget.
“I’d like to thank you for such a great year in pushing our sales over $130 million,”
greeted Tom. “As you know, I’ve been working on our budget for next year and feel that we
have an opportunity to become one of the real players in this industry. With our earnings from
last year, we are finally in a position to expand beyond our present eight-state geographic sales
area by adding on New York, Pennsylvania, and West Virginia in the North and Louisiana and
Arkansas in the South. On top of that,” he continued, “I believe that at least 10 percent of
our sales will be in the new packaging technology. What I really like about the new product
is that it is best suited for the high end of the market—expensive products that are easily
broken if not handled correctly. We’ve needed a product of this kind for some time and it
shouldn’t cannibalize our existing products, which are really appropriate for the middle of the
market.”
“Now we just have to aggressively execute our plan,” added Tom. “I’ve forecasted sales
next year for $174 million, which is right at a 30-percent increase over this year’s projected
sales. We’ve got to maintain our bottom line to help finance our growth plans, so I’m setting
a sales and marketing budget of $19 million, which is the same as this year’s projected 10.9
percent of revenue. This is nearly a $5 million increase in your budget, which should be enough
to reach our target of $174 million.”
As vice president of sales and marketing, what would be your reaction to Tom’s budget?
How would you begin to analyze this budget? What are the possible budget implications of
the expanded geographic selling area? What about the new product introduction?

and make better margins with our products.” When the buyer did give them a trial run, they
sold so well that he soon switched completely to Holston’s stair parts. “I would not have
had the slightest chance of getting him to try our line,” says Roberts, “no matter how good
my arguments might have been, if I had not already established a solid, trusting relationship
with him.”
Notice that the personal relationship between Jim and the account was critical to obtain-
ing the sale and that trust was a key element in the relationship. On the other hand, another
supplier of staircases offering a higher profit margin and able to generate equal demand is
likely to take business from Jim in the future. Also notice that the customer’s investment
in the relationship is mostly at a personal level—that is, between Jim and the customer’s
purchasing manager, not with Jim’s company. Jim’s relationship with the lumberyard may
become quite tenuous, for instance, if the purchasing agent is no longer there.
Although repeat transactional relationships may appear to be restricted to traditional
buyer-seller relationships, this is not necessarily always the case. Michael Dell was one of
the first to recognize the enormous opportunity to provide sophisticated buyers with the kind
of relationship they were seeking. By offering a direct sales channel for computer equipment,
Dell was providing buyers who knew what they wanted with a low-cost and very convenient
way to purchase a personal computer. The Dell selling approach through telemarketing and
self-customization of the equipment was roughly 15 percent less expensive for Dell than
selling through computer retailers.
SALES FORCE PROGRAM DECISIONS 51

What types of firms are likely to emphasize a transactional-type customer relationship?

A recent study sheds some light on this question. Based on a sample of companies from four
countries, the study concluded that 68 percent of all firms focus on a transactional relation-
ship with at least some of their customers. Consumer goods firms and large organizations
are most likely to emphasize transactional-type relationships with their customers.33 The
overarching reason for emphasizing transactional relationships in these situations is because
the buyers are already quite knowledgeable about the product and the role of the product
in meeting their objectives. Consider again the Holston Building Supply example discussed
above. The lumberyard’s buyer is probably quite familiar with most staircase parts, how
they differ, and how to merchandise them in his stores.
Business-to-business firms, especially those selling capital equipment and hightech
products are likely to employ a different type of customer relationship strategy. These
alternative type of relationships are discussed next.

Consultative Relationship. A consultative relationship, a quite common relationship in

industrial markets, is based on the customer’s demand and willingness to pay for a sales
effort that creates new value and provides additional benefits outside of the product itself.
Consultative relationships employ the solutions selling approach described in the previous
chapter, as do the enterprise-type relationships to be discussed next. The success of consul-
tative relationships rests on the ability of the salesperson or sales team to get very close to
the customer and to intimately grasp the customer’s business issues. In these relationships,
the sales force attempts to create value for the customer in three ways:
• Helping customers understand their problems and opportunities in a new or different way.
• Helping customers develop better solutions to their problems than they would have dis-
covered on their own.
• Acting as the customer’s advocate inside the supplier’s organization, ensuring the timely
allocation of resources to deliver customized or unique solutions to meet the customer’s
special needs.
The role of the salesperson in a consultative relationship is quite different from his
or her role in a transactional relationship. Much more time is spent learning the special
needs of the individual customer and marshaling resources inside the supplier’s company
to meet those needs. A good example of a company implementing a successful consultative
relationship program with its key customers is the Boise Cascade Office Products Corpora-
tion (BCOP), a business-to-business distributor of office products. BCOP has repositioned
its salespeople as business consultants, through the application of value-added techniques.
Using database marketing software, the salesperson examines a customer’s buying pattern,
seeking areas in the customer’s organizations where process improvements are possible.
Sales usage reports enable the sales representative to advise customers on buying trends in
the categories of paper, furniture, computers, and office supplies. Sales representatives also
use a software program called Activity-Based Cost Management (ABCM) to measure costs
by activity, customer, and product. ABCM enables Boise to directly assign more than 90
percent of actual costs to specific customer-related activities. As a consequence, opportu-
nities for cost savings can be explored and presented to customers, hopefully resulting in
improved financial results for both the buyer and Boise.
Boise Cascade’s efforts at establishing consultative relationships with its customers
illustrate several important characteristics of this type of customer relationship and how it
differs from purely transactional relationships. Notice that the additional customer value
resides in the nonproduct resources that the salesperson brings to the relationship. This
type of relationship also puts a premium on gathering and analyzing information about
customers and their business issues. As a result, the selling process is usually longer, so
the value of the customer to the supplier must be great enough to cover the higher selling
52 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

costs. The relationship must usually be long term in nature for the customer equity to
justify Boise’s investment in the customer. Notice also that the salesperson must have
a great deal of skill in gathering customer information, business acumen, and technical
competency.
Figure 2-13 indicates that the seller and the buyer’s investments in the relationships are
greater in consultative relationships than in transactional ones. The Boise Cascade example
clearly shows that the seller’s investment increases, but what about the buyer’s investment?
Information sharing to understand the customer’s problems and opportunities requires, by
its very nature, an investment of time and a sharing of information by the customer. A vice
president with a large utility firm put it this way: “It’s a big investment of time bringing a
new vendor aboard. You need to know that the time you spend with them is worth it. You
can’t just give a free education to everyone who comes knocking at your door.”34
It is critical to choose the right situations in which to invest in consultative relationships.
Experience indicates that a consultative relationship is most appropriate when one or more
of the following conditions are present:

• The product or service can be differentiated from competitive alternatives.

• The product or service can be adapted or customized to the needs of the customer.
• The customer is not completely clear about how the product or service provides solutions
or adds value.
• The delivery, installation, or use of the product or service requires coordinated support
from the selling organization.
• The benefits of the product or service justify the relatively high cost of consultative
relationships.

When these conditions are present, the sales force may have an opportunity to create cus-
tomer value through consultative selling.

Enterprise Relationship. In recent years, customers have been downsizing their supplier
base and replacing their myriad vendors with a very small number of possibly long-term
relationships offered only to a select few suppliers. The trend toward purchasing from fewer
suppliers has resulted in customers leveraging the volume of their purchases for enhanced
services and cost-cutting opportunities. The response of many sellers to the emergence of
very large and powerful customers has been to develop a system of enterprise relationships
to better meet the needs of their major customers.
An enterprise relationship is one in which the primary function is to leverage any and
all corporate assets of the supplier in order to contribute to the customer’s strategic success.
In such a situation, both the product and the sales force are secondary, and the customer must
be of strategic importance to the selling organization. Adjectives to describe this category
of relationships abound and include Major, Strategic, National, Global, Corporate, and Key
Account Programs. To achieve successful enterprise relationships, the supplier must deliver
exceptional customer value while also extracting sufficient value from the relationship. This
is always challenging, especially when the customer has worldwide needs.
Many of the United States’ premier industrial firms such as GE, IBM, Du Pont,
Monsanto, and Honeywell have established enterprise relationships with customers such
as American Airlines, Ford, Milliken, Procter & Gamble, and the federal government. The
customer generally initiates this radically different type of relationship.35 When Chrysler
was on the ropes in the early 1990s, one of its responses was to change the way it did
business with its key suppliers. Instead of forcing suppliers to win business anew every two
years and focusing on lowest list price, it decided to give suppliers business for the life of a
model and beyond. Instead of relying solely on its own engineers to create the concept for
a new car and to design all the car’s components, Chrysler now involves suppliers. Instead
SALES FORCE PROGRAM DECISIONS 53

of Chrysler dictating price, the two sides now work together to lower the costs of making
cars and to share the savings.
The Chrysler example illustrates some ways in which enterprise relationships differ
from traditional supplier relationships. Following are some of the ways in which other
companies have made strategic partner relationships work.
• Suppliers are involved in the early stages of need identification, specification, and
new-product development.
• In conventional relationships, the primary players were the salesperson, the customer
service representative, and perhaps a design engineer. With enterprise relationships, the
supplier usually fields a team that interfaces with the customer on a regular basis, and
includes a variety of functional areas and management levels.
• In enterprise relationships, there is an unusually high degree of intimacy resulting in
immediate responsiveness from suppliers, sharing of information, radical empowerment
of suppliers, and termination of the relationship as a remote and difficult option. For
instance, a small group of nine suppliers, called “in-plants,” work on-site, full-time at
Boise. This insider status gives them unparalleled opportunities to grow with the customer
and to influence requirements for their products.36
The activities of the sales force, the structure of the sales force, compensation, and even
the sales philosophy differ for each type of relationship.37 For instance, as the buyer-seller
relationship becomes more sophisticated and complex, the sales force’s role as the primary
point of contact between customer and supplier often diminishes. The focus also shifts to
some degree from sales volume generation to management and maintenance of the rela-
tionship and the conflicts that are likely to arise over time.38 Studies have shown that
enterprise-type business-to-business relationships tend to focus on lowering the customer’s
overall operating costs. Industrial salespeople are typically trained in selling behavior and
in how to present technical product features, not in process and cost analysis. Salespeople
are needed who can develop a thorough understanding of the customer’s operations and the
way costs are influenced by the supplier’s products and customer interactions. A supplier
may also have to analyze whether their sales compensation system rewards salespeople
for lowering customer costs, which usually requires a long-term perspective, or short-term
volume gains. These and other issues are addressed in the remainder of this book.39

Cautionary Notes. In today’s business world strategic decisions can be quite complex. At
IBM, for example, American Airlines is viewed as both a customer and a supplier; that
is, American sells airline seats to IBM, but IBM is also a primary supplier of computer
equipment and software to American. This type of relationship requires that the supplier’s
account manager navigate within his or her own procurement area as well as that of the
customer.
A critical mistake is to assume that more investment in the customer relationship
will automatically create a better relationship with improved results. The experience of
a packaged materials manufacturer provides a typical example of this mistake. Because the
manufacturer’s costs were slightly higher than competitors’ costs, they were losing busi-
ness. This manufacturer decided that the best way to halt this decline was to upgrade its
sales force. Their “packaging consultants” were charged with adding value to their products
through providing customers with help and advice. The investment in upgrading the sales
force, including retraining and recruiting, together with the development of a new market-
ing strategy, was in excess of $10 million. The average cost of each sales call increased
to $890, and the average sales cost to acquire a new account was $112,000. It turned out,
however, that most customers simply didn’t want advice or help. They needed packaging
material, pure and simple, and that’s all they were prepared to pay for. The company was
soon taken over at a fire-sale price. Studies suggest that this case is not unusual. As indicated
54 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

Fair
10%
Good
27%

Very
Good Poor
10% 53%

F I G U R E 2-14 Partnering Effectiveness Index

in Figure 2-14, more than half of the companies offering enterprise-level relationships to
their strategic customers rated the performance of these programs “Poor.” The challenges
of these programs are significant, and the risks of revenue and profit loss associated with
losing these accounts to competitors are often of even greater significance.

SUMMARY
The sales force strategy and management structure should be planned and designed within
the context of an organization’s overall business strategy and marketing strategy. Compet-
itive advantage resides in the firm’s ability to develop and perform a set of basic business
processes for implementing a firm’s business strategy. As the primary customer contact, the
sales force and sales management are likely to play an important role in these processes.
This chapter has given numerous examples of how sales force decisions are subject to and
contribute to the overall strategy of the company and its marketing strategy. You should be
able to do the following:
1. Describe the major elements of business strategy. The strategic management process
includes defining a business mission, setting specific measurable goals for the organiza-
tion, and deciding on a strategy for meeting these objectives. A well-defined business
mission should provide a sense of direction for the organization. The mission should be
defined in terms of customers to be served, competitors with whom an advantage must
be achieved, and the processes by which the company will achieve these advantages.
Goals should be measurable and should guide goal setting throughout the organization.
Strategies should be based on developing a sustainable competitive advantage through
creation of customer value.
2. State the basic elements of strategic marketing planning. Strategic marketing planning
is a process whereby an organization attempts to meet the value requirements of its target
markets. This process starts with a situation analysis that consists of taking stock of
where you have been, where you are now, and where you are likely to go in the future.
The next step is to define market segments from which to target. Once you have made
these decisions, an appropriate marketing mix program should be designed, including
integration of the various promotion tools.
3. Explain what is meant by strategic implementation process decisions. Strategic imple-
mentation decisions refer to a set of processes that organizations will need to develop to
create customer value and achieve a competitive advantage. The fundamental decisions
that most companies will have to make with respect to these Level 2 processes include:
(1) How will customers be accessed? (go-to-market strategy), (2) How will new offerings
be developed? (product development management), (3) How will physical products be
created and delivered to the customer? (supply chain management), and (4) How will
customer relationships be enhanced and leveraged? (customer relationship management).
DEVELOPING YOUR COMPETENCIES 55

The sales executive team will likely have an important voice in making these decisions,
but they essentially involve cross-functional teams. The decisions a company makes with
respect to these four processes will have an important impact on the sales job and on the
skills the sales force will need to perform their job.
4. Describe the purpose of a sales force program and list its major elements. A sales
force program is a tool for planning how the sales force will perform its role in achieving
the firm’s objectives. The sales program planning process begins by reviewing the firm’s
business and marketing strategies. The major elements in a sales force program include
an estimate of sales potential and forecast, an account relationship strategy, specification
of the desired selling actions and behaviors, an estimate of the sales force budget and
size, the sales force organizational structure, a competency development program, and a
leadership program.
5. Tell what an account relationship strategy is and its purpose. A firm’s account rela-
tionship strategy refers to the type or types of relationships a firm intends to develop with
its customers. Relationship types differ in terms of how much of an investment a supplier
and customer are willing to put into a relationship. The more both are willing to invest
in the relationship, the more intimate, difficult to terminate, strategic, and broad based
the relationship is likely to be. The economic value of the relationship must usually be
very important for both parties to be willing to make these investments. Three types of
relationships are transactional, consultative, and enterprise.

KEY TERMS
Account relationship strategy Jury of executive opinion Sales carryover
Alliances Leading indicators Sales force composite
Brand identity Least squares Sales force program
Brand meaning Low cost Sales forecasting
Brand relationships Market segmentation Sales potential
Brand responses Market potential Sales process activities
Business mission statement Marketing strategy Smoothing constant
Consultative relationship Moving average Strategic implementation decisions
Customer relationship management Multiple regression Strategy
(CRM) Naive forecast Supply chain management (SCM)
Deseasonalized data Niche Target marketing
Differentiation Organization’s goals Telemarketing
Enterprise relationships Positioning strategy Time series regression
Generic business strategies Product development management Transactional relationships
Go-to-market strategy (PDM) Trends
Independent sales agents Resellers Turning point
Integrators Sales budget

DEVELOPING YOUR COMPETENCIES

1. Strategic Action. Merrill Lynch & Company has finally decided to enter the low-cost
business of on-line trading. On-line brokerage firms such as E*Trade Group Inc. have
been growing rapidly and taking business from full-service brokerage houses owing
primarily to the low price per transaction and the record bull market since 1994. With
the Internet now accounting for 30 to 35 percent of all stock trades by individuals, Merrill
executives finally decided they could no longer afford not to embrace such trading. Not
56 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

only is this a major change in strategy for Merrill, but the move to the Internet could
spark rebellion within its army of 14,800 well-paid brokers. An internal Merrill Lynch
study, for example, suggests that brokers who are paid chiefly in commissions might
see their incomes decline by 18 percent initially. How big a problem does Merrill face?
What would you suggest they do about their brokers? For more information on Merrill
Lynch, visit its Web site at www.ml.com.
2. Technology. The marketing plan for 2004 was recently released to the thirty-person
sales force of Access Radiology Corporation. The salespeople were unhappy with
what they saw, and Mary Callaghan, vice president of sales at Access, had received
more than a dozen angry e-mails, voice mails, and memos from her salespeople.
Complaints ranged from not enough money for lead-generation activities and too much
image-based advertising to a lack of a comprehensive Web-based marketing initiative.
The last issue has salespeople worried about Access’s marketing direction. Customers
have said that they mainly want to interact and buy products from Access on-line.
Callaghan had already relayed this information to Access’s senior management in an
effort to create new on-line initiatives at Access. It doesn’t seem that this is happening,
and Callaghan and her sales force are extremely concerned. How should Callaghan
address these issues with senior management, and what can she do to ensure that
the company’s marketing department listens to the needs of the sales force and its
customers?
3. Coaching. Perhaps one of the best role models for today’s sales and marketing man-
agers is Lou Gerstner, the former chairman of IBM. Major problems faced IBM when
Gerstner became chairman at IBM, and it was probably tempting for him to turn all
his energy inward to resolve these difficulties. Instead, he decided to become actively
involved in the company’s sales efforts. IBM’s relationship with Monsanto, the St.
Louis-based agricultural and pharmaceutical giant, is a good case in point. Gerstner
hosted a number of one-day strategy seminars for small groups of chief executives from
significant companies in a variety of industries. The chairman of Monsanto, Robert
Shapiro, who was an attendee at one of these events, asked whether any of IBM’s
research or cutting-edge technology might have an application for Monsanto, which
was involved in genetic research. IBM found some interesting material on gene map-
ping in both animal and plant cells that IBM thought might be useful to Monsanto.
A few weeks later an IBM executive team arrived at Monsanto headquarters, and dis-
cussions began. As the discussions progressed, it became apparent that IBM had other
more important strategic-level contributions to make. Within a year, Monsanto and IBM
signed a contract, reputedly worth several hundred million dollars, that had IBM run-
ning the total Monsanto mainframe and PC network of more than 20,000 personal
computers. What did Lou Gerstner do right? Which type of customer relationship do
IBM and Monsanto have, and what makes it work? IBM: www.ibm.com. Monsanto:
www.monsanto.com.
4. Team Building. The need for coordination and teamwork has been emphasized through-
out the discussion of relationship management in this chapter. WESCO Distribution, Inc.,
a $3 billion electrical equipment and supplies (EES) distributor, presents an interesting
case study on the issues involved in coordinating the implementation of a national account
contract with large customers.
WESCO regularly carries and sells more than 210,000 products from over 6,000
suppliers to satisfy the electrical equipment needs of any customer anywhere in the
world. What it is really selling, however, is the capability of a single source of sup-
plies, customized delivery, technical support, application development, and customer
product training. In other words, WESCO offers the latest in integrated supply chain
systems, including inventory management options, inventory reduction initiatives, and
DEVELOPING YOUR COMPETENCIES 57

related efficiency improvements to customers such as industrial manufacturers, original

equipment manufacturers (OEMs), municipal power authorities, and other utilities.
Recently, WESCO established a national account program for its 300 largest industrial
customers, who collectively accounted for almost 70 percent of WESCO’s total revenues.
The national account contract offered customers a 2 to 3 percent price discount on prod-
ucts purchased from WESCO in exchange for consolidating all their purchases of these
product lines with WESCO. WESCO’s account penetration with these customers ranged
from 60 to 90 percent for the product lines covered by the contract, so the lower prices
in the contract could be offset by greater volume through 100 percent penetration. Con-
tracts were signed at the customer’s corporate headquarters, but most of the purchasing
was left to purchasing agents at the local plants. This is where the coordination problems
began. Despite corporate enthusiasm, some plants were reluctant to abandon local distrib-
utors with whom they had long-established and close relationships. In addition, the local
availability of supplies was often highly valued in case of emergency. Problems in coordi-
nating between corporate and local interests also existed inside WESCO. A customer may
purchase a lot of supplies in total, but the volume generated at the local plant level may
be fairly small in comparison with larger single-plant customers serviced by the WESCO
branch salesperson. The branch salespeople report to the branch manager and are paid a
base salary plus commission on sales volume. They are therefore reluctant to call on a
relatively low-volume plant, especially one with a long commute, even if they are on
a national account contract. What would you recommend the national account manager
do to encourage teamwork and local support for a national account in such a situation?
What actions would you recommend for the vice president of marketing and sales?
For more on WESCO Distribution, Inc., the products and services it offers, and its
customer base, see www.wescodist.com.
5. Self-Management. Every baseball player must throw, catch, and hit the ball. Yet what
it takes to be a winning pitcher or a great hitter is quite a different matter. The same
is true of sales—all salespeople must talk to customers and take orders; however, what
it takes to excel at transactional relationships is quite different from that required for
enterprise relationships.
The H. R. Chally Group has built a large database of salespeople information from
which they have identified four different sales roles and skills. Each sales job requires a
certain amount of each skill to be a top performer. Rate yourself from 1 to 10 in terms
of how much each of the following four skills describes yourself.
• Closing. Can aggressively initiate personal contacts. Does not have a high fear of
personal rejection. Can quickly establish another person’s emotional desire and personal
concerns. Has high self-confidence.
• Consultative. Possess a combination of patience, good interpersonal skills, and aggres-
siveness. Have good persistence. Are very career oriented. Are somewhat academically
inclined. Are willing to take risks, but only after careful thought and calculation. Pay
a high level of attention to detail. Can handle personal rejection and the fear of failure
extremely well. Are team oriented.
• Relationship. Like independence and the freedom of sales (i.e., the feeling that you
are your own boss). Exercise discipline and take responsibility for their actions. Once
again, have low fear of failure. Have a strong work ethic.
• Display. Are easily bored, need to have something to do. Enjoy people. Possess high
physical energy level. Are impulsive. Like work to revolve around home and other
goals.
What is your profile on these four dimensions? Name two types of sales positions
(e.g., stockbroker, telephone sales, corporate jet sales, computer software sales) for a
58 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

person rating high on each of the four dimensions. What would be the composite profile
on each of the four skills (rate from 1 to 10) of a person who would be successful at each
of the three customer relationships discussed in this chapter: transactional, consultative,
and enterprise relationships. For more on H. R. Chally, see www.chally.com.

SHIELD FINANCIAL: “A DIFFERENT KIND

FEATURED CASE OF CUSTOMER”

T
he First-Plus plan was designed for Shield’s “As I mentioned last time,” the vice president said,
larger customers, even though many of the “we would like to get a better handle on our risks,
salespeople at Shield were very successful but we need a lot of help. Every one of our offices is
with smaller business owners. Getting salespeople to used to doing things its own way, and that includes the
refocus their efforts on larger customers was a major liability and workman’s compensation plans they’ve
issue with Doug Bloom when he took over the Des purchased. We don’t have a common set of procedures
Moines office. Tiffany Williams, the top salesperson for determining our risks or handling claims. Making
for the past eight years, had been particularly upset at matters even more difficult, we haven’t got a common
the first sales meeting by this change in direction. Doug information system. We might be willing to write a lot
had a lot of experience with selling business owner, of business with you if your people are prepared to
liability, workman’s compensation, and other forms of work with each office individually. Study their partic-
insurance to small businesses when he was a sales rep ular needs and help them get their act together.” The
in Atlanta. Although price was of primary concern for discussion proceeded with the vice president explaining
most of these businesses due to their focus on cash the background of how decentralized decision making
flow, smaller accounts were faster to close because one has traditionally been in his company. This was chang-
person generally made the decision and the business ing, however, and insurance was one of the issues that
risks were fairly straightforward and addressable. As he felt should be standardized throughout.
a result, the selling cycle—the time it took to close a Doug and Tiffany thanked the vice president for
deal—was fairly short. Even a new account would take his time and the information. Doug promised that he
only two to three calls to close. and Tiffany would get back to him with some ideas. In
Doug realized that First-Plus was a more com- fact, Doug was not sure how to respond to this request.
plex plan, requiring more time to explain and under- This was an entirely different type of situation than he
stand. He also knew from experience that the buying was used to seeing. On the other hand, he knew that
process in large firms could be more complicated. they could not afford to lose this opportunity and that
A committee often made the purchase decision and this could really turn things around in the Des Moines
more people could veto the deal or delay the pur- office. He also wondered if this situation was typical
chase for an extended period. On the other hand, these of other large businesses.
accounts could potentially be exceptionally large sales
opportunities, with high testimonial value. If a large
well-known company chose your plan, it was a natural Questions
opener for more companies in the same business.
Doug decided to tackle the problem head-on and 1. How fundamentally different is the role of the sales
the next time he was riding with Tiffany to see some force in addressing these new customer needs from
of her accounts asked if they could stop to visit a large that of addressing the needs of more traditional
prospect to which Tiffany had made an initial sales call brokers?
to determine their interest in purchasing insurance from 2. How will the selling effort change when addressing
Shield. He was really pleased when Tiffany agreed and these new broker needs?
was able to make an appointment with the vice pres- 3. How will the changes affect sales management?
ident of Human Resources for that afternoon. After 4. What are the threats and possible downside of
introductions and some initial small talk, they got down addressing these emerging broker needs?
to business.
SALES MANAGEMENT RESOURCE: ESTIMATING POTENTIALS AND FORECASTING SALES 59

SALES MANAGEMENT RESOURCE

ESTIMATING POTENTIALS AND FORECASTING SALES

WHY FORECAST?
One of the keys to success in sales is knowing where customers are located and being
able to predict how much they will buy. Firms have found that sales potential data are
indispensable to developing a sales program, particularly in setting up territories, assigning
quotas, developing budgets, and comparing sales performance of individual salespeople.
Sales forecasting is so important that most firms include this topic in their sales manager
training programs.1
Inaccurate demand predictions can have disastrous effects on profitability. For example,
Hewlett-Packard was once unable to predict the proper mix of products demanded by its
customers for two quarters in a row. Demand for low-end printers and workstations was high,
and demand for commercial computers was low. As a result, earnings were 14 percent lower
than analysts expected. The stock market was dismayed with Hewlett-Packard’s forecasting
problems and knocked the company’s stock down 5 percent in one day. This case example
demonstrates the importance of being able to measure the size of market opportunities. In
this Management Resource, we will show you how to measure demand for today and how
to forecast sales for tomorrow.

WHAT IS MARKET POTENTIAL?

Market potential is an estimate of maximum demand in a time period based on the number
of potential users and their purchase rate. Actual industry sales are usually less than market
potential, as shown in Figure SMR2-1. For instance, the U.S. market potential for DVD
players could be defined as the total number of households with television sets based on
typical purchases of one unit per family. Actual sales are less than potential because it takes
time to convince people to buy discretionary items such as DVD players and because some
people can’t afford them. The industry purchase rate is a function of price levels, overall
product quality, promotional expenditures, and the number of stores stocking the machines.
Company sales potential is a portion of total industry demand. It is the maximum
amount a firm can sell in a time period under optimum conditions. As Figure SMR2-1
suggests, company sales will be lower than industry sales. The ratio of company sales to
industry sales is a measure of the market share of the organization.
In your position as sales manager, you will be asked to estimate current values for
market and company potential for products assigned to your care. This assignment can be
tricky because the number of users and the purchase rate change over time. In addition,
price declines, industry promotions, and changing economic conditions can also influence
the size of the market. Besides measuring current levels of demand, you will be required
to forecast into the future. These predictions are shown as the dashed lines for period 12
in Figure SMR2-1. Our discussion begins with demand measurement and shifts to the issue
of forecasting later.

Resource Consultant: Beth Forbes, Director of International Results & Analysis, GTE International
60 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

Market potential

Industry
forecast
Basic
demand
gap

Industry sales

Company potential
Company
Company forecast
demand
gap

Actual
Company sales
Forecast

1 2 3 4 5 6 7 8 9 10 11 12

Current time period

F I G U R E S M R2-1 Relations Among Market Potential, Industry Sales,

and Company Sales

Estimating Potentials
All estimates of potential are based on two key components—the number of possible users
of the product and the maximum expected purchase rate. Sometimes you can get estimates
of these numbers from trade associations or commercial research associations, but you have
to come up with your own potential figures, broken down by geographical area, industry,
and customer type.
The initial approach for estimating the number of buyers is to use secondary sources. A
wide variety of commercial data are available that provide the potential number of buyers,
size of firms, age of consumers, income levels, and locations. Dun’s Marketing Services and
Sales & Marketing Management magazine sell these data in an Excel format for personal
analysis. You can also access potential databases through computer networks on a fee basis.
Large firms often have their own databases that can be mined for potential information.
Purchase rates are usually derived from trade organizations or government publications.
For existing products, you may wish to use the ratio of current sales to the number of
households or sales per person to derive a purchase rate. These data can be obtained from
trade publications such as those from the Conference Board, or they can be calculated from
published data. For example, average demand per household could be derived by dividing
total industry sales for an area by the number of households. In the case of new products,
managers may estimate conversion rates from experience with other items. If a similar
product was sold to 4 percent of U.S. households during the first year, this rate could be
applied to obtain demand estimates for new merchandise.
SALES MANAGEMENT RESOURCE: ESTIMATING POTENTIALS AND FORECASTING SALES 61

Duracell, a division of Gillette, is the world’s leading alkaline battery manufacturer.

Every month, five standard alkaline battery sizes are converted into thousands of
stock-keeping units that are shipped to customers. Forecasting’s mission at Duracell is
to provide management with forecasts to help prepare strategies and set goals. The basic
forecasting formula at Duracell is that Shipments = Retail Market × Market Share +/−
Changes in Retail Inventories. Thus, forecasts are a function of the size of the market times
anticipated market share with an adjustment for retailer inventory changes. The company
uses six different statistical models to determine market size. Marketing executives estimate
market shares based on plans for advertising, product enhancements, distribution strategies,
and pricing. Changes in retail inventories are the most difficult to estimate. Duracell
uses five forecasting cycles: competitive view, strategic business plan, tactical plan, latest
estimate (monthly), and supply chain management (weekly). To ensure coordination of
resources, marketing, finance, and production planning activities all use the same forecasts.
Its forecasting toolbox includes judgmental, time series, and causal model approaches.
No single procedure meets all forecasting needs, and so Duracell selects methods that
best suit the situation. This often means using simple naive methods for tactical forecasts
of less than one year. They also use linear regression, exponential smoothing, moving
averages, and causal models for long-term situations. Duracell often selects forecasting
methods on the basis of those shown through tests to be the most accurate with company
data.

Buying Power Index Method

Market potentials for consumer goods are usually estimated by constructing indexes from
basic economic data. Perhaps the most popular multifactor index of area demand is the Buy-
ing Power Index (BPI), published each year by Sales & Marketing Management magazine.
This index combines estimates of population, income, and retail sales to give a composite
indicator of consumer demand in 922 geographic areas known as Core Based Statistical
Areas (CSBSAs). These CBSAs are subdivided into either metropolitan or micropolitan
statistical areas.
Data used to calculate the Buying Power Index for the Atlanta, Georgia, area are
summarized in Table SMR2-1. The figures show that the Atlanta Metro area has 1.824
percent of U.S. income, 1.768 percent of retail sales, and 1.606 percent of the U.S.
population. These three numbers are weighted by 0.5, 0.3, and 0.2 for income, retail
sales, and population, respectively, to give a Buying Power Index for Atlanta Metro of
1.7636.2
A comparison of the three figures—retail sales, population, and income percentages—
provides valuable information about a geographic area. Consider again the Atlanta area per-
centages that have only 1.509 percent of the U.S. population, 1.784 percent of the national
income, and 1.719 percent of retail sales. This suggests that income for the Atlanta Metro
area is considerably above average. When retail sales for an area are more than the pop-
ulation for an area, as in this example, there is strong evidence that people are driving in

T A B L E S M R2-1 Data Used to Calculate Buying Power Index

2004 Effective 2004 Total 2004 Estimated
Buying Income Retail Sales Total Population
Amount Percentage of Amount Percentage of Amount Percentage of Buying Power
($000,000) United States ($000,000) United States ($000,000) United States Index
Total U.S. $5,466,880 100.0% 3,906,482 100.0% 292,936 100.0% 100.0
Atlanta Metro $99,691 1.824% $69.071 1.768 4.704 1.606 1.7636
62 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

from surrounding counties. This suggests that managers should spread their promotional
dollars over a wide area to reach most of the customers who shop in the Atlanta Metro
area.
Buying Power Index values are used to help managers allocate selling efforts across
geographic regions. That is, the Buying Power Index suggests that Atlanta Metro, with
1.7636 percent of the U.S. sales potential, should receive about 1.7636 percent of the
personal selling and advertising budgets for products in national distribution.

NAICS Method for Business Markets

Business market potential can be built up from data made available through the U.S. Cen-
sus of Manufacturers. The Census of Manufacturers, which is available every five years,
combines businesses into North American Industry Classification System (NAICS) codes
according to products produced or operations performed.
The first step in estimating potentials from census data is to identify all the NAICS
codes that make use of the product or service. This is usually accomplished by selecting
industries that are likely customers, using judgment to pick codes from the NAICS
manual, and running surveys of different types of firms to see where products are
employed. Next, the firm must select an appropriate database for estimating the amount
of the product that will be used by each NAICS code. A food machinery manufacturer,
for example, could review past sales data to determine the relationship between the
number of its machines in use and the number of production workers in a particular
industry. If the manufacturer found that 24 machines were used for every 1,000 grain
milling employees, 15 for every 1,000 bakery workers, and 3 for every 1,000 beverage
workers, then the market potential for North Carolina could be determined as shown in
Table SMR2-2. The 2002 Census of Manufacturers showed that North Carolina actually
had 878 grain milling workers. If 24 machines were used per 1,000 workers, the market
potential would be 878 × 24, or 21.1 machines. Similar calculations for other codes
yield a total market potential of about 175 machines for the state of North Carolina.
The potential built up for North Carolina would then be added to estimates derived for
other states to give national figures. These figures can be converted into annual measures
of market potential by adjusting for the average life of the machines. If the machines
lasted an average of ten years, then approximately 10 percent of the North Carolina
potential of 175 units, or 17 machines, would be replaced each year. Multiplying annual
demand potential by the firm’s current market share would derive estimates of company
potential.

T A B L E S M R2-2 Estimating the Market Potential for Food Machinery in

North Carolina
(1) (2)
NAIC Production Number of Machines Market Potential
Code Industry Employeesa Used per 1000 Workersb (1×2)/1000
3112 Grain Milling 878 24 21.1
3122 Tobacco Mfg. 9,571 15 143.6
3121 Beverages 3,538 3 10.6
175.3

a The production employee data are from the 2002 Economic Census of Manufacturing, Geographic Area Series, North
Carolina, p. NC1 & 2.
b Estimated by manufacturer from past sales data.
SALES MANAGEMENT RESOURCE: ESTIMATING POTENTIALS AND FORECASTING SALES 63

QUALITATIVE SALES FORECASTING

Sales forecasting is concerned with predicting future levels of demand. These projections
are vital for budgeting and planning purposes. For new products, a few simple routines
can be employed. The absence of past sales means that you have to be more creative in
coming up with predictions of the future. Sales forecasts for new products are often based
on executive judgments, sales force projections, surveys, and market tests. We will begin
our discussion of forecasting techniques by focusing on subjective methods that are based
on interpretations of business conditions by executives and salespeople.

Sales Force Composite

A favorite forecasting technique for new and existing products is the sales force composite
method. With this procedure, salespeople project volume for customers in their own territory,
and the estimates are aggregated and reviewed at higher management levels. The territory
estimate is often derived based on demand estimates for each of the largest customers in
the territory, the remainder of the customers as a group, and then for new prospects. Sales
force composite forecasting is one of the most popular forecasting methods and is used
by 45 percent of the firms in a U.S. survey (Table SMR2-3). This technique is favored by
industrial concerns because they have a limited number of customers and salespeople are
in a good position to assess customers’ needs. This technique was adopted by a medical
products subsidiary of American Home Products.3 Previously, the sales forecast came down
from headquarters; now the forecast is built up from estimates prepared by 120 field reps.
When salespeople provide input, they buy into the forecast and are more likely to achieve
their sales quotas. The net result at the medical products firm has been improved sales
forecast accuracy.

Jury of Executive Opinion

This technique involves soliciting the judgment of a group of experienced managers to
give sales estimates for proposed and current products. The jury of executive opinion

T A B L E S M R2-3 Utilization of Sales Forecasting Methods of 134 Firms

Percentage of Percentage of Percentage of
Firms That Use Firms That Use Firms No Longer
Methods Regularly Occasionally Using
Subjective
Sales force composite 44.8% 17.2% 13.4%
Jury of executive opinion 37.3 22.4 8.2
Intention to buy survey 16.4 10.4 18.7
Extrapolation
Naı̈ve 30.6 20.1 9.0
Moving average 20.9 10.4 15.7
Percent rate of change 19.4 13.4 14.2
Leading indicators 18.7 17.2 11.2
Unit rate of change 15.7 9.7 18.7
Exponential smoothing 11.2 11.9 19.4
Line extension 6.0 13.4 20.9
Quantitative
Multiple regressing 12.7 9.0 20.9
Econometric 11.9 9.0 19.4
Simple regression 6.0 13.4 20.1
Box-Jenkins 3.7 5.2 26.9
64 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

was used by 37 percent of the firms described in Table SMR2-3. The main advantages
of this method are that it is fast and it allows the inclusion of many subjective factors
such as competition, economic climate, weather, and union activity. United Parcel Ser-
vice forecasts are prepared by a group of senior executives using economic indicators
such as the Consumer Price Index, historical sales data, and other trends. These fore-
casts are then compared with predictions developed by salespeople, and the differences are
reconciled.
The continued popularity of the jury of executive opinion shows that most man-
agers prefer their own judgment to other less well-known statistical forecasting procedures.
However, available evidence does not suggest that the jury of executive opinion method
leads to more accurate forecasting. Perhaps the main problem with the method is that it
is based on experience, and it is difficult to teach someone how to forecast using this
method.

Leading Indicators
Where sales are influenced by basic changes in the economy, leading indicators can be a
useful guide in preparing sales forecasts. The idea is to find a factor series that is closely
related to company sales, yet for which statistics are available several months in advance.
Changes in the factor can then be used to predict sales directly, or the factor can be combined
with other variables in a forecasting model. For example, General Electric has found that
sales of dishwashers are closely related to the number of housing starts that occur several
months earlier. Thus, if GE observed a 4 percent increase in housing starts in California,
it could expect demand for dishwashers to increase by about 4 percent two months later.
Obviously, the key issue is finding indicators that have forecasting value for particular
products. Some of the more useful leading indicators include prices of common stocks,
new orders for durable goods, new building permits, contracts and orders for plant and
equipment, and changes in consumer installment debt.
Perhaps the greatest contribution of leading indicators is their ability to predict turns in
sales trends. If sales have been increasing, for example, a decline in the leading indicators
may indicate a leveling-off of sales or a decline. Most of the quantitative forecasting tech-
niques that we will discuss in the next section do a very poor job of telling managers when
sales are going to change direction. Leading indicators can be more sensitive to changes in
the business environment, and they often signal turns in the economy months before they
actually occur.

When Should Qualitative Forecasting Methods Be Used?

Qualitative methods are often used when you have little numerical data to incorporate
into your forecasts. New products are a classic example of limited information, and qual-
itative methods are frequently employed to predict sales revenues for these items. Qual-
itative methods are also recommended for those situations where managers or the sales
force are particularly adept at predicting sales revenues. In addition, qualitative forecast-
ing methods are often utilized when markets have been disrupted by strikes, wars, natural
disasters, recessions, or inflation. Under these conditions, historical data are useless, and
judgmental procedures that account for the factors causing market shocks are usually more
accurate. Managers should calculate and record the forecasting errors produced by the
qualitative techniques they employ so that they will know when these methods are best
employed.
SALES MANAGEMENT RESOURCE: ESTIMATING POTENTIALS AND FORECASTING SALES 65

QUANTITATIVE SALES FORECASTING

We now shift our focus from qualitative-based methods to quantitative techniques. These
procedures are based on analysis of historical data to predict future sales.

Seasonal Adjustments
Before we discuss quantitative forecasting techniques, it’s important to understand how sea-
sonal factors influence predictions of the future. Sales forecasts are often prepared monthly
or quarterly, and seasonal factors are frequently responsible for many of the short-run
changes in volume. Thus, what appears to be a good forecast may turn out to be a poor one
because of the failure to consider seasonal factors. When historical sales figures are used
in forecasting, the accuracy of predictions can often be improved by making adjustments to
eliminate seasonal effects.
The first step in seasonally adjusting a time series is to collect sales figures for the
past several years. Next, sales for months or quarters are averaged across years to build a
seasonal index. In Table SMR2-4 four years of quarterly sales are averaged to give a rough
indication of seasonal effects.4 The quarterly averages are then divided by mean sales for
all quarters to give seasonal index numbers. For example, when average sales of 58.0 for
quarter 1 are divided by the mean for all quarters of 79.25, a seasonal index of 0.73 is
obtained. This number indicates that seasonal factors typically lower first-quarter sales by
27 percent.
Once seasonal index numbers are developed for each time period, it is easy to adjust a
set of sales data seasonally. Actual sales, such as those shown in Table SMR2-4, are simply
divided by the appropriate index numbers to give a set of deseasonalized data. Sales forecast
are then prepared using the deseasonalized sales figures. For example the deseasonalized
sales data for the four quarters of the first year in Table SMR2-4 would be 67 (49%/.73),
68, 78, and 81 for quarters one, two, three, and four, respectively. The resulting forecasts
must be multiplied by the seasonal index for the forecast period to make them comparable
with regular sales figures.
Computer programs used in sales forecasting take these indexes and make forecasts
for future periods. Nabisco Biscuit Company uses computer programs to forecast sales of
new cracker and cookie brands soon after they have been introduced. Because new products
have no sales history, Nabisco’s program uses an exponential smoothing approach that
can start forecasting with only two periods of data. The first six weeks of sales figures
are discarded in the Nabisco model because these shipments are used to build store and
warehouse inventories. Then the program deseasonalizes the sales figures using weekly

T A B L E S M R2-4 Calculating a Seasonal Index from Historical Sales Data

Year Four-Year Seasonal
Quarter 1 2 3 4 Quarterly Average Index
1 49 57 53 73 58.0 0.73a
2 77 98 85 100 90.0 1.13
3 90 89 92 98 92.3 1.16
4 79 62 88 78 76.8 0.97
Four year sales of 1268/16 = 79.25 average quarterly sales

a Seasonal index is 59.0/79.25 = 0.73

66 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

seasonal factors from a similar product, brand, or category. Nabisco initially used seasonal
indexes based on retail store scanner data supplied by the independent marketing research
firm IRI. When these indexes did not significantly reduce forecasting errors, Nabisco decided
to calculate the indexes from Nabisco’s weekly shipment data. These indexes led to a 14
percent reduction in forecasting errors for four-week projections for cookies and 21 percent
reductions in errors for crackers. The Nabisco forecasting program also includes adjustments
for trend and sales promotions. Nabisco’s new forecasting program led to a 34 percent overall
reduction in errors in national weekly projections and a 53 percent reduction in errors in
four-week projections compared to their old method. Nabisco’s program has been employed
successfully for several years and has been adapted for use with existing products that have
been hurt by new items or have been affected by mergers or acquisitions.
Some students think that because seasonal adjustments complicate the forecasting pro-
cess, they may not be worth the time and effort required. However, there are two truths
about seasonal adjustments that you should remember:
1. Seasonal adjustments are widely used in business.
2. Seasonal adjustments reduce forecasting errors.

Naive Forecasts
Time series forecasts rely on past data to provide a basis for making projections about
the future. The naive forecast is the simplest numerical forecasting technique and is often
used as a standard for comparison with other procedures. This method assumes that
nothing is going to change and that the best estimate for the future is the current level
of sales. For example, actual sales of 49 units observed in quarter 1 in Table SMR2-4
can be used to predict sales in quarter 2. Naive forecasts for the last three quarters of
year 1 would be

Quarter
1 2 3 4

Actual sales 49 77 90 79
Naive forecast 49 77 90

The error in the forecast for quarter 2 is the difference between 49 and 77. The formula
for the percentage forecasting error is
forecast − actual
Percentage of forecasting error =
actual
This means the percentage error for the naive forecast in quarter 2 is
49 − 77
Percentage error =
77
Percentage error = 36%
The naive approach may also be used with deseasonalized sales figures, such as those
calculated in the previous section. Recall that the seasonally adjusted sales figure for the
first quarter of year 1 was 67, so the naive forecast sales in the second quarter would
also be 67. Seasonally adjusted, the forecast for the second quarter would be 76 (67 ×
1.13 = 75.7). The Figure 1.13 is the seasonal index shown in Table SMR2-4. If the data
were seasonally adjusted, the forecasting error for quarter 2 would be only 1.3 percent. This
example shows that seasonal adjustments can lower forecasting errors for even simple naive
forecasts. Because it is simple to calculate, the naive forecast is often used as the “base
case” against which other, more sophisticated forecasting techniques are compared.
SALES MANAGEMENT RESOURCE: ESTIMATING POTENTIALS AND FORECASTING SALES 67

MAPE
In order to compare forecasting accuracy across several time periods, most forecasting
professionals use the mean absolute percentage error (MAPE) method. The formula for
calculating MAPE is:

n
|forecast − actual|/actual
i=1
MAPE = × 100%
n
Where n is the number of periods for which forecasts are to be made.
MAPE calculates the percentage forecasting error for each period without regard to
whether the errors are positive or negative, adds up the errors, and divides by the number
of periods being forecast. The main advantage of MAPE is that it allows easy comparison
of forecasting errors across product categories and companies. For practice in calculating
MAPE, see the problems at the end of this Resource. Notice also that Excel worksheets are
available at www.wiley.com/college/cron. Go to “Student Companion Site.”

Trend Projections
The use of trends to project sales is a popular technique among business firms. With this
method, the analyst estimates trends from past data and adds this figure to current sales to
obtain a forecast. For example, in Figure SMR2-2 sales increased from 10 units in period
2 to 20 units in period 3, suggesting a trend of plus-10 units per period. A unit rate of
change forecast for period 4 would combine current sales of 20 plus 10 units of trend for a
total of 30.
Trends can also be expressed as a percentage rate of change. With this method, the
10 units of trend would be divided by the base of 10 units of sales to give a 100 percent
growth rate. A 100 percent growth rate applied to current sales of 20 units would give a
forecast of 40 units for period 4. Note that the percentage rate of change method and the unit
rate of change procedure give different sales forecasts. When sales are increasing, forecasts
prepared with the percentage rate of change approach will normally be higher than those
obtained by other projective techniques. Research reported in Table SMR2-3 shows that
the percentage rate of change method is the most popular projective forecasting technique,

50

40 Percent rate of change forecast

30 Unit rate of change forecast

Sales

20 Naive forecast
Moving average forecast
10

1 2 3 4 5
0
Time period

F I G U R E S M R2-2 Comparing Trend Forecasting Methods

68 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

followed by the unit rate of change. Trend projections are often combined with exponential
smoothing and moving average forecasts to help improve forecasting accuracy.

Moving Averages
With the moving average method, the average revenue achieved in several recent periods is
used as a prediction of sales in the next period. The formula takes the form
St + St−1 + · · · + St−n+1
Ft+1 =
n
where
Ft+1 = forecast for the next period
St = sales in the current period
n = number of periods in the moving average

This approach assumes that the future will be an average of past achievements. For
example, if sales in the last two periods went from 10 to 20, then a two-period moving
average forecast would be 15 (30/2) as shown in Figure SMR2-2. Thus, when there is a
strong trend in a time series, a moving average forecast without a trend adjustment lags
behind. However, this lag can be an advantage when sales change direction (suddenly
increase or decrease).
Students must remember that a moving average really does move. For example, sales
data from Table SMR2-4 can be used to make two-period moving average forecasts as
follows:

Quarter

1 2 3 4
Actual sales 49 77 90 79

Two-period moving average 63 83.5

Thus, periods 1 and 2 are averaged to give a forecast of 63 for period 3. Then period 1
is dropped, and periods 2 and 3 are averaged to produce a forecast of 83.5 for period 4. This
process would be the same when using deseasonalized data, but do recall that the forecast
must then be seasonally adjusted. If forecasting for the third quarter, for instance, then the
forecast would be multiplied by the seasonal index for that quarter.
A crucial issue in using moving averages is determining the ideal number of periods
(n) to include in the average. With a large number of periods, forecasts tend to react slowly,
whereas a low value of n leads to predictions that respond more quickly to changes in a
series. The optimum number of periods can be estimated by trial and error using Excel.
A characteristic of moving averages that distracts from their ability to follow trends is
that all time periods are weighted equally. This means that the oldest and and most recent
periods are treated the same in making a forecast. A popular technique that overcomes this
problem is exponential smoothing.

Exponential Smoothing
An important feature of exponential smoothing is its ability to emphasize recent information
and systematically discount old information. A simple exponentially smoothed forecast can
be derived using the formula:
S t = αSt−1 + (1 − α)S t−1
SALES MANAGEMENT RESOURCE: ESTIMATING POTENTIALS AND FORECASTING SALES 69

where
S t = smoothed sales forecast for period t.
α = the smoothing constant, greater than 0 and less
than 1
St − 1 = actual sales in period t − 1
S t−1 = smoothed forecast for period t − 1

The formula combines a portion (α) of current sales with a discounted value of the
smoothed average calculated for the previous period to give a forecast for the next period.
The following example uses data from Table SMR2-4 with a smoothing constant of 0.4.

Quarter

1 2 3 4

Actual sales 49 77 90 79
Smoothed forecast 60.2 72.1

The forecast for period 3 is obtained by multiplying 0.4 times the current sales in
period 2 of 77 plus 0.6 (1 − α) times 49, which is the actual sales for period 1 that can
be used as a proxy for the prior period’s forecast to get the process started. The resulting
forecast for period 3 would be 60.2 units [(0.4 × 77) + (0.6 × 49) = 60.2]. A forecast for
period 4 would be obtained by multiplying 0.4 times the period 3 sales of 90 plus 0.6 times
the smoothed forecast for period 3. The forecast would be 72.1 units. [(0.4 × 90) + (0.6 ×
60.2) = 72.1]. Remember, once again, that if you are using deseasonalized numbers, then
you would need to seasonally adjust the smoothed forecast.
The major decision with exponential forecasting is selecting an appropriate value for
the smoothing constant (α). Smoothing factors can range in value from 0 to 1, with low
values providing stability and high values allowing a more rapid response to sales changes.
Using a smoothing constant of 1.0 gives the same forecasts that are obtained with the naive
method. Forecasts produced with a low smoothing constant, such as 0.2, lag behind, and
forecasts generated with high values, such as 0.8, will likely overestimate sales at turning
points. When historical data are available, analysts should search for the optimum smoothing
constant by trying out different α values to see which one forecasts best.
Regression techniques have advantages in situations in which managers wish to incor-
porate variables other than just past sales in their forecasting program.

Time Series Regression

In time series regression, the relationship between sales (Y) and a period of time (e.g.,
week, month, quarter, or year) (X) can be represented by a straight line. The equation for
this line is Y = a + bX, where a is the intercept and b shows the impact of the independent
variable on Y. The key step in deriving linear regression equations is finding values for
the coefficients (a, b) that give the line that best fits the data. The best fit can be obtained
by employing a least squares procedure (as illustrated in Figure SMR2-3), where sales (Y)
have been plotted against time (X). The equation Y = 63.9 + 3.5X indicates that sales are
63.9 plus a trend of 3.5 for every unit of time (e.g., month, quarter, year, etc.). Two variable
regression equations can be easily calculated using some pocket calculators, Excel, or other
computer programs.
A limitation of simple regression forecasting is the assumption that sales follow a linear
pattern. Although this may hold for some series, others have cyclical patterns that are hard
to track with linear equations. In this case, the analyst can base the forecasting equation on
the logarithms of the time series data to produce improved forecasting equations.
70 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

90

80
3.6

Sales
70

63.9 Y = 63.9 + 3.5 X

60

0 1 2 3 4 5 6
50
Time period

F I G U R E S M R2-3 Fitting a Trend Regression to Seasonally Adjusted Sales Data

Another problem is knowing how much past data to include in the calculation of
the forecast. Usually, all past data points are used to provide greater stability. Sometimes,
however, regressions using data from a shorter period of time will do a better job of tracking
changes. For example, Procter & Gamble’s Italian division produces powdered and liquid
detergents for Europe. It regularly prepares sales forecasts for two powdered detergents and
one liquid detergent for use with washing machines. For established products, P&G Italy
looks at the history of a product, adjusts for advertising effects, and uses three years of
historical data to prepare these forecasts. Forecasts for new products are based on estimates
of expected market shares. Sales forecasts at P&G Italy are medium to long term, and its
most detailed forecasts are for three years.
The simple regression equations that have been described use time as the independent
variable, which is common in sales forecasting. With time as the independent variable, a
regression approach becomes a trend forecast. Other variables such as income or the rate
of growth in GNP may be used if they are found to closely relate to sales.
When sales seem to be associated with several independent variables, multiple regres-
sion procedures should be used to build a forecasting model.

Multiple Regression
With multiple regression, a computer model is used to build forecasting models based on
historical relationships between sales and several independent variables. Sales managers
first have to find an appropriate set of independent factors that are related to the series
being predicted. Some of the best variables for multiple regression equations are leading
indicators, such as housing starts, new orders for durable goods, and contracts for plant and
capital equipment. Leading indicators have the advantage that known values from an earlier
time period (e.g., last months, quarter, or year) can be plugged into multiple regression
equations to predict the future. However, in some cases, indicator values for the prediction
period are needed; then you have to predict these indicator factors for future time periods
before loading them into the forecasting equation.
The decision of whether to use a simple or multiple regression forecasting model often
depends on the values of three statistics that are calculated by forecasting programs. One
of these statistics is R2 . If the R2 value is .70, your equation explains 70 percent of the
variation observed in your data. Forecasting equations with high R2 are generally preferable
to equations that explain only 5 to 10 percent of the variation. Another statistic indicating
the quality of your forecasting model is the standard error of the estimate. This statistic
tells you the range within which you can expect to find the true value of the variable you
are predicting. Yet a third statistic is the error in each of the coefficients. The errors in the
SALES MANAGEMENT RESOURCE: ESTIMATING POTENTIALS AND FORECASTING SALES 71

coefficients for the variables in your equation should be smaller than the coefficients. If the
errors are larger than the coefficients, then there is good reason to drop that variable from
your forecasting equation. With regression forecasting, you need five observations for every
independent variable in your equation. Thus, an equation with one predictor variable would
need five observations, and an equation with three variables would need fifteen observations.
If your data set does not meet these requirements, then another forecasting method should
be selected.
Despite the complexities of multiple regression forecasting, this technique was the
most popular quantitative method reported in Table SMR2-3 and was used regularly by
13 percent of the firms. A real data set that you can use to build a multiple regression
forecasting equation is included with Problem 5 (Table SMR2-5) later in this chapter.

Turning Points
At several points in this discussion we have mentioned the idea of turning points. A turning
point is a sudden change in a trend. For instance, a decline in sales after several years
of moderate growth would be considered a turning point, if sales continued to decline in
subsequent years. The numerical forecasting methods we have discussed make projections
from historical data, and most of them do a poor job of predicting turning points in a
time series. Percentage rate of change, unit rate of change, and time series regression are
all notoriously poor predictors of a numerical series that changes direction. Naive, moving
average, and exponential smoothing are somewhat better because they tend to lag and
then adapt to new information. If the identification of turning points is important to you,
then the use of qualitative procedures is often the best approach. These methods can pick
up environmental cues that signal turning points frequently missed by numerical methods.
Sometimes leading indicators can be included in multiple regression equations to help predict
turning points.
For practice in all the quantitative techniques discussed here, see the problems that fol-
low this Management Resource. Excel worksheets are available for working these problems
under “Student Companion Site” at www.wiley.com/college/cron.

When Should Quantitative Forecasting Methods Be Used?

Quantitative forecasting techniques are best employed when you have access to historical
data. It is also helpful if the time series you are trying to forecast are stable and do not fre-
quently change direction. Quantitative methods have distinct advantages in situations where
you must make frequent forecasts for hundreds or thousands of products. Because of the
large number of calculations required by quantitative forecasting procedures, analysts need
access to computers and appropriate forecasting software. The successful use of quantitative
forecasting methods demands that analysts be well versed in the statistical procedures used
by these techniques.

SELECTING FORECASTING METHODS

Most initial sales forecasts today are prepared with computer programs. However, most
companies allow managers to make adjustments to computer-generated forecasts with judg-
mental procedures. This same study showed that the average firm uses 1.8 sales forecasting
computer systems. Management believes that more than one forecasting program can help
reduce forecasting errors. More than half of the companies surveyed use customized fore-
casting software.
72 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

T A B L E S M R2-5 Company Sales and Other Variables (Semiannual)

Total
Personal Product Industry
Company Disposable Dealer’s Development Capital Sales Advertising
Sales Income Allowances Budget Investments Advertising Expenses Budget
(thousands (millions (thousands Price (thousands (thousands (thousands (thousands (thousands
Period of dollars of dollars) of dollars) (dollars) of dollars) of dollars) of dollars) of dollars) of dollars)
1 5540.39 398 138 56.2058 12.1124 49.895 76.8621 228.80 98.205
2 5439.04 369 118 59.0443 9.3304 16.595 88.8056 177.45 224.953
3 4290.00 268 129 56.7236 28.7481 89.182 51.2972 166.40 263.032
4 5502.34 484 111 57.8627 12.8916 106.738 39.6473 258.05 320.928
5 4871.77 394 146 59.1178 13.3815 142.552 51.6517 209.30 406.989
6 4708.08 332 140 60.1113 11.0859 61.287 20.5476 180.05 246.996
7 4627.81 336 136 59.8398 24.9579 −30.385 40.1534 213.20 328.436
8 4110.24 383 104 60.0523 20.8096 −44.586 31.6456 200.85 298.456
9 4122.69 285 105 63.1415 8.4853 −28.373 12.4570 176.15 218.110
10 4842.25 277 135 62.3026 10.7301 75.723 68.3076 174.85 410.467
11 5740.65 456 128 64.9220 21.8473 144.030 52.4536 252.85 93.006
12 5094.10 355 131 64.8577 23.5062 112.904 76.6778 208.00 307.226
13 5383.20 364 120 63.5919 13.8940 128.347 96.0677 195.00 106.792
14 4888.17 320 147 65.6145 14.8659 10.097 47.9795 154.05 304.921
15 4033.13 311 143 67.0228 22.4940 −24.760 27.2319 180.70 59.612
16 4941.96 362 145 66.9049 23.3698 116.748 72.6681 219.70 238.986
17 5312.80 408 131 66.1843 13.0354 120.406 62.3129 234.65 141.074
18 5139.87 433 124 67.8651 8.0330 121.823 24.7122 258.05 290.832
19 4397.36 359 106 68.8892 27.0486 71.055 73.9126 196.30 413.636
20 5149.47 476 138 71.4177 18.2208 4.186 63.2737 278.85 206.454
21 5150.83 415 148 69.2775 7.7422 46.935 28.6762 207.35 79.566
22 4989.02 420 136 69.7334 10.1361 7.621 91.3635 213.20 428.982
23 5926.86 536 111 73.1628 27.3709 127.509 74.0169 296.40 273.072
24 4703.88 432 152 73.3650 15.5281 −49.574 16.1628 245.05 309.422
25 5365.59 436 123 73.0500 32.4918 100.098 42.9984 275.60 280.139
26 4630.09 415 119 74.9102 19.7127 −40.185 41.1346 211.25 314.548
27 5711.86 462 112 73.2007 14.8358 68.153 92.5180 282.75 212.058
28 5095.48 429 125 74.1615 11.3694 87.963 83.2870 217.75 118.065
29 6124.37 517 142 74.2838 26.7510 27.088 74.8921 306.80 344.553
30 4787.34 328 123 77.1409 19.6038 59.343 87.5103 210.60 140.872
31 5035.62 418 135 78.5910 34.6881 141.969 74.4712 269.75 82.855
32 5288.01 515 120 77.0938 23.2020 126.420 21.2711 328.25 398.425
33 4647.01 412 149 78.2313 35.7396 29.558 26.4941 258.05 124.027
34 5315.63 455 126 77.9296 21.5891 18.007 94.6311 232.70 117.911
35 6180.06 554 138 81.0394 19.5692 42.352 92.5448 323.70 161.250
36 4800.97 441 120 79.8485 15.5037 −21.558 50.0480 267.15 405.088
37 5512.13 417 120 80.6394 34.9238 148.450 83.1803 257.40 110.740
38 5272.21 461 132 82.2843 26.5496 −17.584 91.2214 266.50 170.392
39 ? 485 125 81.6257 20.0000 40.000 85.0000 275.00 180.000

Remember that simple procedures such as naive, moving averages, and exponential
smoothing often have lower forecasting errors than other more complex methods. This
suggests you should start with the basic procedures and move on to more complex models
only when they are needed. It is rare that one technique is best in all situations, so you may
want to base your predictions on the average of several methods to help reduce forecasting
error.
Finally, you must select techniques that can be sold to management. If managers cannot
understand how forecasts are prepared, they are likely to reject the techniques in favor of
their own judgmental forecasting methods.
SALES MANAGEMENT RESOURCE: ESTIMATING POTENTIALS AND FORECASTING SALES 73

PROBLEMS
Note: Excel spreadsheets for these problems are available at www.wiley.com/college/cron.
Go to “Student Companion Site”
1. Using the following sales data, forecast revenue for periods 4 through 7, using naive,
trend projections, moving average, and simple exponential smoothing. Compare MAPEs
across methods for time periods 4 to 7. What length of moving average and smoothing
constant works best? What are your forecasts for periods 8 and 9?
Period 1 2 3 4 5 6 7 8 9
Sales 12 15 17 14 16 19 18 ? ?
2. Quarterly sales (thousands of dollars) for the Chester Furniture Company for the past
four years have been as follows.
Year

Quarter 1 2 3 4 5

1 230 240 264 328 ?

2 245 266 290 344 ?
3 193 259 221 275 ?
4 174 218 202 281 ?
Calculate seasonal indexes and adjust the data. Run seasonally adjusted naive, moving
average, exponential smoothing, and linear regression forecasts through the data to see
which method has the lowest MAPE. Select the best method and forecast sales for
quarters 1 through 4 in year 5.
3. Sales (in thousands of dollars) for the Busy Bee Bakery for the past 15 time periods
have been:
Period Sales Period Sales Period Sales

1 2005 6 2360 11 3442

2 2150 7 2354 12 2948
3 1940 8 2682 13 3020
4 1770 9 2504 14 3079
5 2285 10 2329 15 3275
Prepare sales forecasts for periods 6 through 15 using the naive, projection, moving aver-
age, exponential smoothing, and regression techniques. What length of moving average
and smoothing constant work best? What method does the best job of tracking the data
over periods 6 through 15? What is your forecast for periods 16 through 24?
4. The following table shows the first six years of sales of retail optical scanners in the
United States. What forecasting method seems to track quarterly sales best over the
period from quarter 4 of year 1 through quarter 3 in year 6? What is your forecast for
the number of scanners installed in the fourth quarter of year 6?
Quarter

Year 1 2 3 4

1 0 1 3 1
2 3 4 7 12
3 10 15 17 19
4 27 25 31 23
5 47 67 95 137
6 173 196 235 ?
74 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

5. You are the sales manager for a manufacturer, and you have been asked to forecast
company sales for the next 6 months. You have collected data on company sales and
other variables for the last 38 semiannual time periods (Table SMR2-5). In addition, you
have estimates for period 39 for most of your variables. Using the Excel spreadsheet file
accompanying this text or another multiple regression program, calculate a correlation
matrix and explain what it tells you about your variables. Create an equation to predict
sales using all or a subset of your variables. Explain why you have included each variable
and discuss the power of your equation. Forecast sales for period 39 using your multiple
regression model.

SALES MANAGEMENT RESOURCE

SALES FORCE INVESTMENT AND BUDGETING

SALES FORCE INVESTMENT
For almost all firms, the sales force represents a major investment. The largest sales forces
spend billions of dollars a year to sustain tens of thousands of salespeople. Sales forces
cost companies between 1 and 40 percent of sales and, for many companies, represent the
largest part of their marketing budget.
Beyond the financial commitments made to supporting a sales force, the importance
of the sales force rests in its role of sales creation, representing the public face of the
organization, and being entrusted with the firm’s most important asset, the customer. There
is not a single company sales force that cannot seriously harm its company’s performance.
Likewise, there is not a single sales force that cannot significantly improve its company’s
competitive position.
Deciding how much to invest in a company’s sales force is an important decision and
one that needs to be made with careful consideration. The purpose of this Management
Resource is to provide guidance in making this decision, whether the firm is in a start-up
situation or an ongoing concern. This Resource is organized in two related sections: deter-
mining the best sales force size and budgeting. There is an obvious connection between
the two decisions, as the size of the sales force will greatly affect the budget needed to
support the sales force. The sales force size issue is addressed first, though it is important to
recognize that a company’s budget may not be able to support the optimal sales force size.

Is Your Sales Force the Right Size?

Deciding on the proper size of the sales force is a strategic management issue because it has
an important impact on an organization’s revenues and its profits. How can you determine
if your sales force is correctly sized? For starters, your sales force may be the wrong size
if you experience some of the situations listed in Figure SMR2-4.
Top management is concerned with the sales force size issue, and justifiably so since the
decision directly affects company profitability. Cost containment and productivity enhance-
ment are common organizational goals, so the sales force size decision is highly salient. At

Chapter Consultants: Scott Smith, Vice President—Sales & Marketing, SABRE Group, Inc. and Joseph P. Clayton,
Chairman of the Board of Sirius Satellite Radio
SALES MANAGEMENT RESOURCE: SALES FORCE INVESTMENT AND BUDGETING 75

You are probably undersized if:

Key customers wonder where your representative is.

Current customers are considering switching suppliers.
New customer development is down.
Your salespeople feel overworked, but costs seem under control.
Your salespeople do not have enough time to determine how customer
needs might be changing or providing solutions to those needs.

You are probably too large if:

Your favorite customers are asking, “Didn’t I just see you?”

Overall, your customers seem to be getting plenty of attention.
Your salespeople seem to have considerable free time.
Your salespeople don’t seem to be sufficiently stimulated.
Finance has noticed that your cost of sales is out of line with industry norms.

F I G U R E S M R2-4 Is Your Sales Force Sized Correctly?

the same time, the decision will have an impact on the individual salesperson, for it will
affect the salesperson’s workload and compensation. Clearly, getting the sales force size
decision right is an important issue.

Five Insights for Better Sales Force Investment Decisions

Perhaps no one has more experience with making sales force investment decisions than
ZS Associates. With more than 400 employees, ZS Associates have advised hundreds of
companies in over sixty countries on issues of sales force size and structure and sales force
productivity assessment. Following are five important insights based on these studies.1

Sales Carryover. Sales carryover refers to the phenomenon in which a portion of cur-
rent sales is a function of customer relationships established through prior selling efforts.
Figure SMR2-5 shows how current sales can be attributable to selling effort in prior years.
In some rare instances, ZS Associates reported seeing vacant territories leading their regions
in sales.
The amount of sales carryover is likely to vary considerably from one industry to the
next and even from company to company within the same industry depending on their
customer relationship strategies. To understand why differences exist, consider the case of
two pharmaceutical product categories: acute-care and chronic-care products. Acute-care
products, such as antibiotics and antihistamines, have low sales carryover. Patients typically

Sales due to
2005 effort
Sales due to
2004 effort Sales due to
2004 effort $95
$80 million
million
Pre-2004 Pre-2004
carryover carryover
sales sales

2004 Sales 2005 Sales

F I G U R E S M R2-5 An Illustration of Carryover

76 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

Low Carryover High Carryover

Low switching costs High switching costs

High levels of new Low levels of new

incremental business incremental business

Many new customers/small Few new customers/large

purchase volumes/short purchase volumes/long
selling cycles selling cycles

No maintenance or service High levels of maintenance

activity or service activity

New products Mature products

High levels of competitive Low levels of competitive

noise noise
Growing market Flat or declining market
Products similar or nearly Highly differentiated
identical to competitors’ products
products

Weak brand and/or Strong brand and/or

company loyalty or new company loyalty
brand and/or company

Sales force is the only Many promotion vehicles

promotion vehicle in addition to the sales
force

F I G U R E S M R2-6 Conditions That Affect Carryover

take these medications for a short period of time, so salespeople can often persuade a
physician to prescribe a new acute-care medication for their patients, particularly when the
medication has very little risk associated with it. On the other hand, chronic-care products,
such as diabetes and heart disease, typically have a high sales carryover effect since patients
stay on these medications for a long time. The physician is reluctant to switch if the current
medication is effective since there is typically some risk involved. Conditions that are likely
to influence sales carryover are listed in Figure SMR2-6.
It is important to understand the extent of sales carryover because it will affect the sales
consequences of sales force size changes. If sales carryover is high, then there will likely
be little short-term sales reaction to a reduction in sales force size. The appropriateness of
the decision is therefore difficult to evaluate, and a reduction in the sales force is tempting
since short-term profits and productivity are likely to be enhanced. The total impact of the
size change is not immediate—reduced sales and profits will occur over time.

Productivity Enhancements. It is common for companies to use productivity enhancement

programs such as sales force automation (SFA), targeting, and more effective selling pro-
tocols to justify sales force reductions. The argument for this change goes like this: “Our
productivity program will increase our sales force productivity by 10 percent. Therefore,
our sales force can be reduced from 50 to 45 people. This head count reduction will more
than pay for the program.” In other words, a reduction in the size of the sales force is
used to justify the IT costs associated with sales force automation. However, this logic only
considers costs, while ignoring the revenue implications of a sales force IT investments.
It is likely, for instance, that the productivity enhancement of the new sales force IT pro-
gram actually reduces the firm’s selling expenses. Smaller-customers who were previously
SALES MANAGEMENT RESOURCE: SALES FORCE INVESTMENT AND BUDGETING 77

too expensive to call on are now profitable because of the lower cost per sales call resulting
from the productivity program. Therefore, expanding the sales force when implementing a
productivity enhancement may actually increase profitability.
The lesson here is that sales force sizing and productivity enhancement are indepen-
dent decisions and activities. In other words, sales force productivity should be increased
regardless of the sales force size. Sales force reduction should not be used as a justification
for productivity enhancements.

Gradual Downsizing Is Disruptive. To understand why gradual downsizing is usually

disruptive for the sales force, consider the case of six salespeople in a metropolitan sales
district. The company chose to downsize gradually by closing one territory immediately and
another territory six months later. When the first territory was closed, the accounts were
divided among the three bordering territories. These three territories now had more work
than the two nonbordering territories, and the company was forced to do another realignment
to balance the workload across the five territories. When the second territory was closed,
its accounts were divided among the three bordering territories, resulting in these three
territories having more work than the fourth nonbordering territory. A fourth realignment
was needed to create four balanced territories.
The results of the continuous realignment are potentially devastating for the sales force.
Salespeople become frustrated with the constant change, and top performers are tempted
to leave the company. There is also a significant threat of alienating customers, since an
almost constant shift in territories occurs. In the previous example, some customers saw
three different salespeople in just over six months as a result of realignments. The situation
only gets worse with each phase of downsizing.
What is the conclusion? If a downsizing is necessary, make all the changes at once. Let
your salespeople know the logic for the change and help those who are let go with career
placement. Some of them may go to work for a customer.

Launch Hard, But Protect Your Strengths. New product launches almost always require
a considerable selling effort. In the short term, the total amount of selling effort is fixed,
so that any effort redirected toward new products must be taken from the effort devoted to
current products. It is not unusual for a new product launch to take as much as 50 percent
of the sales force’s time. Sales carryover may sustain the sales of current products for a
short period of time, but eventually sales will suffer. Eventually, existing products will fail
to make their sales goal.
According to ZS Associates, the best strategy is to “launch hard, but protect your
strengths.” This means that a company should both support the new product launch with
an appropriate sales effort and also continue to put the right amount of support into current
products. This necessarily requires an expansion in the total amount of sales effort.
What if the increased effort is only for a short period of time? Often, launching a new
product line requires a lot of effort, but then things settle down to a degree and the required
effort diminishes. One solution would be to “outsource” selling resources by borrowing
salespeople from another division, hiring temporary sales support, or hiring brokers. Out-
sourcing has several advantages. It turns largely fixed costs into mostly variable costs since
temporary salespeople and brokers are paid on commission. Also, some of the temporary
salespeople may wish to join the company, thus providing a good pool of potential sales
candidates.
In a worst-case scenario, attrition can be used to manage the size of the sales force when
the need for increased selling effort is for a restricted period of time. The average turnover
rate in sales is about 20 percent. This means that the size of the sales force can be managed
by increasing the size of the sales force and then letting attrition systematically bring the
sales force size back to a steady-state level. The risk in this approach is the disruption to
78 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

the sales force and to customer relations that may result from the need to adjust territory
balance. Nonetheless, it will produce the temporary support needed for new and existing
products.

Watch Out for Company Politics. Consider the following case. The product manager is
asked to make a forecast of product sales to help determine the appropriate level of sales
support for the coming year. He arrives at a reasonable number but decides to take a little
off the number before reporting it to the vice president of sales. “After all,” he reasons, “I’ll
look a lot better if I make my number.”
When the vice president of sales sees the number, she decides to reduce the number
slightly before making a promise to the company president. “I’ll stay out of hot water by
making my number,” she reasons. Then the president decides to add a little more “cushion”
before making a promise to the board of directors. By the time the final number has been
agreed on, so much cushion has been added that the sales forecast is drastically lower than
the product’s real potential. Too little sales effort is allocated to the product, and a significant
profit opportunity is lost.
The lesson is to be aware of the individual incentives at different levels in the organi-
zation when making a sales forecast. These incentives may undermine efforts to have the
right size sales force.

Finding the Right Sales Force Size

At some point, management must settle on a specific dollar amount that will be invested in
the sales force. Three methods for arriving at this number are described in this section: the
workload approach, the sales response approach, and the percent of sales approach.

Workload Approach. The workload approach to determining a sales force size derives the
investment figure from the workload required to meet a revenue target. An example may
best illustrate this approach. Loctite North America sells adhesives and sealants to heavy
industry. To improve short-term profitability, Loctite allowed its field sales force to decline
through attrition. Because of the resulting greater size of the sales territories, however, Loc-
tite’s salespeople were unable to provide adequate service to existing customers. Industrial
adhesives are a special applications business that requires a lot of technical support. Loctite
decided to hire thirty additional salespeople during a one-year period. The added expense
depressed profitability for six months, but soon afterward, sales began to grow. Loctite’s
decision to add salespeople incorporated the idea behind the workload method of calculating
sales force size, which is to focus on the work to be done in determining the number of
salespeople needed to do the work.
A common method for implementing a workload approach is to determine the size of
the sales force based on the amount of activity that a customer segment requires. Customer
activities are specified in terms of:
• Reach: The number of customers that need to be covered
• Frequency: The average number of sales calls per year that should be made on the
average customer
• Duration: The average number of hours that will be needed for typical sales call
An estimate of the total number of sales people required using the workload approach
could be made using the following formula:
Number of Frequency of Length of a
accounts × sales calls × sales call
Number of salespeople =
Selling time available for one salesperson
SALES MANAGEMENT RESOURCE: SALES FORCE INVESTMENT AND BUDGETING 79

For example, if a computer software development firm had 5,250 midsized customers to
be called on five times per year for 2 hours (including travel time), and if available selling
time per salesperson is 1,500 hours per year, the size of the sales force would be:
5,250 × 5 × 2
Number of salespeople = = 35 people
1,500
If the same sales force is also expected to call on electronic distributors and large retail
chains, then the workload associated with these additional customer segments will also
need to be calculated in arriving at the total number of salespeople the company will need.
Remember to consider new customers that you intend to add in the coming year in the
above calculation. The sales force investment is then calculated based on the cost of hiring,
training, supervising, and supporting the desired number of salespeople.
Some accounts within a segment will require heavier workloads, while others will have
lighter workloads. An average workload figure is probably appropriate for sizing the sales
force since accounts requiring heavier and lighter workloads tend to cancel each other out.
In the end, the salesperson will determine the most appropriate sales coverage for each
account. We will pick up this discussion in the next chapter when discussing opportunity
management.
Data for developing the workload calculations may be obtained from several sources.
Salespeople and sales managers can articulate what has worked in the past and make
adjustments for current competitive situations. Channel partners are also a good source
of information. Finally, the firm may investigate how competitors treat their customers and
how noncompeting sales forces organize their activities.

Sales Response Approach. The sales response approach is based squarely on the concept
that the sales force drives sales. If the relationship between sales effort and sales response
can be estimated, then different sales force size scenarios can be evaluated in terms of their
sales and profit impact.
Figure SMR2-7 shows a simple sales response relationship for two customer seg-
ments. To determine the right sales force investment for each segment, the anticipated sales
responses to different call frequencies are compared with their associated costs. In Figure
SMR2-7 the textile accounts generate incrementally more sales and consequently more prof-
its than a similar investment of selling effort in the carpet segment. The recommended sales
force investment depends on the cost of the sales force. For example, assume that all the
accounts are now receiving a low call frequency. If the additional sales cost needed to
implement a high-frequency call pattern for textile accounts is less than the profit increase,
the best sales force investment strategy will be to increase to a high call frequency on textile

Textile
segment

Sales

Carpet
segment

Low call Moderate call High call

frequency frequency frequency

F I G U R E S M R2-7 Sales Response Relationship

80 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

accounts. On the other hand, the sales response to even a moderate call frequency is modest
for carpet accounts, so the best sales force investment will be to keep a low call frequency
for carpet accounts, assuming that the additional sales force costs for a higher call frequency
are higher than the incremental profit impact.
The data for developing sales response relationships are of two types: historical data
and judgmental data. Historical data may be based on variation in call frequency at the
territory level or on time-series data showing variation in sales and call frequency over time.
Judgment data are derived from interactions asking salespeople and sales managers to judge
the response of customer segments to various call effort levels. For instance, salespeople
could be asked to estimate the sales expected to arise from zero call effort; 50 percent of
the current call effort; 150 percent of the current call effort; or twice the current call effort.
From their responses, a sales response curve similar to the curves shown in Figure SMR2-7
can be derived.
Research has demonstrated that historical and judgmental sales response forecasts are
almost equally effective. However, historically derived forecasts perform better when mar-
kets and products are stable, while judgmental data are most appropriate for dynamic markets
and when products are new.

Percentage of Sales Approach. To ensure a certain level of profitability, almost all firms
will monitor their sales force costs as a percentage of sales. When used as a tool for deter-
mining the sales force size, the sales forecast is multiplied by a predetermined percentage to
derive the total amount of money available for the sales force. In other words, this approach
bases sales investment on what managers think is a reasonable percentage of planned rev-
enues. The percentage is usually derived from historical spending patterns and industry
standards for a particular line of trade Table SMR2-6, for example, provides the average
sales force expenses for nineteen major industries. A typical firm selling industrial services
spent 6.4 percent of sales on sales force related expenses.

T A B L E S M R2-6 Sales Force Selling Expenses as a Percentage of Sales

Sales Force Total Sales Force Total
Cost as a Cost as a
Percentage of Sales Percentage of Sales
Company Size Industry
Under $5 Million (MM) 14.7% Business services 1.7%
$5–$25 MM 10.5 Chemicals 2.9
$25–$100 MM 7.9 Communications 9.8
$100–$250 MM 3.5 Educational services 47.9
Over $250 MM 6.8 Electronics 4.2
Fabricated metals 10.8
Product or Service Health services 19.9
Industrial products 4.1% Hotels and other lodgings 21.4
Industrial services 6.4 Instruments 2.3
Office products 9.4 Machinery 10.1
Office services 8.1 Manufacturing 13.6
Consumer products 5.4 Office equipment 9.0
Consumer services 7.9 Paper and allied products 6.8
Printing and publishing 12.0
Retail 6.1
Trucking and warehousing 12.2
Wholesale (consumer goods) 3.7
Wholesale (industrial goods) 9.5
Average 6.9%
SALES MANAGEMENT RESOURCE: SALES FORCE INVESTMENT AND BUDGETING 81

Let’s say that the management of a company is trying to determine how much to spend
on the sales force next year. They have forecasted sales for $10 million and have noted that
manufacturing companies spend 13.6 percent of their revenue on the sales force. Let’s also
say that traditionally 15 percent of the sales force budget was spent on sales management.
In this case, the sales force budget and the number of salespeople the budget supports could
be derived as follows:
$10,000,000 Expected sales
×.136 Field sales expense ratio(wages, commissions, and travel expenses)
$1,360,000 Sales budget
×.85 Percent for sales force(i.e., 15% for supervisor)
$1,156,000 Available for salespeople
Dollars available $1,156, 000
= = 15(number of salespeople)
Wages and expenses per person $77,000
The preceding example indicates that of the $1,360,000 expected sales budget,
$1,156,000 would be available to pay for salespeople after supervisory expenses had been
deducted. If salespeople cost an average of $77,000 per year for wages and expenses, then
the company could afford a sales force of 15 people.
Despite its widespread use, the sales percentage approach is essentially a backward-
looking approach. There are several notable drawbacks to utilizing this approach for setting
sales force budgets. First, there is no guarantee that the use of industry percentages in setting
sales budgets will lead to optimal results for individual firms. Note in Table SMR2-1 that
smaller firms tend to spend a larger percentage of sales on the sales force than do larger
firms. Another drawback to this approach is that budget allocation for selling expenses
changes in the same direction as sales. This can lead to premature downsizing, resulting in
millions of dollars of sales opportunities being left on the table. If a firm is losing market
share, for instance, an intensified selling effort may require greater funding than would be
appropriated under the percentage of sales method.
Despite its drawbacks, the percentage of sales method is practical and provides useful
standards for comparison. A company might adjust the industry average according to its
own needs and plans, using sales budgets that are higher or lower than average to see if
they lead to greater effectiveness.
Each of the methods for determining sales force size focuses on a particular aspect of the
problem—workload, sales and profits, and cost. Since the decision involves consideration
of each of these factors, the best approach may be to triangulate the problem by using all
three methods to determine the boundaries of the budgeting problem. With the results of
this analysis as decision aids, management judgment is needed to determine the final choice
of sales force size.

The Profit Impact of Sales Force Size

As was mentioned earlier, the sales force is a sales generator. The sales force is also a cost
generator, influencing not only the cost of the sales force but also the variable expenses
associated with sales volume. The sales force investment issue therefore affects company
profits.
One division president told some consultants that he sized his sales force for profits.
When asked how he did this, he responded that he budgeted his sales force cost at 14
percent of sales, so profits were always maximized.2 You will recognize this as an example
of the percentage of sales approach to sales force investment. This is essentially a cost
containment approach to sales force investment. Cost containment is not the same as profit
maximization.
82 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

T A B L E S M R2-7 Profit Impact of Adding Ten New Salespeople

80 Current Incremental Impact of 10
Scenario Salespeople Additional Salespeople
Financial Impact:
Sales per Salesperson $1.6 million $500,000
Total Sales $128 million $5 million
Contribution Margin 60% 60%
Contribution Dollars $76.8 million $3 million
Sales Force Costs $18 million $2.25 million
Contribution Dollars after $58.8 million $750,000
Sales Force Expenses
Total Contributions after Sales Force Expenses with ten additional salespeople: $59.55 million

To illustrate the difference between cost containment and profit maximization, let’s
assume that the division has 80 salespeople and has projected sales next year of $128
million. See Table SMR2-7 for the financial figures in this example. This means that the
average salesperson will generate $1.6 million per territory. Let’s also assume that a fully
loaded sales force (including salary, benefits, taxes, bonuses, car, travel, call reporting,
administrative support, and field support) costs $225,000 per salesperson. This represents a
sales force cost ratio of about 14 percent of revenues.
Suppose another ten salespeople were added to the sales force, increasing its size to
ninety people in total. The new people must generate $16 million in sales, or $1.6 million
each, to maintain the 14 percent ratio of sales force costs to revenue. It rarely happens
that a new person will generate the same revenues as a veteran salesperson, though it may
occur in a rapidly growing business or in a company that is woefully understaffed. A more
realistic expectation is that the new person will generate perhaps $500,000 in revenue the
first year or a total of $5 million in additional revenue from the ten new salespeople. This
means that the sales force cost ratio will be higher than the targeted 14 percent of sales. As
a result, a company relying on the percent of sales rule for budgeting sales force costs will
only reluctantly increase sales force size.
Continuing our example, let’s assume that our company has a 60 percent contribution
margin (sales minus all variable expenses, i.e., costs that vary with the amount of product
sold).3 Then in our original projection for eighty salespeople, a total of $76.8 million in
contribution dollars will be generated, assuming our sales projections are accurate. This
means that each salesperson is expected to generate $960,000 in contribution dollars. The
breakeven sales volume (i.e., the minimum sales volume at which no contribution dollars
are generated in a territory) is $375,000 (calculated by dividing the fully loaded cost of
$225,000 by 60 percent). In other words, any sales volume over $375,000 would increase
profits.
Revisiting the issue of adding an additional ten salespeople, recall that ten new sales-
people are expected to generate $5 million in revenue. This would result in an increase in the
sales cost to revenue ratio to about 15 percent ($20.25 million in sales force costs divided
by $133 million in revenue). However, contribution dollars after sales force expenses also
increase from $58.8 million ($76.8 million in gross margin minus $18 million in sales force
costs, i.e., $225,000 times 80 salespeople) to $59.55 million. The $750,000 increase in con-
tribution dollars result from the $3 million in projected gross margin ($5 million in sales
times 60 percent) minus sales force costs of $2.25 million ($225,000 times 10 salespeople).
So, sales force costs as a percentage of revenue have increased, but so have profits as a
result of increasing the sales force.
As you can see, the sales force size issue affects sales, sales force costs, and profits.
These measures can be in conflict, as in our preceding example above. Profit increase
SALES MANAGEMENT RESOURCE: SALES FORCE INVESTMENT AND BUDGETING 83

usually comes at the expense of a total sales costs increase. Management often needs to
choose between increasing profits and containing expenses.

DEVELOPING A SALES BUDGET

Budgets are a key element used by sales managers in annual planning programs to reach their
objectives. A sales budget is essentially a set of planned expenses prepared on an annual
basis. The sales budgeting process is described in Figure SMR2-8. Sales budgeting begins
when senior management designs a marketing plan and sets spending levels for advertising
and sales promotion. Once these demand creation factors are determined, sales forecasts can
be made (forecasting is discussed in the Sales Management Resource: Estimating Potentials
and Forecasting Sales). The sales forecast, in turn, provides a guide for estimating how many
salespeople will be needed. Sales managers must also project travel and other expenses for
the sales force. Next, the actual expenditures for a period are compared with the budget.
When expenditures exceed planned levels, the sales manager has to revise the categories
or ask for more funds. The main concerns in preparing budgets are to decide how much to
spend on personal selling and how to allocate the money to various selling activities.

Sales Budget Planning

For budgeting purposes, it is usually necessary to further refine and identify the strate-
gic avenues for achieving an overall sales volume target. For instance, the overall sales
target may be broken down by geographic area, region, district, or by product line. For
example, if one region represents a greater growth opportunity than others, then manage-
ment may wish to add more salespeople and spend more on marketing programs in this
region. When combined with market share and market growth figures for individual product
lines, product-focused avenues for achieving sales targets can be identified, and costs can
be budgeted to support product sales targets.
Many companies have found the Customer-Product Matrix shown in Figure SMR2-9
to be very useful for analyzing the basic revenue-generating avenues of the firm. This
matrix identifies four strategic sources of sales revenue based on a combination of new
and/or current customers and products. Companies have found this to be a useful analysis
tool because the sales job and resulting expenses are quite different for each quadrant
in the matrix. New business development revenues (new customers and new products)

Design marketing program

Set advertising and promotion expenditure levels

Forecast sales

Revise expenditure categories

Estimate personal selling costs needed
to reach sales goals Request additional funds
as needed

Compare actual expenditures with plans

F I G U R E S M R2-8 The Sales Budgeting Process

84 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

Convergence New business

New selling development
$ $
Customers

Account Leverage
Current management selling
$ $

Current New
Products

F I G U R E S M R2-9 The Customer-Product Matrix

will require much higher training and promotion expenses and may require additional
salespeople, for instance, than account management revenues (current customers and
products). Conversely, account management revenue development may call for additional
sales support such as telemarketers and service people. Even the sales force compensation
plan may be quite different depending on the quadrant representing the source of company
revenues. When New Business Development is a significant growth opportunity, sales
force compensation should include significant incentive opportunities for generating new
customers. This and other compensation issues are discussed further in Chapter 12. The
point being made here is that a sales figure for each of these four sources of revenue
illustrated in the customer-product matrix should be budgeted so that the total of the
four quadrants equals the company’s total sales volume target. This analysis will help
considerably in determining expense budgets and in designing an overall sales program.

Where to Spend It?

Sales managers set target figures for the various selling expense categories for each plan-
ning period. The goal is to keep actual expenditures at, or under, the budgeted figures to
ensure that overall financial objectives are achieved. Some of the more common expense
classifications are the following:
• Sales force salaries, commissions, and bonuses
• Social Security
• Retirement plans
• Hospitalization and life insurance
• Automobile
• Travel, meals, lodging, and entertainment
• Sales manager salaries, commissions, and bonuses
• Office supplies and postage
• Office rent and utilities
• Clerical and secretarial services
• Recruiting and training
• Samples and other sales aids
The amounts budgeted for the different expense categories tend to vary widely by
product and type of customer. Often, managers make their initial allocations using the
previous year’s budget, and they adjust for inflation and program changes.
Most years, management is concerned with the increasing costs of human resources,
which put pressure on salary, clerical services, and recruiting. These cost concerns are some-
what abated during a recession, as was experienced in 2000–2003, due to higher jobless
SALES MANAGEMENT RESOURCE: SALES FORCE INVESTMENT AND BUDGETING 85

rates. During these times, human-resource-related cost concerns are replaced by pressure
to reduce travel and entertainment expenses. In the recent recession, many companies—41
percent in a recent survey—have not increased travel expenses, or have even decreased their
budgets for travel.4 Sales managers are adjusting to these budgetary pressures. Videoconfer-
encing, a technology that has been around since the 1960s, is quickly becoming a popular
option. AT&T reported a 20 percent spike in videoconferencing services since Septem-
ber 11.5 As one sales manager noted, “If ten salespeople from around the country traveled
to Dallas for a four-hour training session, it would cost us about eight thousand dollars.
With videoconferencing, the cost is twenty percent of that.”6

Budget Administration
One of the prime benefits of sales budgets is that they force managers to think about how
marketing funds should be spent. Decisions must be made about whether sales represen-
tatives should receive more training, whether more money should be spent to purchase
complimentary hockey tickets, whether to provide more sample books, whether to increase
bonuses, and so on. Budgets, therefore, aid sales managers in designing the optimal combi-
nation of the marketing variables under their control.
A budget also facilitates the control of sales operations. If sales objectives are not being
reached, for instance, the manager can see from the budget how much money has been spent
in each expense category and where adjustments are needed. In this case the sales manager
might be able to use funds from the training budget to buy prizes for a sales contest.
Budget administration has been greatly simplified in the past few years with the develop-
ment of the electronic spreadsheet. Computer programs, such as Excel and Lotus, have made
it easier to keep track of sales force expenditures. Companies have come to rely on these pro-
grams for their analyses, and so it is increasingly important for you to be comfortable using
these programs, particularly Excel. To help you develop these skills, Excel spreadsheets
can be downloaded from the “Student Companion Site” at www.wiley.com/college/cron to
work the following problems.
Cost control is so important in today’s competitive environment that many companies
are rewarding sales managers and salespeople for sticking to their budgets. At one company,
for instance, sales managers receive a quarterly bonus that is based on three key elements.
One of these elements is ability to control costs. This part of their quarterly bonus starts to
pay out if they meet their quarterly travel and entertainment budget, and it increases until
they max out at 5 percent below budget. The company feels that this has been very effective
in controlling budgets.7

PROBLEMS
Note: Excel spreadsheets for working on these problems are available at “Student Compan-
ion Site” at www.wiley.com/college/cron.
1. Your company has 2,500 regular customers on which your sales force calls on once
every other month. In addition, you would like to obtain 500 new customers to meet
your company’s growth target. The average number of calls to convert and service a new
account for the year is expected to be six calls. Your salespeople are in the field calling
on accounts 40 weeks a year. They spend 60 percent of their time calling on customers
and prospects, with the average sales call taking 30 minutes. If the average number of
hours your salespeople work each week is 50 hours, how many salespeople would you
need in your sales force to maintain this level of customer service and also generate 500
new customers?
86 CHAPTER 2 STRATEGY AND SALES PROGRAM PLANNING

2. SOMA Inc. has been in business for a little under two years. SOMA is a Web-based
information technology training company currently employing one salesperson and a
sales manager. It has been successful in two rounds of financing and has a $5 million
cash balance. Its target for 2008 is to have revenues of $4 million. Revenues in 2007
are anticipated to be $1.3 million. The issue it is struggling with is to determine a sales
force budget for 2008 that will be sufficient to meet its sales projections. Sales force
expenses in the training industry average 22 percent of sales, but they can be quite a bit
higher. In fact, a recent start-up company in the training field spent more than 50 percent
of its revenues on the sales force. An executive recruiting firm supplied SOMA with
the following data on typical sales compensation ranges in the computer-based training
industry.

Salesperson Sales Manager

Typical Quota • $800–$1,200,000 • Sometimes carry personal quota

Cash Compensation
• Base salary range • $45,000–$85,000 • $60,000–$110,000
• Commission rate • Varies by company • Varies by company
• Total cash compensation • $65,000–$135,000 • $110,000–$160,000
• Top earnings • $250,000 • $250,000
CHAPTER

3 SALES OPPORTUNITY
MANAGEMENT
It almost goes against the nature of salespeople to think about time; they just want to hit
the road and sell.
Marty Wiley
Vice President of Marketing and Sales, Loctite Corporation

Chapter Consultants:
Greg Miller, Senior Vice President, Operations Planning and Support, Marriott Senior Living Services
Jerry Willett, National Sales Manager, Software Spectrum

LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Describe effective steps for generating new accounts.
Explain how to determine the minimum opportunity a salesperson should pursue.
Describe four methods for setting opportunity priorities.
Explain why emphasis is shifting from sales volume to profit flow.
Tell how salespeople can manage their time more efficiently.

PRIORITIZING OPPORTUNITIES AT HILL-ROM

After seventy years of success, Hill-Rom, headquartered in Batesville, Indiana, found rev-
enue growth slowing and competition increasing and began considering lower priced alter-
natives. Top management noticed that cost of sales had risen gradually but persistently over
the past five years. Hill-Rom decided to take a closer look at its customers and determine
if it was allocating its sales resources appropriately and if the sales force was performing
the correct set of activities to generate needed revenue and profit growth.
Hill-Rom’s product line is patient’s beds for hospitals. Sales resources were allocated
based on the size of the health care facility because this size influenced the level of spending
on Hill-Rom products. This was logical since the more beds a hospital has and the more
services it offers, the more likely that capital funding will be set aside on a regular basis to
replace or acquire equipment. The sales force was structured into teams calling on all cus-
tomers in a particular geographic location. Management discovered on closer examination
that while size of facility is important, less obvious factors also affected purchasing behav-
ior. These factors included financial metrics such as customer capital spending and profit
87
88 CHAPTER 3 SALES OPPORTUNITY MANAGEMENT

margins, operating metrics such as occupancy rates, and even a facility’s mix of insurance
payers.
Based on regression analysis of existing customer data, customers were divided into two
groups, key and prime customers, based on overall similarities of needs and priorities. Key
customers have far higher capital expenditures for medical equipment, replace equipment
sooner, seek out customized consultation, and look for comprehensive solutions to their
problems. Prime customers, because of greater cost pressures, are more concerned with
paying the best possible price, less able to afford high-end products and services, more
likely to buy individual products rather than systems, and often wait to make a purchase
until the need is urgent.
A time and cost analysis revealed that the company had been making a significant
effort to sell to and serve both segments in the same manner, resulting in a skewed
Bán cho allocation of sales resources and high overall sales costs. Salespeople were expected to
người dàu cover all facilities in a given geography and felt compelled to make regular calls on each
(key) đỡ tốn account. As a result, sales teams were often taking a consultative approach when the
chi phí hơn account’s profile and purchase behavior warranted another approach. Not surprising, it
was discovered that the cost of sales for prime customers was four to five times higher
than for key customers. At the same time, penetration of key customer accounts was
less than desired because there was not enough time left to provide the in-depth and
customized type of solutions that customers valued. The sales force had basically been
treating all customers the same and trying to sell prime customers a level of service
and product that they did not value or could not afford, while underselling to key
customers.
Armed with a method for prioritizing customers, Hill-Rom decided to restructure its
sales force into two separate sales forces dedicated to each type of customer, the team
structures, skill sets, compensation plans, the selling process, and the reporting structures
of the sales force. All these efforts were designed to ensure that resources were allocated to
the size of the opportunity. After two years, the cost of sales is down, short-term revenue
growth is up, the outlook for long-term revenue growth appears bright, profit margins are
up, and customers are reporting higher satisfaction.1
As Hill-Rom learned, it is critical to prioritize sales opportunities in order to effectively
and efficiently allocate resources. All sales opportunities are not equally important. Similarly,
time available for face-to-face communications with customers is a significant resource that
must be managed wisely. Tackling the problem of opportunity prioritization is the focus of
this chapter.
We started our discussion of the sales force program at the end of the last chapter by
talking about the account relationship strategy element of the sales program. Recall that
the relationship strategy decision will influence each of the other four elements of the sales
force program. We now turn our attention to the selling process or sales activities element
of the sales force program. This chapter focuses on efficiency or “doing the right things.”
Salespeople have considerable latitude in deciding how they are going to allocate their
valuable selling time. Management’s job is to get the sales force’s priorities in line with
those of the company’s marketing plan. Nowhere is this more important than with respect
to the firm’s growth strategy.
There are essentially two paths by which to grow sales: obtain new customers and grow
the business with existing customers. This chapter is organized accordingly. The first part
of our discussion focuses on strategies for growing a firm’s customer base. We begin by
discussing the importance of growing by acquiring new customer prospects, and we present
various methods for generating qualified prospects. We shift our focus to existing customers
by discussing specific tools for allocating effort across a set of sales opportunities. First,
we show how to determine the minimum-size opportunity a salesperson should pursue,
followed by a discussion of how to allocate time among selling opportunities. We conclude
A PROCESS FOR GENERATING NEW ACCOUNTS 89

Sales opportunity management

Generating Managing Sales Personal

new existing versus time
accounts accounts profits management

the chapter with a discussion of the profit impact of these decisions and time management
in sales.
One way to increase productivity is to focus sales force time on those prospects that
have a high probability of becoming important customers. The next section discusses the
importance of building your customer base by acquiring new customers and company efforts
to increase sales force efficiency in this area.

A PROCESS FOR GENERATING NEW ACCOUNTS

In the award-winning book Customer Equity, the authors point out that the value of a firm
is dependent how well a firm manages its customer base. They go on to suggest that there
are three ways by which a firm can increase the value of its customer base: acquiring new
customers, retaining existing customers, and increasing the profitability of each customer by
increasing its purchases.2 This section focuses on the first of these strategies by suggesting
ways that the sales force can efficiently and effectively acquire new customers.
No matter how strong your products, how great your customer service, or how aggres-
sive your sales force, businesses lose customers every year when companies are bought
and sold, management changes, industries consolidate, and global economies fluctuate. Few
companies can afford to neglect new business development. Indeed, according to recent
research findings, firms who have developed effective customer acquisition capabilities are
more profitable than those who have the capability of developing close customer relation-
ships, but are not good at acquiring new customers.3
The key to building sales through prospecting is to spend time with prospects that
are likely to become good customers. Therefore, an important first step in acquiring new
customers is for salespeople to build a good prospect profile.

Building a Prospect Profile

Not all businesses will want or need your product or services. Some prospects will clearly
be a waste of your time, while others will not buy enough to make it worth your time. You
must first decide what factors determine who is a good prospect. This means building a
prospect profile, which is simply a profile of what the best prospect looks like.
A starting place for building this profile is a review of the target markets for your
products, as specified in your marketing plan. Allnet Communications Services, a small
long-distance phone company in Michigan, defines its target niche as small- to medium-sized
businesses that bill between several hundred dollars and several tens of thousands of dollars
per month. This target was identified to avoid head-to-head competition with AT&T and
Sprint. If a target market has not been clearly identified, a new salesperson may need to
90 CHAPTER 3 SALES OPPORTUNITY MANAGEMENT

rely on the past experience of other salespeople in the company by asking them what types
of business became their most valuable customers. Veteran salespeople are probably best
advised to examine their own past successes.
If you are selling blood-processing machines, for example, then your best prospects
may be hematologists (hospital consultants specializing in analyzing and treating blood
disorders). Upon closer examination, the hottest prospects may be young (under 30) and
trained at a handful of teaching hospitals.
The blood-processing example points out a few important aspects of building a profile.
First, the profile is defined in terms of demographics, the identifiable characteristics that
define the individual buying environment. In the blood-processing example, demograph-
ics included the customer’s business, age, and educational background. This information
often can be obtained before meeting with the prospect. Other examples of demographics
frequently used to build a prospect profile include the following:
• Size of the business
• Age of the equipment to be replaced
• Geographic distance from shipping points
• Product line specialty
The Internet can also play an integral role in building a prospect profile. Once on-line,
you can access databases containing government statistics, journals, books, and up-to-date
newswires. There are also about 7,000 newsgroups and any number of bulletin boards,
forums, and roundtables that cover almost every subject imaginable. Web sites useful for
target marketing and identifying new customers include www.census.gov or www.city.net.
A good site for identifying the top business in a geographic market area is www.toplist.com.

Building a Prospect List

With a prospect profile clearly in mind, the next step is to develop a list of prospects matching
the profile developed in the first step. The traditional method of generating prospects is
through cold canvassing. Cold canvassing involves contacting prospective customers without
appointments; that is, salespeople call on firms or knock on doors until they find good
prospects. Direct sales organizations such as Avon Products have had success with this
approach. Salespeople selling office supplies, air conditioning, paper supplies, and insurance
also use it with some regularity. Cold canvassing is used in these situations because the
target markets for these products are fairly broad. The drawback to this approach is that a
salesperson could waste time soliciting low-quality prospects. Canvassing may also be more
efficiently accomplished by telephone.

Direct Mail. All companies receive direct inquiries about products or services from poten-
tial customers. The fact that the potential customer is giving permission for a sales call
allows salespeople to concentrate their efforts on those prospects most likely to purchase.
The use of e-mail inquiries has made it possible to dramatically increase the speed with
which companies can respond to a direct mail inquiry, which helps to increase the rate at
which inquiries are converted to sales. At Tribute Inc., a software company in Cleveland, a
business development coordinator will analyze the responses from mailings to discern the
prospect’s critical business issues, including their buying time frame and budget constraints.
As a result, Tribute’s high-priced salespeople are focusing their efforts only on high-quality
prospects.4

Trade Shows. Trade shows are also an excellent vehicle for generating good prospects. It
is estimated that more than 145,000 firms participate in over 8,000 trade shows at a cost of
$10 billion annually. The National Restaurant Show held annually in Chicago, for instance,
A PROCESS FOR GENERATING NEW ACCOUNTS 91

draws more than 100,000 food buyers and business owners. One reason for the growing
popularity of trade shows is the relatively low cost per customer contact—approximately
$89 per qualified contact. (A qualified contact is a customer contact whose interest in
purchasing has been verified.) Although some sales are consummated at trade shows, it is
more likely that the lead is passed on to the appropriate salesperson; in fact, some trade
shows do not permit the writing of orders.5

Directories. Special direct inquiry directories and open-to-bid announcements are impor-
tant sources of leads for many firms. For example, the Thomas Register of American
Manufacturers provides names, addresses, and other information compiled by types of prod-
ucts and by state. Furthermore, the firms in the Register are scored according to their assets,
which enables the salesperson to judge the size of each potential customer. Industry trade
associations often publish directories of their members by targeted segment or organization
function.

Internet. The Internet has revolutionized the process of selling and qualifying prospects.
Not only can potential customers make purchases over the Internet, but a wealth of informa-
tion is available over the Internet at company Web sites. In addition, published information
on companies is readily available at Web sites, such as Business Week and the Wall Street
Journal.
One of the hottest lead-generating tools today is Webcasting. Webcasting requires no
special equipment on the part of the host company or the audience and can be as simple
as sitting at a computer and talking over the phone, which is all that is required at WebEx.
Standard features include live streaming video and audio, on-line statistics and reporting, and
polling to gather opinions and engage viewers. Inverwoven, a Sunnyvale, California-based
content-management company, lured 2,000 information technology pros to sign up and par-
ticipate in a 60-minute presentation.6 As broadband connectivity becomes more ubiquitous,
this type of lead generation is likely to expand in use.

Referrals. With referrals, a satisfied customer is asked to provide the names of others who
might be interested in a product. In some cases, the person may also supply an introduction
of the salesperson to the prospects. The advantage of referrals is that the person can say
things about the salesperson and the product line that might not be as credible coming
directly from the salesperson.7
Referral programs have gained wide acceptance among companies selling big-ticket
goods and services because prospects considering spending six or seven figures on one
transaction want all the information they can get. Siebel Systems, Sun Microsystems Inc.,
and J. D. Edwards & Company are some of the companies with well-developed reference
programs. In these programs, reference companies are involved in speaking engagements,
videos, white papers, and articles. The benefits to the reference companies include net-
working with other customers and Siebel executives, the opportunity to expand their brand
through speaking engagements and media activities, and previews of new products.8

Qualifying Prospects
Regardless of the process used for generating a list of leads, salespeople ultimately must
qualify a prospect, that is, determine if the prospect is likely to be converted to a buying
customer. As described earlier, some companies may initially qualify leads by telephone
because of the lower cost of doing so. But ultimately, a salesperson is usually needed
to qualify a lead. At Southwest Networks in Austin, Texas, salespeople profile all leads
on 12 characteristics, including current vendor, percent savings, equipment specs, and
payback period. After the first call on a prospect, the salesperson answers all twelve
92 CHAPTER 3 SALES OPPORTUNITY MANAGEMENT

characteristic questions. The purpose of the profile is to tell salespeople how good a
prospect a lead is and when to walk away from the lead. Note from this example that
the salesperson needs information about customer needs, buying authority, and ability
to pay.

Needs. Qualified leads are those that have a use for the seller’s goods or services and are
planning to buy in the near future. A prospect that is satisfied with the present supplier and
has no desire to change is going to be very difficult to convert into a customer. You will
sell such a prospect only if you can discover a desire or need that the present supplier is not
fulfilling adequately and you can get the buyer to focus on these needs. This is not an easy
task. Even if the prospect has an immediate need that you can meet and a desire to buy,
you must still determine whether the size and profitability of potential orders are sufficient
to warrant further attention.

Buying Authority. Beyond the question of customer needs is the issue of buying author-
ity. The plant manager may want a milling machine, but if he or she does not have the
authority to buy, then a sales call may help create a favorable impression but will not nec-
essarily produce a signed order. Methods for identifying the buying authority are presented
in Chapter 4.

Ability to Pay. Finding prospects that want a product and also have the authority to buy
will not be productive if they lack the financial resources to buy. Selling products that must
be repossessed later for nonpayment of bills is not the way for salespeople to get ahead.
Hence, salespeople should make an initial screening of prospects on their ability to buy.
The objective is to eliminate prospects who represent too high a credit risk. Credit ratings
are readily available from banks and credit services such as Dun and Bradstreet.
Successful salespeople differ from less successful salespeople in the way they think
about prospects. Although both groups of salespeople generally use the same cues to qualify
a prospect (e.g., income, need), successful salespeople utilize higher qualifying standards
and are more likely to cut their losses early. For example, they may require a higher credit
rating or a greater need for the product or service to consider a lead to be a hot prospect. This
is yet another example of how wasted time can hurt productivity and how time management
is critical to sales success.

MANAGING EXISTING ACCOUNTS

Generating new customers is important, but many sales and marketing managers feel that
the companies that will prosper will be ones that maintain strong customer loyalty. Loyalty
customers are considered to be more profitable because they are less price sensitive and
will stick with you in the face of competitive offerings. An additional $100 in revenue to
an existing customer is often more profitable than an equivalent increase in revenue from
a new customer because some sort of price discount or incentive is often needed to induce
new customers to switch suppliers.
As a sales force program moves from a transactional to more of a consultative-type
account relationship, the opportunity management task shifts to one of prioritizing oppor-
tunities with existing accounts, as opposed to generating new accounts. The need for
prioritization and opportunity management of existing accounts is just as important as with
prospects. Models for prioritizing account opportunities are presented in this section, but first
we address the important issue of determining whether an opportunity justifies an allocation
of precious sales resources.
MANAGING EXISTING ACCOUNTS 93

When Is an Account Too Small?

An important starting point in managing existing accounts is determining the minimum
opportunity on which you should be spending your time. The individual salesperson is in an
excellent position to determine the long-term value of a customer. For example, salespeo-
ple should know customers’ short-term growth potential, as well as their competitive and
demand situations. Salespeople who are supplied with the necessary direct selling expense
information are in an excellent position to perform a minimum account size analysis. This
analysis involves two steps: calculating a personal cost per sales call and a breakeven sales
volume. We turn our attention to these analyses in this section.

Cost per Call. The first step in addressing the minimum customers size issue is to calculate
the costs of making a sales call. Cost per call is a function of the number of calls you
make per day, the number of days available to call on customers, and your direct selling
expenses. Direct selling expenses include such expenses as compensation, travel, lodging,
entertainment, and communications. These expenses are referred to as direct selling expenses
because they can be attributed to an individual salesperson. In other words, the company
would not have incurred these costs had a salesperson not been present in the territory.
The procedure for computing the average cost per call is illustrated in Table 3-1. In
this example, compensation includes salary, commissions, and bonuses, as well as fringe
benefits such as insurance and social security. These total $80,020, which is about average
for a nonretail salesperson.9 Other direct selling expenses equal $25,450, for a total direct
selling expense of $105,470.
For this salesperson, 205 days a year are available for selling. If the average number of
calls per day is 3, then under normal circumstances the total number of calls for the entire
year is 615 (3 × 205). Using these estimates, the representative can now compute the cost
of an average call as $171.50 ($105,470/615).

T A B L E 3-1 Computing the Cost per Call for an Industrial Products Salesperson
Compensation
Salary, commissions, and bonus $69,035
Fringe benefits (hospital, life insurance, social security) 10,985 $80,020
Direct Selling Expenses
Automobile 8000
Lodging and meals 6250
Entertainment 3250
Communications 4500
Samples, promotional material 1750
Miscellaneous 1700 25,450
Total Direct Expenses $105,470
Calls Per Year
Total available days 260 days
Less:
Vacation 10 days
Holidays 10 days
Sickness 5 days
Meetings 18 days
Training 12 days 55 days
Net Selling Days 205 days
Average calls per day 3 calls
Total Calls per Year (205 × 3) 615 calls
Average Cost per Call ($105,470/615) $171.50
94 CHAPTER 3 SALES OPPORTUNITY MANAGEMENT

T A B L E 3-2 Sales Force Costs Across Selected Industries

Sales Force Costs as Sales Force Costs as
Industry a Percent of Sales Industry a Percent of Sales
Banking 0.9% Instruments 14.8%
Business services 10.5 Machinery 11.3
Chemicals 3.4 Manufacturing 6.6
Communications 9.9 Office equipment 2.4
Construction 7.1 Paper/allied products 8.2
Electronic components 4.9 Pharmaceuticals 5.6
Electronics 12.6 Printing/publishing 22.2
Fabricated metals 7.2 Rubber/plastics 3.6
Food products 2.7 Wholesale (consumer) 11.2
Overall 10.0%

How does a cost per call of $171.50 compare with that of most salespeople? One survey
estimated the average cost for a single sales call to be as much as $242, depending on the
industry. This cost is increasing by about 5 percent a year.10

Breakeven Sales Volume. Breakeven sales volume is the sales volume necessary to cover
direct selling expenses. It is necessary to calculate breakeven sales volume in order to
determine the minimum size customer that should be pursued. Calculating the breakeven
volume requires knowing direct selling expenses as a percentage of total sales.
The basic formula for calculating the breakeven sales volume per sales call is to divide
the cost per call by sales costs as a percent of sales. The previous section described how to
calculate the cost of a sales call. Selling costs as a percent of sales will vary widely across
industries as shown in Table 3-2 where sales costs as a percent of sales are 22.2 percent
on average for printing and publishing companies, but only 0.9 percent in banking. Selling
costs as a percent of sales will also vary among companies in the same industry. Therefore,
it is important to know the target selling cost for a company.
So if the cost of a sales call is $146, and sales costs are 8 percent of sales, then the
breakeven sales volume necessary to adequately cover sales costs is $1,825 ($146/.08). In
other words, this is the minimum dollar sales figure that a salesperson should expect to
generate from a sales call if selling costs per sales call are $1,825 and the target selling
costs as a percent of sales is 8 percent. One point of clarification is that sales calls refer to a
personal face-to-face contact with a customer. Telephone calls, e-mails, and text messages
are not considered sales calls in this case.
How the breakeven sales volume figure is used to determine the minimum size oppor-
tunity a salesperson should pursue will depend on the nature of the selling process itself.
It is typical in most consumer packaged goods and wholesale businesses for salespeople to
be responsible for selling both new products and taking orders to replenish inventory levels
of existing products. In this case, the breakeven sales volume can be used to calculate the
minimum sales volume needed over a period of time to justify a certain number of sales
calls for that period. If a salesperson is making four calls on a particular customer each
month and the breakeven sales volume per call is $1,825, then the account should generate
an average of $7,300 per month ($1,825 * 4) to meet the minimum sales revenue necessary
to justify this amount of salesperson time. A similar calculation can be made for determining
the minimum sales volume per quarter or per year depending on the number of sales calls
typically made over a period of time.
If the selling process involves selling to new accounts, then the minimum sales volume
needed to justify pursuing a prospect can be calculated based on the number of calls typically
needed to close the sale. Say the number of calls to convert a prospect is estimated to be
MANAGING EXISTING ACCOUNTS 95

5 calls, then the account must have the potential to generate at least $9,125 ($1,825 * 5)
of business to justify being a targeted prospect. Obviously, the more complex the sale, the
more time and sales calls it will require to close the sale; therefore, the minimum sales
volume will increase accordingly.

I Cannot Afford to Lose This Business. Having performed a breakeven analysis, how can
a salesperson use this information? Should a salesperson not call on customers or prospects
whose sales volume does not exceed the minimum sales volume?
People, and companies too, are rarely inclined to turn their backs on a sale. Other
factors must be considered before dropping a customer or reducing the selling effort. For
example, sales to a customer may be growing, which may be due to one of two causes.
The customer’s business is growing rapidly, so its need for supplies is also increasing.
Alternatively, your sales to this account may be growing because you are getting a larger
share of the customer’s business. If this is the case, then it is important to know how much
of your customer’s total purchases are with your company and how much more is available.
What if a customer is located next door to a major account, so that a call takes little time and
no real travel time is involved? Should you walk away from this opportunity, even though
it does not take as much time as your average sales call? Another important consideration
is that a customer may purchase a mix of high-profit products, so that this customer’s gross
margins are 25 percent higher than the average for the territory. As you can see, a number
of factors must be considered when judging the value of an opportunity.
Top management may choose to address the smaller, less profitable accounts in ways
other than reducing the number of sales calls made on these accounts. The Gillette Com-
pany’s Safety Razor Division decided to hire part-time merchandisers to assist salespeople in
calling on individual small retailers. The Commercial Systems Division of Hewlett-Packard
hired inside sales and technical reps to work the phones. A plumbing fixtures manufac-
turer, however, chose to raise prices to discourage the “worthless” small customer orders
that were disrupting its production scheduling. These small orders subsequently became the
company’s most profitable. The new higher prices more than compensated for the costs;
customers weren’t changing suppliers because of high switching costs; and competitors had
shied away from these small accounts because of the conventional wisdom in the industry
regarding their profitability.
As you can see from these examples, the minimum-size customer on which a salesperson
should call depends on the direct selling costs involved, the number of sales calls made over
a period of time, and the cost structure of the company, as well as other considerations.
There is rarely a hard-and-fast dollar volume below which a customer’s business should not
be pursued. However, when supplied with the right information, sales professionals are in
a better position to judge whether an account is likely to become a profitable one.

Four Methods for Setting Account Priorities

Breakeven account analysis provides a starting place from which to determine the
minimum-size account that should be called on. This analysis does not fully address the
issue of how much time should be allocated to prospecting and how much to existing
accounts in a territory. Following are four methods for setting account priorities along with
the situations in which each is most appropriate.

Single-Factor Model. The easiest and probably the most widely used model for allocating
salespeople’s time is the single-factor model. This model examines a single customer char-
acteristic, often sales volume, to arrive at an initial allocation of sales calls. Thomas Cook
Travel, a division of the Thomas Cook Group, an international travel and financial services
company based in the United Kingdom, divides its clients into As (those who spend $750
96 CHAPTER 3 SALES OPPORTUNITY MANAGEMENT

T A B L E 3-3 ABC Account Classification

No. of Total Sales Total Total Calls Sales ($)
Account Accts. Accts. (000) Sales per Classif. per Call
Classification (1) (2) (3) (4) (5) (6)
A 21 15% $910 65% 105 $8,667
B 28 20 280 20 140 2,000
C 91 65 210 15 455 462
Total 140 100% $1,400 100% 700 $2,000 (Avg)

or more in annual revenues), Bs (those spending $250 to $749), and Cs (those who spend
less than $250). Differentiating its client services according to their classification has freed
up travel agents to spend more time with A and B clients.
The basics of a single-factor allocation model based on total sales volume are presented
in Table 3-3. This is referred to as an ABC account classification. Customers are arranged
according to their total sales volume. In this case, the top 15 percent of all accounts are
classified as A accounts, the next 20 percent are classified as Bs, and the remaining accounts
as Cs. Column 4 is a calculation of each type of account’s sales as a percentage of total
territory sales. In this example, As generate 65 percent of total territory sales, Bs account for
20 percent, and Cs represent only 15 percent. Based on surveys of sales executives, these
results are fairly typical for a variety of businesses. Notice that if you treat all accounts as
equal, say by calling on each account weekly, you will be spending 65 percent of your time
on your C accounts. A sales call on an A customer, however, is on average 20 times as
productive as a call on a C customer.
The main limitation of using sales volume in setting priorities is that other factors
driving your return on invested time are not taken into account, for instance, sales potential.
Two accounts may have purchased the same dollar volume last year, but if one is growing
at twice the rate of the other, then it probably needs more attention and time. Also not taken
into account are differences in account profitability.

Portfolio Model. The portfolio model considers multiple factors when determining the
attractiveness of individual accounts within a territory. Selling effort is allocated so that the
most attractive accounts receive the most effort.11 For instance, one company classified its
portfolio of accounts according to their average gross margin and the cost to service each
account. In another company, the Surgical Division of Cardinal Health, Inc., a customer
classification system based on the type of hospital (e.g., teaching/research, regional med-
ical center, government/federal, community), location (rural versus urban), and size was
instituted. Sales effort and marketing programs were designed for each type of customer
within the classification system. The criteria a company uses to classify its customers will
depend on its competitive situation, a company’s ability to capture and disseminate relevant
customer information, and what the sales force is being asked to accomplish.
Figure 3-1 illustrates one well-known portfolio model. This model classifies accounts
into one of four categories by determining account attractiveness based on two criteria:
account opportunity and competitive position. Account opportunity refers to the magnitude
of an account’s present and future need for the salesperson’s offering. Ratings of account
opportunity may be based on the account’s present and projected growth rate, its financial
health, and its present and future strength in the marketplace. Competitive position, the sec-
ond dimension on which accounts are classified, refers to the strength of the salesperson’s
present relationship with an account. Competitive position may be based on outcome mea-
sures such as an account’s total gross profit dollars, share of the account’s total purchases,
type of contract, and contract compliance. Additional indicators of competitive position may
MANAGING EXISTING ACCOUNTS 97

Competitive Position
Strong Weak
Core Growth
Accounts Accounts
Accounts are very Accounts are potentially
High attractive. attractive.

Account Opportunity
Invest heavily in selling May want to invest
resources. in heavily.

Drag Problem
Accounts Accounts
Accounts are moderately Accounts are very
Low attractive. unattractive.

Invest to maintain current Minimal investment

competitive position of selling resources.

F I G U R E 3-1 Portfolio Model

focus on the account relationship and may include the account’s attitude toward the com-
pany and familiarity with the decision makers in the account. Once all accounts have been
rated on both dimensions, we can proceed to prioritize our accounts by splitting them at the
median of both dimensions and forming a four-quadrant grid, as shown in Figure 3-1.
As an extension of single-factor customer classification models, portfolio models offer
several benefits:
• Help the sales team to identify the important customer and relationship issues.
• Facilitate communication between salespeople and sales managers.
• Help isolate information gaps and set priorities for customer data collection and analysis.
• Force the sales team to think about the future and consider ways of achieving a more
desirable portfolio configuration.
Portfolio models for setting account priorities are most likely to be used in sales force
programs with more of a consultative-type account relationship strategy where understanding
individual customer needs and the strength of the relationship are critical. As the Cardinal
Health case demonstrates, a sales team is likely to be involved, so there is a need for greater
depth of analysis than is available in a current sales volume-based model.
To test your understanding of the importance of setting account priorities within a
territory, see Team Exercise “Working Hard or Working Smart.”

Decision Model. Although portfolio models have the advantage of using multiple char-
acteristics to classify accounts, several shortcomings remain. First, accounts must still be
grouped into the four quadrants for the purpose of allocating sales calls. Differences between
firms in the same quadrant are therefore not taken into consideration. Second, the process
does not arrive at an optimal allocation of sales calls.
The decision model for allocating sales calls overcomes these two shortcomings by
focusing on the response of each account to the number of sales calls made over a period of
time. Although mathematically elegant, these models consist of just two parts. The first part
develops the relationship between the number of sales calls over a period of time and sales
to a particular account. This is referred to as a sales response function. The response function
may be derived either through regression analysis on historical data or judgmentally. With
judgment-based decision models, salespeople are first given information about how many
98 CHAPTER 3 SALES OPPORTUNITY MANAGEMENT

TEAM EXERCISE
“Working Hard or Working Smart?”

You have recently been transferred to Chicago as the new district sales manager and have had
a chance to spend some time with each of your salespeople. For the most part, the sales team
you are managing has done well, but, as usual, there is a big difference in the sales generated
by each salesperson. One of your low producers is Tim, whom you are meeting with today. At
first, you thought that Tim may just not be right for the position, but after spending some time
riding along with him in his territory you believe he has what it takes to be a good salesperson.
Observing him during sales calls, you are convinced he has the right presentation skills; he
also set a challenging schedule of calls during the two half-days you spent with him.
After some opening chitchat, you ask Tim to explain why he thinks his sales are not as
high as they should be. “I really don’t know,” answers Tim. “My close rate is good. I make
as many calls as the next guy. I have a good territory with potential. I work hard. I think I
have the right customer service attitude. I try to treat all my customers the same—as if they
are the most important customer I have. I work my territory systematically and I call on each
customer once a week. I really don’t understand how these other agents do it.”
How would you respond to Tim? Based on this conversation, describe the steps you would
take to guide Tim toward greater productivity.

times they called on a particular account over a period of time and the sales generated.
Salespeople are then asked to project sales in the next period of time if the same number of
calls are made on the account, if the number of sales calls is decreased by 50 percent, if they
make no sales calls, and if they make the maximum number of sales calls possible. These
estimates are used to construct a sales response function like the one shown in Figure 3-2.12
A close examination of the response function in Figure 3-2 indicates that customers
will not respond dramatically when only one or two calls are made per quarter, but sales
are expected to increase dramatically when the number of sales calls increases from two to
four. The response function flattens out after four calls, suggesting that there is little left for
the salesperson to accomplish by calling on the account more than four times in a quarter.
Software is available to constructing sales response functions.

$20,000
Dollar sales per quarter

$10,000

1 2 3 4 5 6
Number of sales calls per quarter

F I G U R E 3-2 Number of Sales Calls Response Function

MANAGING EXISTING ACCOUNTS 99

The second part of these models uses the individual response functions to allocate calls
so as to maximize sales. Essentially, these models continue to allocate sales calls to an
account until more sales can be generated by calling on another account. For example, a
third and fourth call may be allocated to the account in Figure 3-2, but greater sales are
likely to be generated by calling on another account rather than by allocating a fifth call to
this account.
Sales response models are most likely to be helpful in setting priorities when the
sales force program is more transactional in nature because the response estimates are
most reliable in such selling situations. As the account relationship strategy becomes more
complex and involves increased investments from both suppliers and customers, it is not as
meaningful to think in terms of the number of sales calls needed to generate a sale. In such
situations, a sales process model is more appropriate. We discuss these models next.

Sales Process Model. Despite the advantages of sophisticated call allocation programs,
they are not appropriate for all situations. Instead of calling on microprocessor customers,
some people in Intel’s sales force call on software vendors, information technology buyers,
and retail outlets, selling the idea of PCs on every desk and in every household. In the case
of these Intel salespeople, immediate and near-term sales volume is not the most relevant
measure of the opportunity these sales calls represent.
In other sales situations, the selling cycle can be quite long because of the dollar com-
mitments associated with the sales. This is especially true in industrial goods and high-tech
markets, as well as in major account selling where many people may be involved in the
purchase decision and where an enterprise-type account strategy exists. In such situations,
the focus is on developing opportunities within one or a few accounts, so the focus is not
on prioritizing accounts so much as on prioritizing opportunities, all of which may reside
in a single account.
Unlike the earlier models, which focus on the relative sales volume or profitability
of opportunities, a sales process model focuses on where the opportunity is in the selling
process. In these models, opportunities are assigned to different stages of the selling process
according to the probability that they will ultimately result in a sale. This sort of oppor-
tunity categorization is most appropriate when the selling cycle is fairly long and multiple
opportunities may exist within the same account.
One example of a selling process model is the sales funnel (see Figure 3-3). Initially
developed for training salespeople at Hewlett-Packard, this system categorizes and prioritizes
sales opportunities or objectives, not accounts.13 This is necessary because a salesperson or
sales team may have multiple selling objectives at one account at the same time. The account
executive may be attempting to get a pilot installation in one of the client’s departments, for
example, while wanting to upgrade to a more sophisticated piece of equipment in another
department.
Each sales opportunity is categorized based on the level of uncertainty in meeting the
opportunity:
1. Unqualified opportunities. In this case, data suggest that a possible need exists, but
this need has not been verified with key people in the account. For example, you have
learned that a customer’s existing contract with a competitor is about to expire. The
selling job needed in this situation is to qualify the account by verifying that a need
exists according to the criteria discussed earlier in this chapter.
2. Qualified opportunities. A qualified opportunity must meet four criteria:
• The need has been verified with at least one of the buying influences (e.g., the technical,
user, or economic buyers to be discussed in Chapter 4).
• There is a confirmed intention to buy a new product or service, replace an existing
one, or switch suppliers.
100 CHAPTER 3 SALES OPPORTUNITY MANAGEMENT

24 20 19 17
Unqualified 16 14
13 21 15 23 22 18

12 11 50% closure
9 10 probability

Qualified 5
7 75% closure
probability
6
8

3 4 90% closure
Best few probability
2
1

F I G U R E 3-3 The Sales Funnel

• Funding for the purchase has been approved or already exists.

• There is an identified time frame within which the purchase will be made.
3. Best few opportunities. All the buyers have been contacted and their needs identified,
and in your judgment have been sufficiently developed to make the sale. You have all
but eliminated luck and uncertainty in the sale and are at least 50 percent along in the
selling cycle. That is, it should take you half as long to close these sales as is normal in
your territory.
The term sales funnel is derived from figuratively placing the sales opportunities in a
funnel. Unqualified opportunities appear just outside the top of the funnel, qualified oppor-
tunities inside the funnel (depending on the probability of closure and the position in the
selling cycle), and the few best opportunities at the bottom of the funnel.
At first glance, it would seem advisable to work on your best few and qualified oppor-
tunities, while spending whatever time remains on unqualified opportunities. The problem
with this approach is that when given low priority, prospecting rarely occurs. Having closed
the best few and exhausted the qualified opportunities, there is nothing left to replace these
opportunities. Therefore, experts suggest a prioritization sequence of (1) closing your best
few sales opportunities first, (2) prospecting for unqualified opportunities next, and (3) work-
ing the qualified opportunities last to ensure a constant and predictable flow of sales over
time. It is always important to keep the funnel full by prospecting for new opportunities.

SALES VERSUS PROFITS

There is a tendency in sales to evaluate opportunities in terms of dollar sales. Faced with
tough buyers in mature markets, however, some companies are beginning to focus on the
bottom line instead of the top line. A recent survey of strategic account sales executives
reported that two of the top four customer selection criteria are profit related. Specifically,
resources are allocated to strategic accounts as a function of current and potential profits.14
Profit, of course, is the difference between net price and the actual cost to serve a customer.
There can be dramatic differences between the price an account pays and the costs incurred
in servicing an account. Why is this true?
SALES VERSUS PROFITS 101

Customers may pay very different prices for similar products and services. Although
there are some legal constraints, such as the Robinson-Patman Act, some customers are
able to negotiate lower prices and higher discounts because of their size. In other words,
large customers can demand and get lower prices because a seller cannot afford to lose their
business. Other customers are simply able to get lower prices because of their negotiating
skills. And still other customers exploit deals and promotions more than others and “forward
buy,” which means they buy a large amount of their annual needs at one time when the
product is on discount.
The cost to serve is also likely to differ between customers. Some accounts are located
far from the salesperson’s normal route, so more travel time is involved. Some customers
place their orders by phone or over the Internet, whereas others require endless face-to-face
sales calls to close a deal or to place even a routine order. Some customers demand intensive
presale services like applications engineering and custom design support, while others accept
standard designs. Costs may also vary according to preferred transportation mode, number
of receiving locations for an order, and opportunities to back-haul. (Back-hauling refers to
transporting goods back to an origination point after delivering supplies. As a result, a truck
does not travel without a load, which wastes time and money.) The list of customer service
cost differences sometimes seems endless.
The main point we would like to make here is that companies and salespeople need
to be aware of the price, cost, and profit differences between customers and allocate their
sales effort accordingly. It is not at all unusual for there to be a 50 to 75 percent difference
in the profitability of customers who purchase a similar quantity of product. This is what
FedEx found out when it began studying the profitability of its customers. This issue is so
important to FedEx that it now searches its database to compare the costs of doing business
with particular customers and rates its customers according to profitability. FedEx also now
matches transaction information with demographic data to pinpoint the characteristics to
seek in prospects or existing customers that might offer more business.
To test your understanding of the profit versus sales issue, try your hand at answering
the questions posed in Team Exercise, “Destructive Discounting.”

TEAM EXERCISE
“Destructive Discounting”

You have recently been hired as vice president of sales for an Original Equipment Manufacturer
(OEM) of small electronic components. After three months on the job, you don’t like what
you are seeing from the company’s nine salespeople. The sales force seems focused on closing
as many deals as possible, regardless of whether they provide good solutions for customers.
Salespeople are discounting so much that your margins have continued to decline. Clearly, you
would be in trouble if this continues since this was precisely what you were hired to change.
Further, your bonus is based on achieving profit margin objectives. When you talk with the
salespeople, however, they say that they were previously taught to focus on sales volume,
not the profitability of the deals. What should you do first? To help communicate the critical
financial consequences of price discounting, create a simplified income statement illustrating
the effect of a 10 percent discount on profits.

Customer Lifetime Value. You may recall that one of the problems with the single-factor
model was that, based on historical sales volume, it was not forward looking enough in
considering future sales and profits. Consistent with the shift from a transaction view of
102 CHAPTER 3 SALES OPPORTUNITY MANAGEMENT

revenues and profits to a relationship perspective, marketers are starting to adopt Customer
Lifetime Value (CLV) as an appropriate metric for measuring marketing performance.15
Who cares if profits are good for one period, if the customer is alienated as a result? Taking
a long-term view of profitability is the motivation behind using CLV as an appropriate
performance and resource allocation metric.
Customer Lifetime Value is based on the notion that the value of a customer is the sum
of the customer’s discounted flow of profit contributions into the future. Calculating CLV
requires knowing or making judgments about the following inputs:
• The company’s discount rate (cost of capital)
• The company’s planning horizon (3 years, 5 years, 10 years)
• The customer’s product category purchases in the future
• The average contribution from purchases
• Each supplier’s share of total category purchases16
The experience of one pharmaceutical company illustrates the potential significance of
switching to CLV as its resource allocation metric from past sales volume. The company had
been allocating sales effort according to the number of prescriptions a physician wrote—a
surrogate for sales volume—which led to a focus on doctors in midcareer. When they
switched to calculating the CLV of a physician, their analysis revealed the importance of
young physicians, including residents and new practitioners, who, though not currently big
prescribers, were specialists in a given area and could thus be expected to prescribe more
drugs over time. This lifetime emphasis brought a whole new set of doctors to the company’s
attention, displacing a quarter of the physicians it had previously thought were of greatest
value.17
As mentioned earlier, it is the forward-looking, future orientation of CLV that helps
firms develop insights into the optimal allocation of resources across their customer base.
After using CLV to analyze its customer base, one U.S. company discovered that it was
already the sole or dominant supplier for many of its top customers. The biggest growth
opportunities actually rested with companies in the second and third sales tiers where the
company had a smaller share of even larger purchases.
Another example of how CLV has helped in allocating marketing resources is Roadway
Express Inc., which learned that 30 percent of its “small” customers who were sent only
direct mail communications had as much yearly freight volume as its large account segment.
Like the previous example, a future focus will often bring to light hidden opportunities for
greater return on marketing investment.18

TIME MANAGEMENT
In most surveys of business training programs, time management is one of the most fre-
quently mentioned training topics. The reason is that significant productivity gains can be
made through better time management. Figure 3-4 shows how salespeople spend their time.
The time spent selling, either with customers, prospecting, or on service calls, is on average
less than 50 percent of a salesperson’s time.
Improving the amount of time spent selling is an opportunity for significant productivity
gains. A task force for one Fortune 100 company estimated that a 10 percent improvement
in the time its sales force spent selling would generate more than a 5 percent increase in
overall sales volume. This is one of the main reasons companies are investing heavily in
sales force technology.
Consider how things have changed for the salespeople in Quaker Oats’ chemical divi-
sion. In the 1990s, tracing a shipment of solvent for a client meant numerous hours of phone
calls and plenty of headaches. Today, Quaker Oats salespeople simply open their laptop, go
TIME MANAGEMENT 103

Administrative
Service tasks
calls
5% 34%

Prospecting 14%

15%
32%
With customers
Waiting/traveling

F I G U R E 3-4 How Salespeople Spend Their Time

into the company’s internal Web site, click on a button that says “shipment information,”
and in just a few minutes they are able to tell the purchasing agent that the tank car is
in Houston, 20 miles away. The importance of this technology is indicated in Figure 3-4,
which shows that salespeople spend 15 percent of their time on service calls.

Overall Time Management

Despite all the emphasis companies are putting on increasing selling time, 34 percent of
a salesperson’s time is spent on administrative tasks. This figure has not changed much
during the past two decades. Although it is important for salespeople to provide customer
and competitor information to their company, a key aspect of managing time effectively is
to recognize and control things that tend to waste time. Following is a list of what many
salespeople consider some of the most common time wasters:19
1. Telephone interruptions 6. Lack of objectives, priorities, and deadlines
2. Drop-in visitors 7. Indecision and procrastination
3. Lack of self-discipline 8. Attempting too much at once
4. Crises 9. Leaving tasks unfinished
5. Meetings 10. Unclear communication
Note that the top two time wasters are telephone interruptions and drop-in visitors. The
rest of the time wasters, such as lack of discipline, lack of objectives, and procrastination,
indicate poor self-management by the salesperson. How different is this list from the one
you would make for yourself? One aspect of time management that is particularly important
in sales is to know when the customer is available. This is the key selling time during the
day, and salespeople should strictly adhere to customer contacts during these times. This
time must be protected, while other duties and issues are handled at other times of the day.
A key step frequently recommended for improved time management is preparing a list
of personal and professional goals and then pursuing them one step at a time. Planning does
not have to be elaborate to be useful. Simply writing down a list of things you want to do
tomorrow is a good place to start. The next step is to rank the tasks on the basis of their
importance. Then when you start the day, begin task 1 and stay with it until it is completed.
Recheck your priorities and begin task 2. Continue with tasks as long as they remain most
important.
Once people get into the habit of daily planning, the next step is to plan a week or more
ahead. Many salespeople, for example, are required to prepare weekly call plans. The idea is
to encourage salespeople to plan a series of calls for each day, to call ahead for appointments,
104 CHAPTER 3 SALES OPPORTUNITY MANAGEMENT

Importance
High Low

High Emergencies Time wasters

Urgency
Low Personal growth Recreation

F I G U R E 3-5 Time Management

and to make better use of their time. Today technology such as Blackberries and smart phones
help time management for busy salespeople because of their size, portability, and ability to
sync with multiple personal computers.
Stephen Covey, a well-known consultant in personal and professional development,
advises people to analyze their time management using a framework like the one shown in
Figure 3-5.20 “Importance” refers to activities that are of importance to you in meeting your
objectives. “Urgency,” on the other hand, is the time pressure we feel to perform certain
activities. Notice that we may feel this pressure for both important and relatively unimpor-
tant activities. According to Covey, activities in the Emergencies and Recreation quadrants
will generally take care of themselves. People can gain control over their lives by spending
less time on Time Wasters and more on Personal Growth activities. Time Wasters (high
urgency but low importance) include phone calls, some meetings, and unnecessary adminis-
trative work—in other words, things that demand our immediate attention. Personal Growth
activities (low urgency but high importance) are easily put off but are very important to our
future growth and development. Activities in this category may include reading professional
journals or books, enrolling in professional development or executive courses, learning how
other functional areas operate, or prospecting for new customers. Notice that many people
can postpone these activities indefinitely. Considering both urgency and importance may
provide us with a useful perspective on how we can spend our time more productively.

SUMMARY
Over the past decade, sales force productivity has lagged behind the double-digit increase
in selling costs. As a result, top executives are giving added emphasis to improving sales
force productivity by increasing the amount of time salespeople spend face-to-face with
customers. Salespeople are being armed with laptop computers, cellular phones, and the
Internet to fight this battle.
1. Describe effective steps for generating new accounts. First, a prospect profile should
be constructed that describes the best prospects for your company’s offerings. The profile
may be based on sophisticated database analysis of the purchasing patterns and profitabil-
ity of your current customers. With an ideal prospect profile clearly in mind, a list of
prospects should be developed using a variety of methods, including direct mail, trade
shows, directories, referrals, and cold canvassing. Finally, prospects need to be qualified
based on their need for the seller’s offerings and intention to buy in the near future, their
authority to buy, and their ability to pay for the offering.
DEVELOPING YOUR COMPETENCIES 105

2. Explain how to determine the minimum account opportunity a salesperson should

pursue. Two techniques for making this determination should be used. First, the cost per
sales call should be identified. This is calculated by identifying all direct selling costs for
the period of time being evaluated and dividing this sum by the number of sales calls that
are expected for the time period. The cost per call figure is then included in a breakeven
sales volume analysis, which consists of multiplying cost per call times the number of
calls necessary to close the sale and dividing this product by the company’s sales costs
as a percent of sales target. This provides a base figure from which to determine whether
a sales opportunity is of sufficient magnitude to warrant a face-to-face selling effort.
3. Describe four methods for setting opportunity priorities. The single factor model
focuses on sales volume to classify account opportunities and allocate salespeople’s time.
Portfolio models expand the criteria for classifying account opportunities by considering
both competitive position and account opportunity factors. Decision models allocate effort
according to a sales response function, which is based on the sales response to different
numbers of sales calls during a period of time. The sales process model allocates time
to sales opportunities based on their stage in the selling process. The appropriate model
will depend on market demand, the competitive, and selling situation of the company.
4. Explain why emphasis is shifting from sales volume to profit flow. The main reason
for shifting from sales volume to profits as a performance and resource allocation metric
is because profits may be quite different for customers purchasing the same total volume
of products and services. This is caused by the price concessions some customers obtain,
the mix of product they purchase, the services they require, as well as their future
profit growth potential. A corresponding shift is taking place from emphasizing past
sales and profits to valuing customers based on their future stream of profits. Customer
Lifetime Value (CLV) is one method for calculating the discounted flow of future profit
contributions.
5. Tell how salespeople can manage their time more efficiently. A recent survey indicates
that salespeople spend about 54 percent of their time selling either face to face or over
the phone. Three avenues for increasing this percentage are incorporating technology into
the selling and planning process, more efficient routing of sales calls within a territory,
and reducing time wasters through personal time management techniques.

KEY TERMS
Account opportunity Directories Sales funnel
Acquisition costs Direct selling expenses Sales process model
Best few opportunities Minimum account size Sales response function
Breakeven sales volume Portfolio model Single-factor model
Cold canvassing Prospecting Time management
Competitive position Prospect profile Trade shows
Cost per call Qualified opportunities Unqualified opportunities
Decision model Qualify a prospect
Direct mail Referrals

DEVELOPING YOUR COMPETENCIES

1. Self-Management. One of the most important aspects of self-management is to develop

a clear understanding of your personal and career goals. One highly successful method
of arriving at a better understanding of your goals and of the steps that should be taken
to achieve those goals is the time management analysis developed by Stephen Covey.
106 CHAPTER 3 SALES OPPORTUNITY MANAGEMENT

First, list your personal and professional goals in any order. Next, list the actions that
you will need to take to get yourself in position to achieve these goals. Third, draw
the Time Management Matrix presented Figure 3-5, labeling the axes as high versus
low importance and high versus low urgency. List the activities on which you spent
time over the past week or month. Now compare these activities to the list that you
developed for achieving your personal and professional goals. In which quadrant would
these goal-directed activities fall? How could you adjust your time to put yourself in a
good position to achieve your goals?
2. Coaching. You are spending the day with a new salesperson in your district who
has been with your company, Consumer Research International (CRI), for less than
a month. CRI is a marketing research company that competes with the likes of
M/A/R/C Group, Market Facts, and Burke Marketing Research. Although CRI has
a number of accounts with which it has worked for a number of years, each month
between 20 and 30 callers will contact your company to investigate engaging it in
a marketing research project; however, only about two or three of the calls warrant
further attention. A new salesperson is having a problem determining in a reasonable
amount of time, which of these callers is a real prospect and which is a waste of
time. Time is precious, however, but you do not want your salespeople walking
away from important growth opportunities. Because the salesperson is new on the
job, you would like to give him a set of questions that he could ask to determine
whether this is a “hot” prospect or one that is “just looking.” What would be your
advice?
3. Global Perspective. Dendrite International is one of the world’s leading suppliers of
sales force automation software in the pharmaceutical industry. Pharmaceutical firms
worldwide are arming their salespeople with laptop computers and looking for software
to design call plans and collect call reports to increase sales force efficiency and effec-
tiveness. More than 15,000 salespeople in 40 companies in 11 countries use Dendrite
systems. One of the issues Dendrite faces is that software demands differ greatly from
country to country. How would software requirements differ in each of the following
countries? For more information on Dendrite, see www.drte.com.
• U.S. pharmaceutical sales forces are among the largest in the world, ranging from
500 to more than 3,000 reps per firm. Sales reps call on medical personnel every
4 to 6 weeks to leave product samples and literature, perform service tasks, and
build relationships with prescribing physicians.
• In Western Europe, sales forces are generally 100 to 200 reps in size. Government
funding of health care and large, managed-care organizations are common. In England,
a rep sees a doctor once a year, always by appointment, and can only leave one sample.
• In Japan, sales forces are like those in the United States, and, with fewer doctors,
there is one pharmaceutical salesperson for every six physicians. Unlike in the United
States, where physicians cannot sell drugs, Japanese physicians combine prescribing
and dispensing of drugs. Sales reps negotiate prices with individual physicians, who
also derive income from selling free drug samples to their patients. Most Japanese
doctors work in clinics or hospitals that require sales reps to wait outside to see the
doctor. As a result, “social selling” is very important in Japan. Reps develop face
time with doctors by washing their cars, entertaining them, and running all sorts of
errands.
4. Technology. Wisdom Ware Inc., a small software firm, has developed a slick tool that
helps salespeople to be better informed and more efficient. It requires salespeople and
their bosses to do things just a little differently. The issue Wisdom Ware attempts
DEVELOPING YOUR COMPETENCIES 107

to address is keeping the sales force informed about products, the market, and the
competition. Even more important, the software is designed to enable every piece of
information to link with any other piece. That way, salespeople can assemble just the
right combination of facts necessary for the immediate task without being inundated with
information. In short, this software is the interactive equivalent of Cliff Notes. While
planning a call, a sales rep makes a few menu choices to identify the customer, the
product, and such. One click creates the most up-to-date qualifying questions, another
reveals how the competition stacks up, another reports the most common objections, and
still another suggests a quick product positioning statement. Though only a few concise
sentences pop up on the screen, detailed reports are just a click away. Unfortunately,
Wisdom Ware has been less than wildly successful so far. The problem isn’t training,
which takes less than an hour. Nor is it compatibility; Wisdom Ware works seamlessly
with other front-office software. Neither has any customer winced at the price of $500
and up per user. What do you think could be the problem? For more on Wisdom Ware,
see www.sellmorenow.com.
5. Strategic Action. IBM has proved it can market successfully to fellow corporate giants
like General Motors and Citibank. But will the company be successful in selling to
the millions of enterprises with 1,000 or fewer employees who make up the world’s
fastest growing segment? It had better be because for IBM entrepreneurial companies
are the future in information technology. In the United States, small businesses are
responsible for 50 percent of the gross national product. That segment is growing at
11 percent annually, three percentage points higher than the growth of large companies.
What’s more, IBM estimates that last year 75 million small and medium-size companies
worldwide spent $305 billion in information technology.
But IBM faces an enormous challenge simply trying to prove to smaller customers
that it really cares about them. “My small customers don’t feel comfortable with IBM,”
says Gunther Obhlschlager of TransCat, an IBM reseller in Karlsruhe, Germany. “Unless
you spend millions of dollars with the company, you can’t get someone on the phone,”
he says. Richard Laermer, a New York entrepreneur, adds, “I don’t believe they’re really
going after small businesses.” He adds, “Their attitude is, ‘If you don’t have a thousand
employees, get out of my face.” Should IBM go after the whole market—large, medium,
and small firms? Can it? If so, how?
6. Team Building. One of the most important jobs of the first-line sales manager is to create
an atmosphere in which individual salespeople feel that they are part of a team and are
also responsible for carrying their own weight. Perhaps one of the most controversial
aspects of this balancing act is the degree to which the sales manager should get involved
in territory and account planning.
The attitudes and advice of sales managers run the gamut from close supervision to a
totally hands-off attitude. At Ziegler Tools, an Atlanta industrial distributor, for example,
salespeople are required to fill out weekly detailed itineraries and call reports, which
are compared with quarterly itineraries. Turner Warmack, vice president of sales and
marketing at Ziegler Tools, states, “Generally speaking, salespeople are poor managers
and can be thrown off course pretty easily. What we feel our system does is help them
focus their efforts.” At the other end of the spectrum are sales managers who do not
require their salespeople to submit call reports and detailed reviews of customer status.
Typical of this approach is Rick Horn, president of Stahl Company, a specialty truck
body manufacturer, who states: “I didn’t feel I had to tell them what to do. They were big
boys and knew their territory. All I wanted to know is where they were in case I had to
reach them.” Which approach do you feel is best? Does it depend on the circumstances?
If so, what circumstances should be considered?
108 CHAPTER 3 SALES OPPORTUNITY MANAGEMENT

PROBLEMS∗

1. You are a rookie salesperson with Associated Medical Supplies, Inc., a wholesaler of
disposable medical supplies. As a new salesperson, you are finding it difficult to convince
accounts to switch from their current suppliers. The doctors with whom you are having
the most success tend to be small, single practices located in rural areas. Competition for
these accounts is not as intense, perhaps because their purchases are fairly small. They
usually place about $900 worth of business with you every month. Nevertheless, they
seem to be most appreciative of your weekly visit to take inventory of their supplies and
write an order. Furthermore, it is better than no sales at all. Lately your boss has been
hassling you because productivity has not increased as much as he had hoped when he
placed you in the territory. In particular, direct selling costs, including compensation, are
currently 15 percent of net sales, whereas the total company’s target is for direct sales
costs to be 10 percent of net sales. In light of this, you are wondering if spending time on
small rural physicians is the best way to manage your territory. You have calculated that
your cost per call is currently $34.50. Should you be calling on these small physician
practices? What is the smallest size customer you should pursue in order to meet your
company’s selling cost objectives? What actions might you consider in managing your
territory better?
2. As a salesperson for Strength Footwear, Inc., you have been very successful. Your com-
missions are well over $70,000 per year. Demand for your product line is strong, but so
is the demand on your time. You work your territory 220 days a year and can make four
calls a day. The maximum number of times you need to see any account is every other
week, but you need to call on each account at least once a quarter. To help you allocate
your time according to sales results, you have gathered the following information on
customer sales:

Accounts Sales Last Year

Top 10 accounts $150,000

Next 10 best accounts 37,500
Next 10 best accounts 37,000
Next 20 best accounts 56,250
Next 20 best accounts 55,500
Next 20 best accounts 18,750
Last 20 accounts 15,000
$370,000

Develop and justify a call schedule for allocating time across the 110 customers in your
territory.
3. You have just finished your annual account review of the telecom purchases of one of
your largest customers. It purchased $125,000 worth of telecom equipment from you last
year but indicate that it wants a 10 percent discount on next year’s purchases or it will
switch its business to one of your competitors. Technical, installation, and other account
services that were provided to this customer last year totaled $11,000 and are expected
to be about the same next year. You earn a commission of 10 percent on sales. Last year
this account’s gross margin was 40 percent, and they are expected to purchase a similar
quantity of equipment next year. Assuming that the list price for the equipment would

*Excel spreadsheets for working these problems are available at www.wiley.com/college/cron. Go to “Student
Companion Site.”
SHIELD FINANCIAL: “LEAD GENERATION” 109

be the same as last year, but discounted by 10 percent, how would the discount affect
the profit contributions this account is estimated to generate next year?
4. Continuing with the account analysis from problem 3, assume that the account purchases
some of its telecom equipment from one of your competitors. How much would you
need to increase your penetrations of this account through increased sales in order to
justify the 10 percent discount the account wants on next year’s purchases?

SHIELD FINANCIAL:
FEATURED CASE “LEAD GENERATION”

O
ne method by which Shield identified leads see them gather dust on his salespeople’s desks. More-
on new prospects was through mailing of over, he didn’t want to lose easy sales from prospects
information to businesses in the area accom- that were ready to buy. Doug voiced his concern to
panied by a mail-back card and an email address for the salespeople and said he would be creating a stan-
those interested in learning more about the programs dard plan that the salespeople would have to use when
Shield could offer. Since this type of lead genera- following up on leads.
tion program had not been used for some time in
the Des Moines area, Doug, the sales manager at the
Questions
Des Moines office, decided to run the program after
some disappointing first quarter sales results. To his
1. Should Doug have taken an approach other than
surprise and thrill, 79 requests for more information
saying that he would create a standard plan?
were received in the next ten days following the mail-
ing. Doug gave each of the salespeople in the office 2. If you were the sales manager, what would you do
around ten leads to follow up on. about the reps’ obvious lack of motivation to follow
A month later, at the monthly sales meeting, Doug up on the leads generated by the mailing?
asked for a progress report on the status of those 3. What are the possible reactions from the leads not
prospect leads. Only two of the reps had followed up on contacted by Shield?
any of the leads. Of those five leads, three sales were 4. What is an “ideal” course of action given all the
made and two prospects were still being developed. issues involved?
Doug was now concerned. After all the hard work that 5. Write a brief step-by-step plan to handle this
went into generating these leads, he wasn’t about to situation.
 CHAPTER

4 ACCOUNT
RELATIONSHIP
MANAGEMENT
The sale, then, merely consummates the courtship, at which point the marriage begins.
How good the marriage is depends on how well the seller manages the relationship.
Theodore Levitt

Chapter Consultants:
Ken Whelan, Director, Business Development, Qwest Communications International, Inc.
Chris Jander, National Accounts Manager, Marconi Corporation plc.

LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Describe the steps in the professional purchasing process.
Identify the different buying influences in the buying center.
Explain how relationships are likely to evolve.
Describe factors critical to gaining commitment to a relationship.

GROWING THE RELATIONSHIP

You’re a global IT services company serving a customer many times your size. You need
to create an innovative way to manage the customer relationship, and the method must
have enough flexibility for the account’s unique and constantly changing requirements. You
know that, if successful, the relationship will set your company and the customer well ahead
of the competition. And while you realize that it might be a difficult business decision to
dedicate hundreds of individuals to this account, you also know that the account could use
your firm’s competencies.
This is not an imaginary situation. The supplier is Satyam Computer Services Ltd.,
a global IT consulting and services firm. Satyam offers services as diverse as strategy
consulting, end-to-end IT solutions implementation, and business process outsourcing.
The account is Caterpillar Inc., the world’s largest manufacturer of construction and
mining equipment, diesel and natural gas engines, and industrial gas turbines with annual
sales of $20 billion.
110
GROWING THE RELATIONSHIP 111

The account plan developed by Bipin Thomas, Satyam’s Global Account Manager for
Caterpillar, was to perform joint IT strategic planning and development with Caterpillar
that would yield a competitive advantage for both firms. To this end, Thomas pioneered
an innovative partnering model that he named Competency-Driven Strategic Account Man-
agement (CDSAM™). Key elements of the process are jointly developing a relationship
vision and establishing multilayered relationships between the tops of the two organiza-
tions on downwards. The centerpiece of the plan demands that once required competencies
(embedded systems, for example) have been identified, Satyam will develop dedicated com-
petency teams designed to link with customer teams to solve customer problems. Over the
next five years, the number of Satyam employees focused on Caterpillar jumped to over
200 people.
The financial results for Satyam have been dramatic. Revenues from the Caterpillar
relationship increased 8 fold over the next five years to over $15 million annually. Margins
also doubled over this time. Caterpillar benefited as well, reducing costs by 409 percent and
realizing $37 million in cost savings in developing IT services. For every dollar Caterpillar
spent with Satyam, it realized a dollar in savings.
Mr. Thomas, the Caterpillar account manager, started with deep customer knowledge
and identified needs that led to an idea. He had the internal marketing skills to sell the idea
inside his organization, and the project management skills to bring the idea to fruition in a
relatively short time.1
This chapter focuses on the sales force activities involved in building lasting and
profitable relationships with customers, referred to as accounts. The Satyam-Caterpillar
relationship illustrates some of the most important developments in business-to-business
selling—selling teams, buying centers, identification of opportunities, growing the rela-
tionship, creating customer value, meeting expectations, and building trust. This chapter
examines each of these issues, identifies related selling activities, and provides practical
examples of their significance.
In Chapter 2 we discussed the notion of an account relationship strategy decision as
a central element of a sales force program. This chapter focuses on the implementation of
the account relationship strategy in discussing the activities involved in managing account
relationships. Specifically, we will examine four key aspects of business-to-business rela-
tionships shown in Figure 4-1. Although the concepts discussed in this chapter are relevant
regardless of a supplier’s specific customer relationship strategy, there are differences in
the relative importance and execution of these activities. Trust and need recognition, for
instance, are relevant regardless of whether there is a transactional, consultative, or enter-
prise relationship between the customer and supplier, but they fundamentally differ in their
processes and activities, depending on the type of relationship sought by a supplier and
customer.2
One additional point that should not go unnoticed in the Satyam-Caterpillar example is
that companies are increasingly looking for significant growth opportunities within current
accounts. In a recent survey, over 70 percent of sales executives listed increasing sales to
existing customers as one of their top priorities for the next year.3 Results of a classic
study of sales force performance further underscores the importance of existing customers
in meeting sales objectives. The study investigated whether the amount of time spent calling

Account The Building Account

purchasing buying account relationship
process center relationships binders

F I G U R E 4-1 Account Relationship Management Concepts

112 CHAPTER 4 ACCOUNT RELATIONSHIP MANAGEMENT

on accounts affected sales force performance. The results show that time spent prospecting
is not related to performance, but the time spent with established accounts has a positive
impact on performance.4
Our discussion of relationship management begins by presenting the typical stages in
the business-to-business purchasing process. Examples of different types of account rela-
tionships will be discussed within the context of each stage. The concept of a buying center
is introduced, along with the development of selling teams. Following this discussion, our
focus changes to understanding how account relationships typically develop and what steps
sellers can take to ensure profitable account relationships.

PURCHASING PROCESS
One of our basic premises is that in order to be successful the sales force must create value
for the customer. To better understand how the sales force can create customer value, let’s
look at the different points in the purchasing process where a sales force can potentially
add value. The typical sequence of steps that purchasers go through in business-to-business
acquisitions includes the four steps shown in Figure 4-2.5
A key determinant of the nature of the purchasing process is the buying situation faced
by an account. Three different types of situations are possible, each of which will influence
the nature of the four steps in the purchasing process and the opportunity for the seller to
provide value to the customer in completing the purchasing process.
In a straight rebuy purchasing situation, the product has been previously purchased
and there is no change desired in the product or offering; it often involves replenishing
inventories of products. In such a situation, the seller can add value for the customer
by making the purchase easy, convenient, and as hassle-free as possible. The purchasing
department is likely to be responsible for the entire purchasing process in this situation.
A modified rebuy purchasing situation occurs when some changes are anticipated in a
product that the buyer has previously been purchasing. As a result, the evaluation of options
step of the process is much more extensive, and it is here that the seller can add the most
value. A group of people from various functional areas of the purchasing organization is
usually involved in the purchasing process.
The most complex purchasing situation is the new buy purchasing situation. In these
purchase situations, the seller has the opportunity to add value for the buyer during three of
the four stages of the purchasing process: recognition of the needs, evaluation of options,

Recognition Evaluation Purchase Implementation

of of Decision and
Needs Options Evaluation

Value-Added Role of Sales Force:

Help customers Identify options Make process Support the

recognize a and provide convenient and purchase
need or solutions hassle-free decision and
opportunity build the
relationship

F I G U R E 4-2 The Typical Purchasing Process

PURCHASING PROCESS 113

and implementation and evaluation. The actual purchase decision itself follows naturally
from the previous two stages, though the whole purchasing process may take some time to
complete.

Recognition of Needs
The first stage in the purchasing process occurs when the account recognizes that a need
exists. In some cases, the need is immediate and focuses on resolving a problem, such as
when a manager observes a bottleneck in a production process or when existing machinery
breaks down. This type of need is more typical of a transactional relationship.
In many consultative-type selling relationships, a customer may not be aware of the
extent of the problem or opportunity. It is often up to the sales force to quantify the
situation. Transcend Services, Inc., of Atlanta provides hospitals an alternative to in-house
medical records. The selling process involves an evaluation of a hospital’s operations as
to cost effectiveness, quality control, and reliable delivery of a patient’s medical records.
Cost is not the only issue, however, as the timely availability of patient records are needed
for purposes of billing insurance companies, all of which is critical to timely collection
for services provided. According to Transcend’s President and CEO, Larry Gerdes, an
evaluation can be done in a matter of days and includes quantifying not only savings from
elimination of in-house staff but also reduction of a hospital’s capital investment associated
with equipment and software needed for dictation capture and transcription. Transcend is
able to provide these savings due to its capabilities in technology, such as speech recognition,
as well as managing a global workforce to provide timely and economical medical records.
The key for Transcend is getting customers to understand and quantify the magnitude of
the problem. This is a good example of a new buy purchasing situation and an enterprise
type of selling relationship context in which the issues of cost and efficiency are the main
customer problems.
One of the first things a salesperson needs to understand when identifying business-
to-business buying needs is the concept of derived demand. Professional buyers do not
purchase for themselves but rather help to produce goods and services for resale. Derived
demand refers to the dynamic in which demand for a product or service is derived from the
demand for the customer’s products and services. This suggests that suppliers can gain a
competitive advantage by knowing and understanding the needs of the customers’ customers.
Derived demand may influence whom the sales force calls on, what customer benefits are
emphasized, and how much of a product or service is ultimately sold. To convince GTE
to carry its line of ethernet connections, for example, RELTEC demonstrated to apartment
owners the advantages of ethernet connections for the computer needs of their customers.
Since this feature could reduce the apartment’s client turnover, the apartment owners con-
vinced GTE to include RELTEC’s ethernet connection with its product lines. In other words,
RELTEC sold GTE by selling to GTE’s customers, apartment owners. In this case, the
ethernet connections are a new buy purchasing situation for GTE and illustrate a consul-
tative type of selling relationship in which an opportunity was identified by the RELTEC
sales team.

Evaluation of Options
Businesses may spend considerable time and money in searching and evaluating alternative
suppliers, depending on the strategic significance of the purchase.6 Purchased materials usu-
ally represent from 30 to 80 percent of product costs for an original equipment manufacturer
(OEM). The cost of misunderstandings among the parties involved and post-sales problems
114 CHAPTER 4 ACCOUNT RELATIONSHIP MANAGEMENT

can be enormous. As a result, it is critical that a supplier understand the buyer’s situation.
Consider the complaint of one buyer when talking about some suppliers:
A lot of guys come in and say: “Hey, I am going to solve your problems.” But how can you solve
my problems, when you don’t even know me? A number of times, they don’t even understand
my business, what I do on a day-to-day basis. It might be a great solution for them, but I know
that they are just throwing a cookie cutter at me.7

Specifications. One of the key activities taking place during this phase is the development
of a precise statement of the requirements and tolerances, referred to as a product’s spec-
ifications. The exact specifications are usually dictated by the anticipated demand for the
organization’s products and by the technological requirements of its operations. This stage
is often critical for potential suppliers because final specifications will dictate the cost to
produce the product and can favor one supplier’s product over another. Therefore, getting
involved in this phase of the process is often critical.
In most transactional-type relationships, customers have largely developed their own
product specifications before a supplier gets involved in the process. In more consultative
and enterprise-type relationships, however, customers and suppliers work together to jointly
develop product specifications. Take the case of Johnson Controls, Inc., chosen to supply
seats for one of Chrysler’s models. Johnson was able to meet the customer’s cost target but
fell far short on safety, weight, and comfort. Ten Chrysler engineers met with ten Johnson
counterparts, led by the sales director. After five 11-hour days, they agreed on weight, cost,
and performance targets and subsequently helped Johnson meet these targets.8 This example
also illustrates that in more advanced buyer-seller relationships, the supplier is often chosen
prior to completion of detailed technical specifications, which may be jointly developed by
the supplier and customer.

Proposals. A sales proposal is a written offer by a seller to provide a product or service

to a purchasing organization. The proposal may represent the culmination of sales activities
spanning several months involving extensive client analysis. On the other hand, a proposal
may result from receiving a Request for proposal (RFP) from a buyer. An RFP is a notice
that a customer sends out to qualified suppliers asking them to bid on a project with a
certain set of specifications. Regardless of how the process was initiated, it is important
that the proposal development process be integrated into the selling process. In purchasing
materials and equipment, for example, building contractors may consider service, quality
of product, supplier support, low price, and/or reputation for fair dealing among their most
important purchasing criteria when choosing suppliers. The proposal is actually the outcome
of the first two phases of the purchasing process: identification of needs and evaluation of
options.9

Purchase Decision
The purchase decision is the final flurry of activity culminating in a sale. Purchasing activities
involve writing orders, persuading, negotiating, finalizing terms, and closing the sale. As
mentioned earlier, this is where a seller can create value for customers in a straight rebuy
situation and in a transactional type of relationship by making the purchasing process easy,
convenient, and hassle free.
To facilitate the straight-rebuy-type purchase, many companies are turning to extranets.
Extranets link trading partners’ internal Internet computer networks to provide a secure
private electronic environment for real-time communication. By connecting with the cus-
tomer’s computer system and accessing a customer’s inventory information, a supplier is
able to automatically ship product for purposes of inventory replenishment. More companies
PURCHASING PROCESS 115

are in fact requiring their suppliers to support just-in-time inventory practices, improve sup-
ply chain management, and furnish instant order-status information via extranets. Heineken
recently initiated a system that allows its 450 distributors to forecast and order over the
Web, reducing order cycle time from three months to four weeks.10 Marshall Industries,
a leading distributor of steel products, has gone one step further with its extranet, which
allows customers to track order status, expedite shipping by linking to freight forwarders,
participate in live engineering seminars with video and audio, and get live on-line support.
Price is usually a crucial factor in business-to-business marketing, especially for
commodity-type items, for which one can choose from many comparable alternatives.
The role of price in many buyer-seller relationships is changing in today’s competitive
environment. Instead of looking for the lowest price, some buyers are realizing that, by
working together with key suppliers, they can operate more efficiently and effectively in
satisfying the needs of the ultimate consumer and may do so at a lower overall cost. Grief
Brothers Corporation, which manufactures fiber and plastic drums, routinely conducts
what it calls cost-in-use studies to document the incremental cost savings that a customer
gains by using Grief’s more expensive products and services, rather than a less expensive
alternative. One of Grief’s technical service managers works with customer managers
to estimate the customer’s current total costs and to identify system solutions for the
customer. Solutions might include just-in-time deliveries, a new delivery system, or drum
recycling. In giving the customer a variety of service alternatives together with estimates
of cost savings, Grief helps the customer make a more informed purchase decision based
on the total worth of the system solution to the customer.11

Implementation and Evaluation

The purchasing process does not end with the purchase. During the immediate post-purchase
phase the seller’s obligation is to ensure that all promises are fulfilled and customer expec-
tations are met or exceeded. This will include making sure that the product has no defects,
arrives on time as promised and at the right place, warranties are honored, repairs or
exchanges are handled quickly and smoothly, needed information is provided, and ade-
quate training is provided. A senior manager with a health care firm complained, “Support
is the Achilles heel for most suppliers. They come, deliver, and go. But what happens when
I am in trouble? We need solution providers, not fair weather friends.”12
After the immediate post-purchase activities are performed, the seller’s focus should
shift to customer retention and growth. Activities focus on nurturing a continuing business
relationship with the customer. This may include performing customer market analysis,
developing joint customer marketing programs, monitoring inventory, providing customer
service, providing ongoing training, and handling complaints.13 Listen to what one satisfied
senior manager has to say about the company’s best suppliers:
They are there to give us updates on our network status. They are there to give us updates on
security issues. They are there to cover up for us in case of disasters. They are there to cover up
for us when our servers are down. They are there when we need them. They are our partners.14

Value Analysis. Many organizations evaluate their suppliers by a formal value analysis
and/or a vendor analysis. Value analysis, developed by General Electric as a basis for cost
reduction, is a detailed analysis of a product. It focuses on the relative cost of providing a
necessary function or service at the desired time and place with the necessary quality. Value
analysis focuses on total cost, not just invoice cost. For repetitively purchased items, posses-
sion costs (i.e., costs related to holding inventory) and acquisition costs (e.g., costs associated
with originating requisitions, interviewing salespeople, expediting deliveries, receiving and
editing invoices, following up on inaccurate and late deliveries) usually far exceed the price
on the invoice that the customer pays for the product.
116 CHAPTER 4 ACCOUNT RELATIONSHIP MANAGEMENT

Vendor Analysis. Vendor analysis is similar to value analysis but focuses on the vendor
by looking at such items as delivery reliability, price, service, and technical competence.
In addition to reporting a supplier’s product quality, delivery, and cost competitiveness,
Deere & Company also measures something it calls “wavelength.” Wavelength measures
such values as attitude, responsiveness, and follow-up on details. Deere feels that such
information is usually not communicated, but is important in today’s tough markets.15
The greater importance of the implementation and evaluation stage of the purchasing
process has key implications for the sales process. A broader perspective is needed with
multiple goals: short-term goals, such as winning the sale and ensuring that the value the
customer is expecting is actually delivered; and long-term goals, such as creating new value
delivery opportunities and positioning yourself and your company’s capabilities to enlarge
the customer relationship. This duality is inherent in most consultative- and enterprise-type
customer relationships.
One last thought regarding the purchasing process: Knowing and understanding the
purchasing process is necessary, not just a identifying where you are in the process and
pushing it along toward the sale. The most important part of understanding the purchasing
process is to enhance the quality of this process. In the absence of a quality purchasing
process, the purchase decision will degenerate to the lowest common denominator, price.

Supplier Tiers
Increasingly, companies today are borrowing a page from marketing when working with
their supplier base. They are segmenting their supplier base according to the importance
of the supplier’s product and the difficulty of finding alternative sources for the product.
Recognizing that groups of suppliers should be treated differently, customers are starting to
place their various supplier relationships into separate supplier tiers. This practice is illus-
trated in Figure 4-3. Organizations are explicitly recognizing that some suppliers are much
more important than others to their success. This being the case, it is in the organization’s
best interest to establish special relationships with these suppliers. On the other hand, there
are many products and services that make little difference in the quality of the organiza-
tion’s offering and for which there are many qualified suppliers. In this case, controlling
procurement costs and maintaining a reliable source of supplies take priority. Depending

Tier Type of Supplier Nature of the Relationship

A In-Supplier • Traditional arms-length relationship

• Individual level relationship dominates
• Standardized, nonstrategic products

B Preferred • Relationship focus on products

• High level of familiarity
• High level of trust

C Extended • A bundle of products

• Several collaborative processes, e.g.,
product design, inventory management
• Supplier is viewed as best in class
D Partner • Supplier is viewed as key to customer's
competitive position
• Business relationship is rarely challenged
• Some degree of exclusivity

F I G U R E 4-3 Tiers of Suppliers

BUYING CENTER 117

on which tier the supplier is in, the relationship and the purchasing process will be quite
different. Note also that the tiering of suppliers is the mirror image of a supplier’s account
relationship strategy.
Selling in each type of customer relationship requires a high degree of customer inti-
macy—knowing the customer’s problems and priorities, expectations, needs, and culture.16
Similarly, it is important that salespeople know who within the customer’s organization is
involved in the purchasing decision and understand this person’s role in the process. This
consideration is particularly important in complex sales situations. Complex sales situations
are those in which several people in the customer’s organization must give their approval
before the sale can take place. Complex sales situations refer to the structure of the purchase
decision, not a particular product or its price. Consider selling basketballs, for example. The
salesperson selling a dozen basketballs to Mr. Jones, owner of the local sporting goods
store, is making a simple sale. But the salesperson selling a hundred gross of basketballs
to Wal-Mart is probably involved in a complex sale because making the sale will require
not just one approval, but several, especially if this is a new line of basketballs. The added
complexity of selling to more than one person in an organization and a framework for doing
so are discussed in the next section.

BUYING CENTER
The term buying center refers to all of the people formally or informally involved in the
purchasing decision—that is, all the people who must say yes for a sale to occur or influence
the people who will ultimately say yes or no to the purchase. The buying center changes over
time and is not a formal department in the organization. The number of people included
in the buying center may vary, depending on a number of factors, including how many
departments use the item, the dollar value of the purchase, and the product’s degree of tech-
nical sophistication. Furthermore, each of these people is likely to have different concerns
depending on his or her level in the organization. For instance, if I’m selling manufactur-
ing equipment, one of the symptoms of a problem associated with overused equipment is
leaking oil. The significance of the oil on the floor changes as we move up the command
hierarchy. To the machine operator we might be talking about oil on the floor, but to the
CEO we would need to translate the impact of overused equipment and leaking oil on
Earnings per Share (EPS). See Figure 4-4 for how the performance indicator in this selling
situation might change as I move up the customer’s hierarchy.
A purchasing role refers to the set of issues or concerns that a member of the buying
center will consider when deciding whether to approve or recommend either a purchase
or a specific supplier. For purposes of clarification and simplification, these concerns may

Level Need Indicator

CEO EPS
CFO ROI, EBITDA
VP Operations Cost of Goods Sold
Plant Manager Machine Availability
Maintenance Manager Maintenance Expense
Machine Operator Oil on the Floor

F I G U R E 4-4 Impact of Oil on the Floor

118 CHAPTER 4 ACCOUNT RELATIONSHIP MANAGEMENT

be grouped into one of three purchasing roles: economic buyers, user buyers, and technical
buyers. An individual buying center member may occupy multiple purchasing roles, but each
purchasing role is expected to be held by at least one individual in any major purchasing
situation.17 A fourth person must also be present for the sale to be successfully concluded;
this person is referred to as an advocate.

Economic Buyer
An economic buyer is the person or committee with the power to give final approval to buy
your product or service. These people have the money to make a purchase and are able to
release the cash to buy should they choose to do so. The focus of the economic buyer is
not exclusively on price or technology but is also on performance; that is, what will the
organization get in return for spending this money?
The economic buyer’s role in the sale is unique, in that this is the person who:
• Establishes the priority of projects
• Is concerned about the economic health of the business
• Focuses on the future
• Asks “Why?”
• Can say “yes” even if everyone else says “no”
• Can also say “no” when everyone else says “yes”18
Obviously, this buyer must be identified in each sale. Although these people are rarely
very far down the organizational ladder, their exact organizational position will depend on
a number of factors. The economic buyer is likely to be farther up the organizational ladder
in the following situations:
• The more expensive the product
• The more depressed the organization’s business condition
• The less experience the customer has with you, your firm, and the product
• The greater the potential impact a wrong purchase decision will have on the organization
Consider the situation the telecommunications industry faces as a result of movement
to distributed data processing and networked computer systems. Many companies now view
telecommunications as a strategic asset rather than as just “utilities.” This has far-reaching
implications for sales and marketing in the industry. “In the last three years,” says a vice
president of operations at AT&T, “we have changed from selling to purchasing agents and
dealing with only the communications managers. We have expanded our horizons to where
we must gain acceptance with people in the customer organization who are policy makers.”
This change in focus has necessitated many changes in AT&T’s sales practices. For instance,
the RBOCs’ sales force training has been beefed up to place more emphasis on strategic
business decision making in addition to the usual technical training of salespeople.

User Buyer
The role of user buyers is to determine the impact of the purchase on the job that they or
their people perform. Their focus is much narrower than that of the economic buyer because
they are concerned primarily with their own operating areas or departments. Users typically:
• Are personnel whose daily work will be affected by your product or service
• Are implementation oriented
• Take a tactical view versus a strategic one
• Focus on the past and present rather than the future, except to ask, “How will this affect
me?”
BUYING CENTER 119

In general, users want to know how your solution will affect them, but they likely
will not be concerned about how the solution affects their company. Nonetheless, users
may represent a very powerful buying influence and one that is important for the seller to
identify. This point is made quite well in the now-famous story of 3M’s Post-It notes. Initial
efforts to sell the stick-on notes to office managers met with little success. It wasn’t until
3M gave secretaries and office workers free samples that the notes took off.

Technical Buying Influence

The role of technical buyers is to act as “gatekeepers” by screening out products and suppli-
ers that do not meet the needs of the buying organization. Their function is to narrow down
the choices to those alternatives that are most likely to fulfill particular organizational objec-
tives. These people can have a powerful influence on the final decision, but by themselves
they can’t say yes, only no.
These buyers are called technical buyers because they focus on the quantifiable aspects
of the product or service as they relate to the product’s specifications. A number of people
may perform this function, including engineers, legal counsel, and purchasing agents.
In summary, a technical buying influence may:
• Be able to say “no,” but needs to get approval before saying “yes”
• Be able to recommend
• Be a key influencer to the decision maker
• Be concerned about product specs and financials
• Be focused on the present
• Ask “What?” and not “Why?”

Advocate
In a complex selling situation involving multiple buying influences, it has been suggested
that salespeople need to develop a special relationship with a buying influence referred to as
an advocate. The role of the advocate is to help guide you in the sale by providing critical
information about the organization and the people involved in the purchase decision. These
people may be internal or external to the buying organization. They do not necessarily make
the sale or make referrals, but they are willing to provide key information about those who
influence the sale. They are often able to sell for you when you cannot be there, for example,
during purchasing committee meetings. Their motivation for providing this information is
that they are convinced that your product is best for the organization, and therefore they
have a personal interest in seeing that you get the sale. Some ways in which the advocate
may win include the following:
• Personal. Wants you to win because he or she knows you, likes you, and wants to see
you be successful.
• Professional. Wins by doing his or her job better, achieving goals, and helping the com-
panies meet objectives.
• Recognition. Wins by receiving recognition from his or her own organization.
• Negative. Really wants someone else to lose.19
Now that we’ve discussed why an advocate would want to help you, let’s talk about
what an advocate can do for you. A good idea of the role of an advocate is captured in this
statement from a chief information officer at a health care facility when talking about the
help a supplier needs to be successful:
The customer needs to understand his or her own political landscape and help set a path for the
vendor to navigate it. The vendor, on his or her part, needs to participate in the navigation of
120 CHAPTER 4 ACCOUNT RELATIONSHIP MANAGEMENT

this landscape, but needs to be very conscious of when to use the white-gloves, handle-with-care
approach and when to use the throttle-ahead approach.”20

Notice that the advocate and the seller must work together. The advocate does not take over
the selling role of the vendor salesperson.
Some, but not all, of the ways that advocates can help include:
• Recommending selling strategies. They may clarify key organizational issues, the pri-
ority areas of interest for each of the buying influencers, identify the key decision
maker, etc.
• Build a groundswell of interest. They can encourage discussion among the decision
influencers.
• Refer you to other advocates. They can identify other people who may be interested in
your succeeding in the sale.
• Review your presentation. They can ensure you are using the right terms, picking up
the subtleties, and prioritizing the right areas, for example.
• Gain access to decision makers. They can get you access to the executive suite.
An advocate is obviously critical and must be selected and developed with care. Others
in the buying center must feel that the person is trustworthy and competent. Ideally, others
will recognize the advocate in the buying center as a group leader and major influence.
One way to identify a good advocate, in fact, is to listen for the name of a person whom
others in the buying center mention frequently. A strong advocate may be important to the
seller’s long-term success because people are less likely to change after having established
a publicly stated position.
To test your practical understanding of the buying center concept and the perspectives
of different people in the center, see the Team Exercise “Different Strokes.” How would
you suggest addressing each of these people’s concerns?

TEAM EXERCISE
“Different Strokes”

You are a salesperson for Midmark Medical, a health care company specializing in developing
and marketing products for hospital operating and postoperative recovery rooms. Your company
has developed a new product designed to address the postoperative hypothermia that medical
research indicates occurs in 60 to 80 percent of patients after surgery. The product consists
of a blower that injects air into a very thin, plastic-like blanket. Using nanotechnology, the
blanket is able to hold the air inside the blanket and does not allow outside air to penetrate the
blanket so that it retains its heat for up to 2 hours.
Today the most commonly used treatment for postoperative hypothermia is warmed hos-
pital blankets. Six to eight heated blankets are placed in succession on top of the patient.
Almost all patients require more than one application. The advantage of warmed blankets is
that they are simple, safe, and relatively inexpensive compared to your new product. The main
disadvantage is that they cool quickly, provide only insulation, and require the patient’s own
body heat for regenerating warmth.
In preparing to sell this product to the hospitals in your territory, you quickly realize that
there are at least three groups of people who are likely to get involved in purchase decision: the
operating nurses and especially the chief operating nurse, operating physicians, and hospital
administrators. Develop a game plan to address the needs and concerns that each group is
likely to have with this new product. Be prepared to role play the interaction with one or more
of these people.
EVOLUTION OF RELATIONSHIPS 121

EVOLUTION OF RELATIONSHIPS
Most marketers would like to establish a long-term relationship with their customers to
ensure a stream of purchases and an upgrading of the equipment a client purchases over time.
Many companies are emphasizing to their salespeople the importance of understanding how
to build and enhance professional relationships at all levels in the organization.21 It is help-
ful in this regard to understand how relationships are likely to evolve over time. According
to research in social psychology, growing relationships evolve through five general stages:
(1) awareness, (2) exploration, (3) expansion, (4) commitment, and (5) dissolution.22
Although it may be difficult to determine exactly when a relationship progresses to
each stage, each represents a major shift in the nature of the relationship. Consequently,
salespeople should be aware of these changes and proceed accordingly. These five stages
of relationship evolution and the objectives associated with each stage are summarized in
Figure 4-5.
All relationships are dynamic, however, not linear in fashion. That is, there is often
a recycling through the different general stages shown in Figure 4-5. Recall the Satyam-
Caterpillar vignette at the beginning of this chapter. This relationship had already reached
a level of commitment, when both parties began exploring new opportunities to create
customer value. Exploration in this case led to a higher level of commitment between
Satyam and Caterpillar.
Though somewhat unusual, dissolution of a customer relationship may also lead to a
stronger relationship commitment. Consider the experience of one large North American
petrochemical supplier, when an Asian competitor offering lower prices threatened its mar-
ket. The supplier, in a carefully calculated move, let go of three of its largest, but most
unprofitable customers. The supplier understood what was fundamentally important to its
customers as well as the weaknesses of its new competitor. Two of the three defecting
customers came back to the supplier after just two months of coping with the competitor’s
poor logistics and even poorer product quality. Indeed, they accepted higher net prices and
longer, guaranteed-volume deals.23

Relationship
Stage Description Key Selling Objectives

Awareness Recognition that a supplier may be able to • Gain customer’s attention

satisfy an important need • Allow customer trial of product/service

Exploration Tentative initial trial with limited • Gain initial acceptance

commitments by both parties • Build a successful relationship

Expansion Greater rewards for both parties in the • Increase customer knowledge
relationship • Broaden customer engagement

Commitment Commitment by both the buyer and seller • Establish multiple relationships between
to an exclusive relationship both firms’ hierarchies
• Provide early involvement in new
product development process
• Focus on long-term relationship

Dissolution Total disengagement from the relationship • Look for warning signals
• Reinitiate the relationship

F I G U R E 4-5 Stages in a Buyer-Seller Relationship

122 CHAPTER 4 ACCOUNT RELATIONSHIP MANAGEMENT

RELATIONSHIP BINDERS
Certain factors, called relationship binders, drive parties, whether individuals or organiza-
tions, to progress to a fully committed relationship. Salespeople should be aware of these fac-
tors. This section reviews three important underlying factors necessary for a fully developed
relationship, which every salesperson and marketer should know and understand—creating
value, meeting expectations, and building trust.24

Creating Value
Value refers to the perception that the rewards exceed the costs associated with establishing
and/or expanding a relationship. Value to a buyer is not always the lowest list price. It
may involve the opportunity to save time and labor, or it may result in higher sales of
the customer’s products. Value must ultimately reach the customer’s customers in the form
of better quality or less expensive products, wider choices, and/or quicker access to those
choices.
Figure 4-6 illustrates the implications of a supplier’s account relationship strategy for
how the sales force creates customer value during each phase of the purchasing process. In
transactional relationships, the opportunities for creating customer value are highest during
the final two phases of the purchase process. Making purchasing easy and hassle-free and
preventing post-sale headaches are important opportunities for creating customer value in
transactional relationships. Consultative customer relationships create customer value by
creatively helping customers solve problems and identify growth opportunities during the
first two phases of the purchasing process. Consider Motorola, Inc.’s approach to selling
customized pagers. Motorola’s pager sales force will use the customer’s own specifications
to design a pager system perfectly suited to the customer’s needs. The specs, put together on
a laptop computer by the Motorola sales rep, are sent via modem to the company’s factory.
This individualized product development, however, requires a considerable investment of
time and effort during the needs and evaluation of alternatives phase of the purchasing
process. The intent of enterprise relationships, on the other hand, is to create exceptional
customer value during all four phases of the purchasing process.

Meeting Expectations
In any relationship, the involved parties develop expectations, sometimes referred to as rules
or norms, with respect to acceptable conduct and performance. Acceptable behavior varies
by individual preferences, company policies, and national cultures.

High
Enterprise Relationships

Consultative Relationships
Customer
value

Transactional Relationships
Low

Recognition Evaluation Purchasing Implementation

of of Decision and
Needs Alternatives Evaluation

F I G U R E 4-6 Customer Value Creation in the Purchasing Process

RELATIONSHIP BINDERS 123

In some enterprise-type relationships, buyers and sellers derive a mutually agreed-upon

set of team values. These values are sometimes put in writing in order to remind all members
that these are the accepted standards of conduct of the relationship to which every individual
must subscribe. Each may agree, for instance, to be the advocate for the other partner within
his or her own company. It is especially important to ensure that new members to the team
are aware of and comply with these values.
Salespeople must be careful not to encourage unfavorable buyer expectations as a
result of present behaviors. If a salesperson agrees to a special price discount at the buyer’s
request, for example, the buyer may think this is standard practice and expect some sort
of discounting in the future. Because of this behavior, many companies (e.g., IBM and
Procter & Gamble) do not give their salespeople the flexibility to discount prices. For an
excellent example of an expectations-management issue, see the Team Exercise “A Favor.”
What would you do in this situation?

TEAM EXERCISE
“A Favor”

Major Contracting has always been one of your biggest accounts—until last year. A downturn
in the local economy slowed both construction and renovation projects. As a result, Major
Contracting reorganized its management team, including hiring a new CFO. The result? The
company has been slow paying its bills for the past six months.
As is customary, your company hired a collection agency to obtain late payments. The
agency is now threatening to create credit-rating problems for your account if it doesn’t pay
within a week. You receive a call from your contact at Major, a friend of fifteen years, pleading
with you to intercede on his behalf and promising to be back on track with bill payments. He
tells you that Major has bids on a few big projects that should stabilize it financially within
the month.
You are now in an awkward position. You know that not all of these projects are firm, so
Major may not be able to settle its debt in that time. You want to help your friend, but you
also realize that you have a responsibility to your company and yourself—your compensation
is based in part on the profitability of your territory. On the other hand, you do not want to risk
losing the account and the sales that would come from these projects if they do come through.
Do you try to get Major the month it needs to get back on its feet? Do you claim it is out of
your hands—which to some degree it is? Is there a better solution?

Expectations also develop with respect to performance. Customer performance expec-

tations include the performance of the product, as well as a number of service activities
such as frequency of sales calls, notification of price changes, lead time in delivery, order
fill rate, emergency orders, and installation. Studies comparing the performance perceptions
of salespeople and buyers in a wide variety of industries show that there is considerable
inaccuracy in salespeople’s perceptions of buyers’ performance expectations. Furthermore,
accuracy in identifying the buyer’s performance rules is related to high sales performance.
Interestingly, the more experienced salespeople are at times less accurate in their buyer
performance expectations than younger salespeople.
To encourage accuracy in customer assessment, some companies require their salespeo-
ple to provide a yearly written assessment of their key customers. This assessment process
involves answering a series of questions. Writing the answers helps to identify key assump-
tions, inconsistencies, and missing information. Figure 4-7 lists the type of questions that
should be answered about an account. The extent of the detail, depth, and complexity of the
124 CHAPTER 4 ACCOUNT RELATIONSHIP MANAGEMENT

Type of Intelligence Typical Questions to be Answered

Market • What markets do they serve?

• Who are their major competitors?

Financial • When does annual capital budgeting process begin and end?
• What hurdle rate is required to win approval?
• What is the projected capital spending for the year?
Organizational • What are the top business objectives each relevant department
manager is expected to achieve in the current year?

Operational • What are the specific measures of performance for your products
or services?

Personnel • Who are the people having a direct or indirect influence on

buying decisions for your products?
• What are their formal responsibilities?
• What is your relationship with each person?

Competitive • Which of your competitors are doing business with the account?
• What is the account share of each competitor?
• Which ones are likely to gain share?

F I G U R E 4-7 Account Intelligence

questions will vary according to the type of relationship, that is, transactional, consultative,
or enterprise. The objective is to have superior customer intelligence, which means having
better information than any competitor has about the account.

Building Trust
Trust refers to the opinion that an individual’s word or promise can be believed and that
the long-term interests of the customer will be served. Trust in salespeople and their com-
panies is essential to buyers’ evaluation of the quality of a relationship and to establishing
working partnerships. Indeed, customer surveys often find that it is difficult for customers
to distinguish between their feelings toward the supplier and the salesperson.25 Customer
trust in the supplier’s salesperson is particularly important in growing the customer-supplier
relationship past the exploration phase.26
Trust takes time to develop and research indicates that a salesperson’s length of expe-
rience with an account is important to partnering with customers and to the profitability of
customer partner relationships.27 How does a salesperson earn a buyer’s trust? Studies of
buyers and sellers have shown that salespeople whom buyers trust possess the following
five attributes:
• Honesty. Salespeople who tell the truth.
• Competence. Salespeople who know what they are talking about.
• Dependability. Salespeople who follow through on their promises.
• Customer orientation. Salespeople who put buyers’ interest ahead of their own.
• Likability. Salespeople whom the buyer enjoys knowing.28
Studies of buyer’s perceptions of salespeople’s trustworthiness also indicate that the
importance of each of these dimensions to buyers’ overall feelings of trust varies according
to the stage of the purchasing relationship. Early in the relationship the company’s and
salesperson’s reputation for competence is dominant. As the buyer gains experience with
SUMMARY 125

Relationship Transactional Consultative Enterprise

Binder Relationship Relationship Relationship
Create value A good product that can be A solution to an Increase the
conveniently purchased. important problem. shareholder value of
the organization.

Meet Buyer has a clear set of expectations Buyer knows a problem exists, Buyer's expectations are strategic in
Expectations as to the conduct of the relationship. but is unsure of the solution or nature, though the process for
what will be involved in addressing achieving strategic objectives may
the problem. not be know.
Build Trust A supplier will do what has been A supplier will do what is necessary A supplier will do everything possible
promised. to solve the problem. to increase the buyer's competitive
advantage in the marketplace.

F I G U R E 4-8 Relationship Binders and Account Relationship Strategy

the seller and the particular salesperson, dependability becomes more important. In a fully
committed stage of the relationship, customer orientation is most important to the feelings
of buyer trust. Honesty and likability are important during all phases of the purchasing
relationship.29
Trust building is not entirely a matter of being liked, however. There is also evidence
that people place greater trust in those whom they feel have good listening skills.30 For-
tunately, good listening skills can be developed by focusing on and not interrupting the
speaker, paraphrasing questions, answering at the appropriate time, and using complete
sentences instead of saying simply yes or no.
These three relationship binders—creating value, meeting expectations, and building
trust—are needed to build lasting relationships with customers. How these relationship
binders are achieved, the activities involved, and the skills needed to enhance them will
differ depending on the account relationship strategy involved. Figure 4-8 summarizes the
differences in each relationship binder according to the three types of account relationship
strategies.

SUMMARY
Increasingly, a company’s profitability and growth depend on establishing good relationships
with the right customers and managing each relationship so as to deliver value to the cus-
tomer. Skills and concepts important to the successful management of account relationships
were discussed in this chapter.
1. Describe the steps in the professional purchasing process. We have described four
basic steps in the typical purchasing process: recognition of needs, evaluation of options,
the purchase decision, and implementation and evaluation of performance. The sales
force has the opportunity to create customer value during each of these steps. However,
the level of customer value created is likely to depend on the type of buyer-supplier
relationship—transactional, consultative, or enterprise.
2. Identify the different buying influences in the buying center. A number of people
are likely to be involved in most organizational purchasing decisions. These people are
collectively referred to as the buying center. It is important that salespeople identify all
those involved in the process, as well as the nature of their involvement. Regardless of
functional area or level in the organization, people in the buying center will assume one
of three roles: economic buyer, technical buyer, or user buyer. In addition, salespeople
should choose and cultivate an advocate in the buying center.
126 CHAPTER 4 ACCOUNT RELATIONSHIP MANAGEMENT

3. Explain how relationships are likely to evolve. Growing relationships evolve through
five general stages: (1) awareness, (2) exploration, (3) expansion, (4) commitment, and
(5) dissolution. Because each stage represents a major shift in the nature of the relation-
ship, salespeople should be aware of these changes and proceed accordingly.
4. Describe factors critical to gaining commitment to a relationship. Certain factors are
important to gaining increasing levels of commitment in relationships. We have reviewed
three important factors necessary for a fully developed and productive relationship: cre-
ating value, meeting expectations, and building trust. Each factor has been described
within a professional account relationship situation, and the means by which to identify
and enhance these factors have been described.

KEY TERMS
Accounts Modified rebuy Supplier tiers
Advocate New buy Technical buyer
Buying center Purchasing role Trust
Complex sales situations Relationship binders User buyer
Derived demand Relationship evolution Value
Economic buyer Request for proposal (RFP) Value analysis
Expectations Sales proposal Vendor analysis
Extranets Straight rebuy

DEVELOPING YOUR COMPETENCIES

1. Technology. A recent study in the U.S. plastics industry sheds some light on the use
of the Internet between suppliers and processors of resin suppliers. Overall, 20 percent
of firms were communicating with their suppliers and customers via the Internet. It was
also found that contrary to much of the advertising on business Internet use, larger firms
are more likely to use the technology than small firms.
One particularly insightful part of this study was devoted to the content of Internet
communications between buying firms and suppliers. Buyers were asked how frequently
they personally engaged in communication with resin suppliers via the Internet on each
of the following ten factors:
1. Placing an order
2. Checking on order/shipping status
3. Checking on inventory status
4. Requesting price quotations
5. Submitting bid requests
6. Resolving problems/conflicts
7. Seeing catalog of products
8. Gaining general information
9. Receiving technical advice
10. Sending product specifications
Responses were in the form of a 5-point scale, with the extremes being never = 1 and
very frequently = 5. How frequently do you think the Internet is being used for each of
these ten communication reasons? Why do you think the Internet would be especially
valuable for the uses you have specified?
DEVELOPING YOUR COMPETENCIES 127

2. Strategic Action. National Logistics, Inc., provides trucking services to large customers.
It has an excellent reputation for reliable scheduling and careful handling. With decreasing
regulation, NLI’s management decided that they needed more of a marketing orienta-
tion. They wanted to build and maintain long-lasting, profitable relationships with their
customers. NLI invested time and effort to study customers’ shipping needs and were
especially effective at helping customers plan for their needs. After two years, NLI’s
managers were very disappointed with the results. Customers were pleased with the new
marketing approach and frequently complimented NLI, but sales were down. Low-cost
competitors were particularly bothersome. What went wrong? Why didn’t customers
want to commit to long-term relationships?
3. Self-Management. U.S. business firms and the purchasing managers continue to stress
the importance of ethics in purchasing activities. Although such “perks” as the business
lunch are common business practice, there is increasing concern about the ethics of such
things as free tickets to sporting events and shows. In contrast to the United States,
the purchasing function in Mexico is at a relatively early stage in its development as a
profession. No professional organization of purchasing agents exists, and the agents are
often viewed as necessary evils within their own organizations. Given this discrepancy
in their professional development, U.S. and Mexican purchasing agents are likely to
disagree on the ethics of particular practices. From the following list of five ethical
dilemmas, on which do you think purchasing agents from Mexico and the United States
are likely to differ? How would they differ and why?

1. Accepting free trips from salespeople is okay.

2. Accepting free entertainment from salespeople is okay.
3. Making exaggerated statements to a supplier in order to gain a concession is accept-
able.
4. Giving preferential treatment to suppliers who happen to be good customers is sound
business practice.
5. Obtaining information about competitors by asking suppliers for that information is
acceptable.

4. Coaching. Building successful, long-term customer relationships is a specialty of

WESCO International, Inc., the second largest distributor of electrical equipment in the
United States. WESCO warehouses and supplies more than a million different products,
including fuses, connectors, tools, tape, circuit breakers, transformers, lightbulbs, and
data communications products. Customers include manufacturers, contractors, utility
companies, and government agencies. WESCO’s sales strategy is to profitably expand
its relationship with key customers. To get an idea of how it accomplishes this goal,
consider the following description of how it established a partnership with an industrial
customer in the paper business.
Even though we had done relatively little business with this customer before, their head-
quarters people asked us to compete for their business in November of 1997. We distributed
questionnaires to develop details of programs to reduce the customer’s inventory and energy
costs. We determined that we could serve all but three of their plants. We secured the account
in June 1998 after making presentations to their selection committee.
As soon as the agreement was signed, we formed an account team and held a national
rollout meeting to begin implementation. During the next few months, we moved toward
compliance at each customer plant, agreeing to hold monthly meetings to address customer
concerns at the customer’s various mill sites. As planned, we acquired two distributor branches
and opened one new branch. We conducted a complete energy audit and recommended more
energy-efficient systems for all their plants. We also reduced inventory and implemented an
EDI (Electronic Data Interchange) ordering system.
128 CHAPTER 4 ACCOUNT RELATIONSHIP MANAGEMENT

By June 1999, the intensive implementation phase was over. Sales had increased tenfold
from the year before, reaching $1 million per month. Between transaction cost reductions,
energy savings, and inventory reduction, WESCO was able to document over 20 percent cost
savings to the customer. This was far more than the customer had expected.

From this description of a successful business expansion effort, what do you think are
the keys to successful business expansion? What are the pitfalls? For more on WESCO,
see www.wesco.com.
5. Team Building. Opportunities to expand sales to customers often result from signing
agreements at a customer’s headquarters to cover all their product and service needs,
similar to the WESCO agreement discussed in the previous question. Implementation
of these headquarters-initiated agreements depends on local service and compliance.
This is where real teamwork is needed. In the agreement discussed in the previous
quote, one of the customer plants, which generated only $50,000 per year in sales,
was located 2 hours away from the WESCO branch and demanded semimonthly sales
calls. The salesperson responsible for calling on this plant is paid a combination of
fixed salary and commissions on sales volume. He offered a blunt opinion on the
situation:

They may be a good customer for WESCO, but from where I stand, they demand a lot of
service that is not commensurate with their sales volume—either current or potential. Unless I
am ordered to do it, I wouldn’t call on this customer, even without the long drive they require.
The opportunity costs of serving these customers are way too high. I would rather spend my
time selling to other local customers who value my services and from whom I make greater
commissions.

If you were this salesperson’s branch manager, what would you say to him? If you
were the national account manager for this customer, how would you get this salesperson
on board the team? If you were the national sales manager for WESCO, what would be
your reaction?
6. Global Perspective. In business after business, the physical product is no longer enough
to create a sustainable competitive advantage. Increasingly, advantage relies on superior
after-sale customer service. It has been generally agreed that customer expectations form
the basis on which service satisfaction is determined. Expectations are formed from pre-
vious experiences and promises made or implied, and are cultural in nature. This presents
special problems and requires careful attention from companies competing globally.
To better understand this point, consider the experience of a large Swedish company
with nearly fifty years’ experience selling engineered industrial products to more than
fifty countries. After-sales services such as installation, training, routine maintenance,
emergency repair, parts supply, and software services are responsible for about 25 percent
of this firm’s total revenues and are growing more rapidly than overall product sales. In
describing their customers’ service expectations across the globe, marketing managers at
the Swedish company made the following statements:

• “They want instant service and they want it for free.”

• “They are very willing to pay in advance for after-sales services in the form of service
contracts.”
• “After-sales service was accepted as part of the cost of doing business, but not so well
accepted that prepayment on a contract basis could be expected.”
Match the service expectation statement with what you think is the appropriate world
location: the Far East, Europe, and United States/North America. Be prepared to give
the reasons for your choices.
SHIELD FINANCIAL: “A CUSTOMER REQUEST” 129

EXPERIENTIAL EXERCISE
1. Make an appointment to interview an industrial purchasing agent.
Ask the buyer to explain how parts, raw materials, or equipment
are bought at his or her company. Prepare flow diagrams showing
all the steps in the purchase process. Write a report comparing
your diagrams with the model found in this chapter. Explain how
a salesperson could make use of your charts.

SHIELD FINANCIAL: “A CUSTOMER

FEATURED CASE REQUEST”

A
ll Doug Bloom could think was, “Why to comply with an important customer’s wishes. At
me?” Doug, sales manager for Shield in Des least he knows which salesperson to give the account
Moines, had just received the kind of phone to: Ray Harley, who fits Burn’s request perfectly.
call no manager wants—one that pits his salesperson Ray has developed nicely and has also enthusiastically
against a customer. The call was from Stella Burns, embraced the new programs Doug has introduced to
the new HR manager for Stateline International, the the office. The problem is, how does he tell Cathie
fifth-largest account in the Des Moines area. Burns that he has to take her off her largest account?
explained that, although she is happy with Shield’s
products and pricing, she is uncomfortable with Cathie
Simon, the salesperson handling the Stateline account. Questions
She finds Simon too informal, too concerned about 1. Should Doug acquiesce to a customer’s request to
when they can meet for lunch, a glad-hander who talks change salespeople?
far too much and wastes time. Burns asked Bloom to
2. What are the potential problems with moving Simon
transfer the Stateline account to a salesperson with a
from this account?
more “professional” demeanor, who strictly discusses
business problems and solutions. And she wants to 3. Assuming you decided to move Simon, how would
meet with that new person in a week, at which time you present the move to her?
she’d like to discuss some new risk issues. Doug’s 4. What alternatives besides moving Simon from the
knee-jerk reaction is that in such a situation he has account should be considered?
 CHAPTER

5 CUSTOMER
INTERACTION
MANAGEMENT
People are more apt to buy when they’re talking than when you’re talking!
Robert Frost

Chapter Consultants:
S. Keith Hall, Area Manager, Anderson Chemical Company, Inc.
Neil Cronin, Regional Sales Manager, John Wiley & Sons, Inc.
William Evans, President, Evans & Associates

LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Describe the basic types of selling models.
State the skills utilized in the preinteraction phase.
List the skills involved in the interaction phase.
Explain the skills involved in the postinteraction phase.

A THIRTY-MILLION-DOLLAR SALE
For quite some time, the largest sale in the software industry was the $39 million purchase
of Oracle database software by Boeing Aircraft. The Oracle account executive was Jeff
Simpson. When asked how he was able to make such a large sale, he shared the following
story.
When Boeing Aircraft began the process of building the 777, it recognized that it could
not build this aircraft the old way, which involved two-dimensional design systems residing
on different machines that could not detect conflicts and interferences until all parts of the
aircraft were brought together. This caused a great deal of reengineering to take place to
make the pieces fit together. The result was not only delay and expense, but lower quality
as well.
Moving to three-dimensional, computer-aided design techniques meant that interfer-
ences could be detected early and tolerances could be reduced so that the parts fit the first

130
A T H I R T Y -M I L L I O N -D O L L A R S A L E 131

time they were brought together. The result would be a major saving in time and money.
There was also the potential for a strategic benefit to Boeing’s customers as well. If air-
planes could be made to a high enough quality standard, then an exception might be made
to the FAA rule that two-engine, two-pilot aircraft must be flown over land for two years
before they could be flown overseas. Such an exception would save Boeing’s customers,
the airlines, millions of dollars by putting their expensive airplanes into overseas production
earlier.
Simpson said, “We were not the strategic design team for the 777. However, we were an
enabling technology that was uniquely qualified—because of our scalability of the database
system—to build a new aircraft a new way, significantly reduce costs, and gain advantages
for Boeing’s customers.
“Once we built that value linkage, thirty million dollars was no longer a large number.
That’s a rounding error to Boeing. This is one part of one aircraft, and they’re going to
build thousands of them over the next few years. In addition, we became an integral part
of the team and gained a measure of insider status.”1
The Oracle-Boeing sale is indicative of the nature of most business-to-business sales
that occur today. A deep understanding of the customer’s problems and challenges is needed
to drive the sale. Notice that it was also necessary for Oracle to understand the needs of
its customer’s customers, the airlines. Finally, it is important to note that the sale was not
credited to Simpson’s giving a great sales presentation or a compelling closing statement,
but instead Oracle’s ability to identify and meet Boeing’s needs with a solution involving
a new technology. A strategic customer need in this case resulted in a very large sale.
This chapter continues with our discussion of sales force activities by focusing on
customer interactions—in other words, the activities that take place just prior to and fol-
lowing face-to-face customer interactions. While many of the skills involved in performing
these activities have not fundamentally changed, some activities have altered due to adjust-
ments in customer relationship strategies, competition, and technology. To help organize
this discussion, we have divided the customer interaction process into three phases:

• Preinteraction. Actions that are initiated prior to interaction with key decision makers
requiring skills in precall planning.
• Interaction. Actions initiated while interacting with decision makers, calling on skills in
relating, discovery, advocating, handling objections, and closing.
• Postinteraction. Activities following a transaction involving supporting skills.

This chapter takes a skills-based approach to selling. The three phases of selling and the
skills associated with each phase are specified in Figure 5-1. As we discuss each skill, we
will point out its purpose, as well as strategies for achieving one’s objectives. In many cases,
common mistakes to be avoided are also highlighted. Throughout the discussion, company
practices and viewpoints of sales executives have been included to facilitate your learning.
These steps are ordered in a logical sequence for discussion purposes; the actual process
may backtrack to earlier phases many times before concluding in a sale. These phases are
highly interrelated, in the sense that interaction with one person in an account may help in
preparing for interacting with another person. Notice that these phases of the selling process
mirror those of the purchasing process described in the previous chapter. This is by design
because it is certainly true that the selling process must fit with the customer’s purchasing
process to be successful.
Basic to any sales force program is a management philosophy about how the selling
process is best executed. Following are three types of selling approaches that management
may advocate.
132 CHAPTER 5 CUSTOMER INTERACTION MANAGEMENT

Preinteraction Interaction Postinteraction

Phase Phase Phase

Skills: Skills: :Skills:

• Setting objectives • Gaining access • Supporting
• Knowledge management • Relating • Implementing
• Information gathering • Needs discovery • Handling dissatisfaction
• Rehearsal • Advocating • Relationship
• Closing enhancement

F I G U R E 5-1 The Selling Process and Skills

BASIC TYPES OF SELLING MODELS

Sales consultants have devised numerous titles or labels for the selling approaches they
teach, but most are based on variations of one of the following basic selling process mod-
els: standardized, need-satisfaction, and problem-solution. Each approach is appropriate in
certain situations and for different types of account relationships.

Standardized Model
With a standardized model, a series of statements are constructed about an offering, so as
to stimulate a positive response by the customer. This is often referred to as benefitizing an
offering. Benefitizing means translating a product feature in a competitive advantage that is
related to a customer benefit. The advantage of a new software package feature, for instance,
may be the ease with which employees can learn to use it. The benefits may include fewer
employee complaints, greater productivity, and cost savings. At an extreme, specific state-
ments are developed using phrases that tend to elicit a positive response. These may include
words such as “user-friendly,” “satisfaction guaranteed,” “productivity improvement,” and
“no money down.” The sales presentation is highly structured and is often referred to as
a canned presentation because the same basic presentation is given to each customer. Not
much time and effort is put into preparing for any single customer interaction once the basic
presentation has been mastered.
The standardized model is most appropriate in situations where a product is standard-
ized or when the benefits are generally the same for all customers. In such a situation,
the sales pitch can be studied and refined to such a degree that even voice tone can be
studied for its impact on sales.2 Recalling our discussion in Chapter 2 of different types
of account relationships, we see that this type of selling approach would be most appro-
priate for transactional relationships where customers are concerned about lowest cost and
convenience.

Need-Satisfaction Model
The need-satisfaction model is oriented to discovering and meeting customers’ needs. With
this selling model, a salesperson locates a prospective customer and makes some preliminary
assumptions about the problems the customer is experiencing and the value his or her com-
pany could deliver relative to those problems. The salesperson discusses these assumptions
with the customer and determines if the customer is willing to invest the time to prove or
BASIC TYPES OF SELLING MODELS 133

disprove the value assumption and discuss the ramifications and potential solutions. If the
customer agrees to proceed with the process, the salesperson works with the customer to
diagnose the situation in greater depth, determining the extent of the risks and their costs.
If the costs or profits are judged to be significant enough, it’s time to conduct an inquiry
into potential solutions and determine their parameters, alternatives, and costs.
In a needs-satisfaction selling model, the salesperson’s goals are (1) to quickly and
accurately identify the customer with the highest probability of purchasing the offering;
(2) to provide the customer with the incentive to change; (3) to provide the customer with
the confidence to invest; and (4) to ensure that the value promises made are fulfilled.3
The general line sales forces of most consumer goods and office products companies
are trained to use this selling model. Overall, the need-satisfaction type of selling approach
is most appropriate for consultative-type customer relationships. Both the customer and
the supplier are investing more time and resources in the relationship than is typical of
transactional relationships.

Problem-Solution Model
A problem-solution model is similar to the need-satisfaction model in that both involve an
analysis of each customer’s circumstances. The primary difference is that a problem-solution
selling process is based on more formal studies of the customer’s operations. Instead of
identifying the customer’s needs on the first sales call, the early selling objective is to get
the customer’s permission to conduct a formal study. The sales rep or sales team will conduct
the study and typically submit a written proposal based on the study. A formal presentation,
perhaps by a team including a salesperson, management, and technical personnel, often
accompanies the proposal.
This selling model usually involves significant dollar expenditures, and the selling cycle
may be quite long. The types of products involved include computer systems, advertising
campaigns, telecommunications systems, and information systems. The problem analysis
study may be so involved that the customer may be asked to pay to have it performed.
EDS’s customers, for instance, may be asked to pay several hundred thousand dollars for
a study of their computer systems to determine if EDS can help them. It is not unusual for
clients to pay several advertising agencies to research and prepare a proposed ad campaign

Standardized Presentation Problem-Solution

Thinking Thinking

All prospects will buy. Only certain customers will and

should buy.

Never take "no" for an answer. Always be leaving. Give the customer
room to breathe.

A good salesperson can sell anything A good salesperson weeds out poor
to anybody. prospects and focuses on high-gain
opportunities.

Never walk away when money is on Always walk away unless you know
the table. you can improve your customer's
business.

The customer is always right. The customer requires professional

guidance to complete a quality
decision.

F I G U R E 5-2 Standardized versus Problem-Solution Thinking

134 CHAPTER 5 CUSTOMER INTERACTION MANAGEMENT

before deciding which agency will be awarded the account. As is probably obvious from this
description and the EDS example, a problem-solution selling approach is most appropriate
for a consultative or enterprise type of relationship where there is a very high investment
in the relationship by both the seller and client organizations.
Hopefully, the descriptions of these three selling models have helped you see the dif-
ferences between the models. The standardized model is very traditional and close to the
stereotype of salespeople. The needs-satisfaction and problem-solution models are much
more professional and are less about presenting than about connecting. To understand the
differences, see Figure 5-2, Standardized versus Problem-Solution Thinking.
The next section of this chapter presents the skills associated with each phase of the
customer interaction. These skills are considered to be fundamental to all types of selling
models and account relationships, but the level of skill development becomes greater as one
moves toward problem-solving selling and enterprise relationships.

THE PREINTERACTION PHASE: PLANNING SKILLS

As the term planning skills implies, the preinteraction phase occurs when you collect your
thoughts and organize your interaction strategy prior to meeting a customer face to face.
Many experts believe that it is the preinteraction planning that differentiates the top perform-
ers from the average salespeople. This is when you develop an edge over your competition.

Setting Objectives: What Do I Want to Accomplish?

Many selling experts have stated simply that salespeople should not make a call unless they
can specify an action that they want the client or prospect to take. The objective should not
be vague, such as “to collect information” or “to build a good relationship.” Here are some
examples of good objectives:
• The client agrees to supply information on historical inventory levels.
• The client tells you who will be involved in the purchase decision.
• The client arranges for a meeting with the chief design engineer.
• The client agrees to a trial run on the system.
Note that each of these examples calls for the customer to take a specific action.
Objectives should be stated in terms of client actions so that the salesperson will know
whether the objectives have been met. Also, note that the first two objectives involve
gathering information.

Knowledge Management: What Do I Know About the Customer?

Preinteraction planning is also a good opportunity to review individual, company, and indus-
try information about clients and their companies. Basic information that may be useful to
know about an individual includes exact spelling and pronunciation of her name, title, age,
residence, education, buying authority, clubs and memberships, hobbies, and idiosyncrasies.
The experience of a medical equipment salesperson illustrates the value of this information.
The salesperson was finding it very difficult to persuade doctors at the hospital to allow him
to make a presentation. The doctors were usually pressured for time while at the hospital
and were concerned about their immediate patients. He found out that many of the doctors
belonged to a health club near the hospital and that in this environment they were more
relaxed and willing to listen to his sales pitch. He eventually became the top salesperson in
his district—and an accomplished racquetball player.
THE PREINTERACTION PHASE: PLANNING SKILLS 135

Not only is personal information important, but you should also review what you know
or do not know about the client’s organization. Apparently, there is a lot of room for
improvement in this area even in today’s competitive selling environment. According to
a recent survey conducted by PepperCom, a consulting firm in New York, 47 percent of
salespeople admit to not having a clue about their customer’s biggest concerns—in other
words what keeps their customers awake at night.4

Information Gathering: Where Can I Find the Information?

When you know what information you need to make a successful sales call, you can usually
identify a number of sources for obtaining the data. These sources include company records,
salespeople, customer employees, published information, and observation. Observation of
the prospect’s business operations provides a wealth of information to the experienced
salesperson. By observing a prospect’s retail operations, for instance, a veteran consumer
goods salesperson can tell a lot about a client’s pricing strategy, merchandising strategy,
vendor preferences, and deal proneness.
The Internet is a powerful source of information, ranging from customer information to
industry information. Corporate Web sites are an excellent starting point, for they’ll give a
fairly accurate indication of how a company positions itself, and most contain press releases
about changes within the organization. For instance, you can obtain information about indus-
try trade associations and a list of companies in different industries at www.switchboard.com.
Some of the leading U.S. business data vendors include Dun & Bradstreet, American Busi-
ness Information, Database America, IMS, Trinet, R.L. Polk, TRW, Infobase, and Equifax.
Figure 5-3 shows the results of a study comparing the customer interaction techniques
of very successful with less successful salespeople in the life insurance industry. One
of the biggest differences between the two groups was that more successful salespeople
devoted more attention to conducting background research on a prospect before contacting
the prospect.

Rehearsal: What Am I Going to Say?

All salespeople should have at least some idea of how they will initially start an interaction,
what questions they will ask, and what benefits they plan to present. Salespeople should

Successful Salespeople Less Successful Salespeople

Research prospect background Do little background research

Use referrals for prospecting Use company-generated prospect lists

Open by asking questions Open with a product statement

Use needs-satisfaction type presentation Use standard presentation

Focus on customer needs Focus on product benefits

Let prospect make purchase decision Close by focusing on the most important
customer objection

F I G U R E 5-3 Successful versus Less Successful Salespoeple

136 CHAPTER 5 CUSTOMER INTERACTION MANAGEMENT

Who is your company?

What is your record for support and service?

What are you selling and what kind of person are you?

Who else is using your product and are they satisfied?

How does your solution compare to other alternatives?

Why do I need it? Why do I need it now?

How much does it cost? Is your price truly competitive?

F I G U R E 5-4 A Client’s Questions

anticipate concerns a customer is likely to raise and should prepare strategies for addressing
these concerns.
When preparing to call on clients, it is helpful to put yourself in their position. What
would you want to know about your company and its products if you were the customer? If
you are prepared to address such questions, you are probably ready for the interaction and
have a much better chance of success. Recall from Figure 5-3 that successful people tend
to use questions focused on the other person when beginning their interactions. Figure 5-4
shows some of the questions clients may have about you and your company when they have
no prior experience with your company. Although these questions may be in the clients’
mind, they are often not asked because they expect a good salesperson to address these
questions without requiring them to be asked by the customer.
One other suggestion that has proven useful in a variety of situations is to visualize a
successful sales encounter. This technique simply means creating a mental picture of the
sequence of events that will lead to accomplishing your interaction objective. With practice,
this exercise should help you to reduce your anxieties and increase your confidence.

THE INTERACTION PHASE

The interaction phase generally refers to what takes place during a face-to-face encounter
with a customer. Our discussion of this phase of the selling process focuses on three skills
that are important in all business and social interactions: relating, discovering, and advo-
cating. In addition, there are two skills critical to successful selling in certain situations:
gaining access and closing. Gaining access to key personnel is very important when calling
on prospects (i.e., businesses that have never purchased from your company). Closing the
sale is a necessary step in all selling situations but is most problematic during transactional
selling and in some stimulus-response type of selling. We start with a discussion of gaining
access.

Gaining Access
According to many experts, it is getting increasingly difficult to get “face time” with clients
and will be even more so in the future. A study by McKinsey, for instance, found that
pharmaceutical salespeople get an opportunity to speak with a physician in only one out
of five office visits.5 Following are four commonly used alternatives for gaining access to
decision makers.
THE INTERACTION PHASE 137

Direct Personal Contact. The most difficult approach is the direct personal contact without
a prior attempt to communicate with the prospect. This approach is likely to create problems.
For example, the person may be busy, so the salesperson must wait. The key is not to
waste the time. Use this opportunity to learn more about the prospect from others in the
organization, prepare for other scheduled calls, or complete necessary reports. A more
difficult problem arises when the client has a negative reaction to being called on without
an appointment. Many people do not like to meet with a salesperson who walks in without an
appointment. Indeed, many clients simply will not see a salesperson without an appointment.

Phoning Ahead. Using the telephone to approach prospects has a number of advantages.
Appointments make better use of the salesperson’s time and reduce the hours spent in waiting
rooms. Even prospects who are too busy to see anyone often will answer the phone and
give salespeople a chance to introduce themselves and set up a future meeting. The major
problem with a phone approach is that it is too easy for prospects or their administrative
assistants to turn someone down over the telephone. Salespeople, therefore, must develop
tactics to secure the cooperation of executive assistants and receptionists. Referring to the
person by their first name when talking to the receptionist, for example, often helps to gain
access because it implies familiarity with the person.

Personal Letters. Letters are more difficult than phone calls for administrative assistants
to screen. In addition, letters allow the person to include brochures that describe the product
assortment and benefits, enabling prospects to learn more about a potential supplier than
they can over the phone. Approach letters should close by suggesting dates for a meeting.
This may also be accomplished by a follow-up phone call. In doing so, the salesperson
focuses the prospect’s attention on the issue of when to meet rather than whether to meet.

E-mail Messages. An increasingly common method of communications, whether with new

or existing clients, is to leave an e-mail message. A recent survey found that 52 percent of
companies are using e-mail when prospecting for new customers, while 90 percent are using
it for retention of existing customers.6 E-mail messages have at least two advantages over
voice messages. First, it is possible to send the message at very little cost in time or money
to a large number of people to whom the same message is applicable. Second, graphics and
detailed promotional material may be included with the message as an attachment to the
main message. Many of the same guidelines that were mentioned with respect to leaving
voice messages also apply to e-mail messages. In particular, the body of the message should
be kept as short as possible. It is not unusual for busy executives to receive 80 to 100 e-mail
messages a day, and deleting an e-mail message is easier and faster than erasing a voice
message.

Referrals. When it comes to getting on a senior executive’s calendar, having a referral is

by far the most appropriate method. Surveys of senior executives indicate that most of them
do not allow salespeople to call on them unless someone inside their company recommends
them. In other words, you must first establish relationships with midlevel managers at most
large accounts. At the same time, studies show that salespeople who do not gain executive
access until late in the selling cycle find their impact to be greatly reduced.7

Relating Skills
In most social situations, both of the people meeting for the first time experience a degree
of tension. Salespeople have long recognized call reluctance, or the fear of making contact
with a customer, as a problem. It is estimated that call reluctance will reach intense levels
for up to 40 percent of salespeople at some points in their careers.8 Customers are also likely
138 CHAPTER 5 CUSTOMER INTERACTION MANAGEMENT

to feel a form of anxiety, referred to as relationship anxiety when meeting a salesperson.9

This anxiety arises because people don’t like to be sold; they like to buy.
In one sense, the role of the salesperson is to help the customer buy wisely. This calls
for well-developed relating skills, that is, the ability to put the other person at ease in a
potentially tense situation. The first few moments of the selling encounter are important
because people formulate initial impressions at this time. Impressions of competence, hon-
esty, and likeability all have an important impact on the ultimate outcome of the sales
encounter.10
To help establish rapport, salespeople should be forthcoming about the purpose of the
sales call. Many experts, for example, admonish salespeople to avoid asking, “How are
you?” because this question is meaningless and contrary to what the salesperson should be,
which is genuinely helpful and direct.11 Given the time pressures everyone is under today, it
is a good idea to first say “Thank you for your time,” and then to hand the prospect a business
card and introduce yourself. As a result, the prospect can both see and hear the sales-person’s
name. An introduction might go as follows: “Hello, Mr. Smith, I am Mary Johnson of the
Hamilton Company, thank you for seeing me. I am here today to see if we can help you save
money on your duplicating budget.” Ms. Johnson identifies herself as well as the purpose
of the visit and signals that she plans to focus on a possible customer benefit (lower costs).
This should be closely followed by laying out an agenda for the meeting, which again
relieves the client’s anxiety about time. The key here is to quickly and smoothly transition
to “Needs Discovery” questions. Continuing with our previous introduction, Mary might
say something like, “I’ve worked with a number of companies who find that they have too
much copier capacity, which drives up costs, or too little capacity, which leads to long wait
times and less productive employees. Do you have a few moments to explore whether you
are experiencing either of these symptoms?”
To better understand the impact of introductory statements on buyer perceptions read
Team Exercise “What Does Ms Williams Hear?” How do you think she is interpreting this
salesperson’s introductory comments?

TEAM EXERCISE
“What Does Ms. Williams Hear?”

Consider the following introduction statement from a salesperson calling on Ms. Williams for
the first time.
“Hello, Ms. Williams, how are you today? My name is Joe James. I’m an account
executive with Petro-Safety Technologies. We are a leader in oil rig safety solutions,
and we have developed the most advanced safety programs in use by companies like
yours. Our programs will improve your safety record and save lives. I would like to
get together with you and explain some of the more successful programs that we have
created and how they can make your business a better place to work.”
The salesperson in this case is trying to create interest, but what does Ms. Williams hear and
how does she interpret this call?

In many customer interactions, nonbusiness topics are often discussed initially in the
selling process. The psychological foundation for this approach is to relieve tension, to
suggest a commonality of perspective, and to limit any negative impact of observable dif-
ferences between the parties. It is not always necessary, however, to engage in nonbusiness
THE INTERACTION PHASE 139

Propriety Show buyer respect; dress appropriately.

Competence Know your product/service; third-party
references.
Commonality Have common interests, views,
acquaintances.
Intent Reveal purpose of call, process, and
payoff to the buyer.

F I G U R E 5-5 Means of Reducing Relationship Anxiety

bantering. The other person may be more interested in getting down to business, when the
discussion is on an important issue and the customer wants to hear what a salesperson
has to say.12 The prospect may also respect the salesperson’s time demands. Discussing
nonbusiness issues may therefore be seen as a waste of time, and the person may then be
judged as someone who cannot provide solutions to the client’s business problems.13
Much more is involved in demonstrating relating skills than simply getting a dialogue
started between you and the other person. Figure 5-5 discusses four strategies by which
salespeople can reduce relationship tension. It is critical that salespeople utilize each of
these means to reduce tension when meeting with a prospect. With established customers
a relationship already exists; thus, many of the rules of the relationship are already set.
However, salespeople should constantly strive to reinforce these impressions.14 Perform the
role plays described in Team Exercise “Relating Skills” to see how well you can relate in
a sales situation.

TEAM EXERCISE
“Relating Skills”

Develop an opening sales statement as if you are a financial planner. Another team member
should take the role of selling sales training services. Another should sell examination tables
to physicians. You can select additional product and services so that each team member has a
role. After each of you has developed an opening statement, give your opening presentation
to the rest of the team members. Critique each statement according to the criteria for reducing
client anxiety discussed in this chapter.

Needs Discovery Skills

After establishing initial rapport with the prospect, the salesperson should begin to under-
stand what’s on the prospect’s mind rather than focusing discussion on the product and its
benefits. This may seem counterintuitive, but it’s true. See the results of a survey of the top
five complaints customers have about salespeople in Figure 5-6. Notice that three of the top
four have to do with lack of understanding of the customer’s situation and needs.
Remember that customers do not buy products or services; they buy solutions that
address their problems or enhance opportunities. Contractors do not want a bulldozer; they
want dirt moved quickly and at low cost. Plant managers do not buy computer-controlled
milling machines; they are interested in reduced setup time, closer tolerances, and fewer
defects. Thus, the salesperson’s job is to discover the true needs and then inform the prospect
140 CHAPTER 5 CUSTOMER INTERACTION MANAGEMENT

1. Does not understand

our business 17%

2. Inadequate product
knowledge 15%

3. Does not respond to

13%
our needs

4. Does not listen to our

needs 12%

5. Should be more of
11%
our advocate
Percent of Customers with Complaint

F I G U R E 5-6 Top Five Customer Complaints About Salespeople

about the characteristics, capabilities, and availability of goods and services that can address
these needs.15
Research has shown that there is a direct relationship between the number of needs a
salesperson uncovers and selling success. A study by Xerox of more than 500 sales calls
revealed that successful sales calls contained three times more identified needs than failed
calls. As Larry MacGirr, vice president of sales for North America for CIBA Vision in
Duluth, Georgia, says, “Once you get the need well defined and established in both of
your minds, the next step is not to present, but to confirm the need. Once that’s done, the
presentation and close are actually pretty quick.”16
In today’s business environment, 80 percent of the selling process focuses on dis-
covering and matching customer needs.17 Indeed, this is one of the goals of enterprise
relationships—that is, to become intimately knowledgeable about the customer’s business,
such as knowing the most important organizational opportunities, the customer’s opportu-
nities for improvement, and its barriers to change.18 Achieving this degree of intimacy may
go beyond the capabilities of one person, which is why many companies have implemented
a team selling structure.

Identifying Motives. In selling to organizations, the situation is complicated because both

task and personal motives influence the purchasing decision. Task motives can be defined as
the logical, practical, or functional reasons for buying; they usually involve either money
or productivity. Typical financial motives may include cost savings or profit increases.
Productivity motives may focus on increasing output, increasing quality, or reducing effort.
In the complex, large-ticket sale situation, it is absolutely critical to uncover the task motive
behind the purchasing process. Just knowing the task motive, however, is not enough. This
point is raised in the Team Exercise, “Why Beat A Dead Horse?”
The task motive is critical to the purchase decision, but reason that a decision is impor-
tant today is tied to a personal motive. As shown in Figure 5-7, common personal motives
are respect, approval, power, and recognition. It is for one or more of these reasons that
people are willing to take on the professional risks associated with making a big purchase
decision. Therefore, it is important to identify these personal motives as well as the task
motives for a purchase decision.19
Many companies have problems getting close enough to the customer to make the
necessary inferences concerning buying motives. Anderson Chemical Company, a manu-
facturer of specialty chemicals and related equipment, has experienced success in what it
THE INTERACTION PHASE 141

Task Personal
Motives Motives

Financial Productivity Respect Approval Power Recognition

F I G U R E 5-7 Types of Motives for Purchasing

TEAM EXERCISE
“Why Beat a Dead Horse?”

Many task motivation discussions lead to something like the following conversation. The
salesperson asks, “That sounds as if it is impacting your business quite a lot. How much do
you think this problem is costing you?”
“Well, it’s hard to say,” replies the customer, “but I know it’s significant, and I know we
need to do something about it. That’s why we are talking to you.”
End of conversation. The customer knows he’s got a bad problem and can’t live with
the cost. The salesperson knows he can solve the problem and jumps in with both feet. What
happens next? After a great presentation, the salesperson gets to the price and pushes the
contract across the table.
“We can solve your problem within 90 days for $320,000. We just need you to sign this
contract and we can get started on this immediately.”
“What?” replies the customer while pushing the unsigned contract back, “No way could
we spend that much money.”
The salesperson, shocked at the apparent loss of a sure sale, responds, “You seemed quite
sure that this was a big problem that had to be solved.”
“We know we have a problem,” replies the customer, “but it’s not that big a problem.”
What went wrong? Why did the customer retreat into the safer of the two alternatives,
spend $320,000 or live with the current situation? What should the salesperson have done or
what did he fail to do?

refers to as its Back-up Vendor program. To write a proposal or price quote on a prospect’s
business, Anderson needs to know the technical data about the plant. The facility engineers,
however, must have confidence in Anderson or have other motives for supplying the data.
This is where the Back-up Vendor program has worked well. Most prospects see no harm
in allowing Anderson to come into their plant sites and perform surveys, tests, and such,
and provide information to them free of charge. In effect, Anderson offers a second opinion
about their operations. This is done very professionally and without “throwing rocks” at the
current vendor. The prospect becomes more familiar with and confident in the Anderson
representative over the six- to eighteen-month period the program is in effect. This is a large
investment on Anderson’s part, but Anderson estimates that its Back-up Vendor program
has increased its success rate in converting prospects from 10 percent to approximately
60 percent.
142 CHAPTER 5 CUSTOMER INTERACTION MANAGEMENT

Questioning. Discovering a customer’s perceived needs naturally involves asking ques-

tions and actively listening to the customer’s responses. Asking questions is not as easy
as it may first appear. Not only do you want to know perceived needs, but you want to
obtain the information in a way that does not alienate the other person. In a more complex
selling situation, it is not enough to simply understand your customers and their issues, you
must also bring them to a deeper understanding of their situation. Research indicates that
obtaining information through questioning is most important in complex sales situations,
such as in consultative and enterprise-type relationships.20
Questions may be classified as closed-ended or open-ended. Closed-ended questions
can be answered with a simple “yes” or “no” or by selecting from a list of responses.
“Would you like delivery Friday, or is Monday of next week all right?” These questions are
often easy to answer and are used to gain feedback and commitment. Open-ended questions
cannot be answered with a simple “yes” or “no” and are used to identify a topic. “How
are the new tax laws affecting your decision regarding the purchase of fleet cars for your
salespeople?” These questions are more likely to be used when discovering information
about an opportunity.
In addition to closed- and open-ended questions, experts have identified several addi-
tional types of questions that may be used in the discovery process. These four types of
questions have been found to be effective in discovering motivations, both personal and task
focused. They are described in Figure 5-8 along with an example of each type of question.
Discovering a customer’s needs usually requires a series of questions. This process gen-
erally begins with a permission question and open-ended questions, followed by fact-finding
and feeling-finding questions and checking questions.

Advocating Skills
Following the discovery of customer needs, the skill that takes on critical significance is
advocating. Advocating skills refer to the ability to clearly and fully present a solution
that customers can see helps to address their needs. Although the ultimate goal may be to
address the customer’s needs, advocating is also an opportunity to demonstrate customer

Type of Question Purpose Example

Permission A close-ended question asking the “May I ask you a few questions about
other person's permission to ask your current shipping process?”
questions or probe further into a
subject.
Fact-Finding A question focusing on factual “Who is your current supplier of
information about the business, sutures? Do you have a JIT
person, or currect situation. arrangement with Ethicon in
supplying sutures?”
Feeling-Finding An open-ended question that tries “How do you feel about your current
to uncover feelings about a inventory levels in sutures? What
situation and potential effect does this level of inventory
consequences of the situation. have on your operating costs?”
Checking A question for checking one’s “If I understand you correctly, you
understanding and getting have said that you are happy with
agreement concerning the the quality of your current supplier,
statement. but feel that you may be able to get
the same quality of service at a lower
price from another supplier. Is that
accurate?”

F I G U R E 5-8 Discovery Process: Types of Questions

THE INTERACTION PHASE 143

and product knowledge and one’s ability to provide solutions that fit the customer’s needs.
Research has found that successfully demonstrating these qualities is associated with greater
customer satisfaction.21
In this section, two aspects of advocating are considered: (1) presenting a specific
solution to a problem and (2) addressing customer concerns regarding the solution being
proposed.

Solution Presentation. The objective of a solution presentation is to confirm with cus-

tomers that the goods and services being offered match their requirements and satisfy
their needs. It is very important to remember, however, that the purpose of the solution
presentation isn’t just for the other person to understand what you are selling. The solu-
tion presentation should make them visualize the end-result benefits—how your product or
service will satisfy their task and personal needs.
A solution presentation is primarily a discussion of a series of product or service
features connected with benefits that the client has already indicated are important, and are
followed by evidence that the benefits will in fact be delivered. Features are tangible or
intangible characteristics of the product or service. For example, a feature of a long-distance
telephone service may be that billings are based on one-tenth of a minute rather than the
usual full-minute increments. This feature may be emphasized because this person’s task
motive is cost savings. A benefit is a statement about how a product or service can help a
customer satisfy an explicit or stated need. Therefore, the salesperson may state the benefit
of the previous billing feature in the following terms: “What this means is that on a call of
2 minutes and 6 seconds, you will be billed for only 2.1 minutes. Other companies would
bill you for 3 minutes. This will provide you with a significant cost savings on those high
monthly telephone bills that are contributing to your operating budget overruns.”
Notice that the feature (one-tenth-of-a-minute billings) is connected directly with a
stated benefit (billed for 2.1 versus 3 minutes). Also notice that although the feature is
product or service centered, the benefit focuses on the client and is related to a task motive
(cost savings in this case). The benefit is being sold, not the feature. Research also suggests
that benefit statements are most powerful when connected to an explicit need expressed by
the customer.
Finally, some evidence should be offered to support the claim that one-tenth-of-a-minute
billing is a significant savings. Evidence may include presenting the product or a model of
the product, showing test results, testimonials from satisfied customers, or trial periods. In
the long-distance telephone service example, the salesperson may use testimonials from
satisfied customers, as well as actual savings from other installations or test results to show
savings.
Presentation skills, like the other skills discussed in this chapter, are related to success
regardless of the type of customer relationship being developed. Utilizing these skills, how-
ever, is quite different in a transactional relationship than in a consultative or enterprise
relationship. Figure 5-9 lists some general differences between the interaction practices in
transactional relationships compared to more consultative and enterprise relationships.

Sales Proposals. In today’s competitive world, most prospects want to “see it in writing.”
There is simply too much at stake to make an uninformed decision. Perhaps the most impor-
tant reason to consider having a sales proposal is that everything is in writing, which means
there is less chance of misunderstanding. Sales proposals are also more likely to be used
when the purchase decision is made by a committee. It is important to remember, however,
that sales proposals must be constructed carefully because they are binding contracts.22
It may sound anticlimactic, but a sales proposal should be a document of confirmation.
The purpose of a proposal is to document the series of decisions that have already been
144 CHAPTER 5 CUSTOMER INTERACTION MANAGEMENT

Transactional Relationships Consultative and Enterprise Relationships

PRACTICES: PRACTICES:
Focuses on closing sales Focuses on customer’s bottom line
Makes limited call planning investment Considers call planning a top priority
Spends most contact time telling account Spends most contact time attempting to
about products build a problem-solving environment
Conducts “product-specific” needs assessment Conducts discovery in the full scope of the
account’s operations
Uses “lone wolf” approach to the account Uses team approach to the account
Makes proposals and presentations based on Makes proposals and presentations based
pricing and product features on profit-impact and on strategic benefits.
Adopts short-term sales followup, focused on Adopts long-term sales followup, focuses
product delivery on long-term relationship enhancement

F I G U R E 5-9 Key Differences in Practices Between Types of Relationships

made during the purchasing process. The best proposals support the rationalization of a
decision that has already been made.
A sales proposal should consist of a discussion of all the incentives for a customer
to change what it is presently doing and confirm the confidence to invest in the solution,
which should have already been established with the customer. In short, there should be no
surprises. Everything is us and we in the document if the selling process leading up to the
proposal has been complete.

Addressing Customer Concerns. Customer concerns or questions about a proposed solu-

tion to a problem are likely to arise in any sales presentation. Ideally, a customer’s most
fundamental concerns should have been uncovered in the discovery phase before recom-
mending a solution. Because customers are not likely to be aware of all their concerns until
faced with making a decision, customer concerns are probably best considered a natural
part of any sales presentation and should be viewed by the salesperson as an opportunity
rather than an obstacle.
Research on presentations by Xerox salespeople found that successful interactions have
50 percent more objections than failed ones. When prospects raise concerns, they are actually
showing interest and are asking for more information. They may be trying to make a
clearer connection between their needs and your offering. Instead of being passive, they are
actively involved in the buying process. Xerox has also found that failed interactions contain
significantly more customer statements of indifference than successful calls. Concerns should
be welcomed as a chance to get the prospect involved and to expand the discussion into
areas of concern to the client. Most concerns are nothing more than innocent questions and
should be viewed as an opportunity for deeper insight into customer needs.
The question remains as to how to handle real concerns that are raised. Wilson Learning
Worldwide suggests a method for handling objections that it refers to by the acronym
LSCPA. The process involves the following steps:
• Listen to the client’s feelings.
• Share the concerns without judgment.
• Clarify the real issue with questions.
• Problem-solve by presenting options and solutions.
• Ask for action to determine commitment.
THE INTERACTION PHASE 145

These steps are recommended because customers are in no mood to listen to a logical
clarification or solution when they are feeling tense. Customer concerns are a signal that
they are feeling discomfort with the process. It is a natural part of the process. The listening
and sharing steps can reduce tension by helping the customer get objections out in the open
and showing that you, the salesperson, care enough to acknowledge and try to understand
them. Listen actively and encourage the customer to talk. Don’t think about how you will
respond while listening to the customer. In the sharing stage, you are trying to demonstrate
understanding of the customer’s feelings. Listening and sharing take maturity, energy, and
patience. Remember that the customer is not attacking you personally, so concentrate on
not being defensive.23

Closing Skills
Closing occurs when a salesperson asks for a commitment from the customer. In a transac-
tional selling situation, such as in inventory replenishment, the commitment is for an order. A
widely quoted figure is that only 10 percent of sales calls in most major business-to-business
relationships result in an order. In the other sales calls, the customer is asked to commit to
advancing the purchasing process.
Many salespeople find this the most difficult step of the selling process and are very
reluctant to close, primarily out of fear of rejection. If salespeople do not ask for the order,
they cannot be turned down, and thereby they avoid embarrassment or disappointment. All
professional purchasing agents, however, expect a sales representative to attempt to close.
It is the job of the salesperson to make the first move. If you have successfully performed
the earlier steps in the selling process, the close will follow naturally. In this case, closing
is simply asking for a decision when you’re fairly certain a person is going to say yes.

When to Close. An often-heard suggestion is to “close early and close often.” This advice
is not consistent with efforts to build trusting relationships with customers and is inherently
adversarial in nature. A client is likely to regard asking for the order before he or she is
ready to buy as pushy. In other words, you can be too pushy if you want the sale too badly
and become overly aggressive. The client is likely to close up and start pushing back. Once
again research supports the idea of not being too pushy when closing the sale.
Does this mean that successful salespeople expect to close only once? No. Often,
undisclosed needs still need to be addressed. One of your customer’s needs may be to have
other people listen to him or her. Salespeople must be prepared to use multiple closes. It is
often said that most acceptances are made on the fifth closing attempt.
If undiscovered needs are likely to exist and multiple closes are often required, how does
a salesperson avoid being pushy while uncovering hidden needs and making the sale? We
suggest the use of trial closes. Although closes call for decisions, trial closes are questions
that ask for opinions that will serve as indicators of how close the client is to making a
purchase decision. You may, for example, ask:
• How does this look to you?
• How important is this to you?
• Is this what you had in mind?
• Will this equipment be consistent with what you have now?
If a prospect makes a positive response to one of these questions, the salesperson can
assume that the person is leaning toward buying. The salesperson should be prepared to
continue the sales presentation. If the person does not appear ready to make a decision,
then one might ask the simple question, “Is there anything I presented that is unclear or
doesn’t meet your particular needs?” This question will help the salesperson uncover the
other person’s real needs.24
146 CHAPTER 5 CUSTOMER INTERACTION MANAGEMENT

Successful salespeople learn to time their closing remarks on the basis of buying signals
given by the customer. These cues can take the form of gestures (the customer nods in
agreement, picks up the product and examines it closely, or leans back in his or her chair),
or they can be verbal comments. When prospects make comments such as:
• “Shipments must be completed in five months?”
• “We like the speed-control feature.”
• “Would we be able to install the custom model within three weeks?”
the salesperson should recognize these as signs of interest and shift to a specific closing
routine. Notice that each of these signals suggests an action by the client, not just a problem.

Closing Techniques. Many different closing techniques may be used, and salespeople have
personal preferences, depending on the circumstances. This suggests that salespeople need
to be familiar with a number of closing techniques so that they can choose methods that
are appropriate for each selling situation. Two popular closing techniques are the alternative
choice close and the summary close.

Alternative Choice. When the prospect is faced with a variety of colors and models,
the alternative choice close may be effective. With this technique, the salesperson poses
a series of questions designed to narrow the choice and help the prospect make a final
selection. For example: “These couplings can be packed in units of 24 or cases of 72.
Which is more convenient for you?”

Summary Close. One of the best closes provides a summary of the benefits accepted
during the call, combined with an action plan requiring the customer’s commitment.
Salesperson: George, you have said that our word processor has more memory, better
graphics, and is easier to use than other machines you have seen. Is
that correct?
Prospect: Yes.
Salesperson: Well, I recommended that you lease one of our machines for three
months, and the lease payments will apply to the purchase price if you
decide to keep it.
In a Xerox-sponsored study of 500 sales calls, the summary close gave a 75 percent success
rate; in only 7 percent of the calls was the summary method a failure.25
Myriad other closing techniques have been suggested and can be found in any selling
textbook. In fact, some popular business books are devoted entirely to presenting different
closing techniques.26 Although some of the techniques are very creative, in practice, most
veteran salespeople prefer one of the more straightforward closes discussed in this section.
It is our belief that if the previous steps have been performed correctly, the close may be
kept simple. This conclusion is also supported by research on the preferences of industrial
buyers, which found that those in a higher level of their organizations much preferred a soft
close that allowed them to make the decision compared to either summarizing the benefits or
comparing product features with those of a competitor.27 The point is perhaps best made by
a sales consultant who stated: “I’ve never been a believer in closing, because my objective
is to open a relationship.”

THE POSTINTERACTION PHASE

A sale only begins the relationship between customer and supplier. Once a salesperson
has helped a customer make a purchase, attention shifts to the followup activities, the
THE POSTINTERACTION PHASE 147

Most profitable return

Top 3 rankings for growth

31% Rated very important to growth

63% 11% 16%

8%
3%
32%
22% 26% 34%

87% 62% 59% 58% 29%

Quality of Product Information Advertising Development

service to improvement technology and sales of entirely
customer or extensions promotion new product
lines

F I G U R E 5-10 The Role of Customer Service

postinteraction phase. Followup refers to all the efforts involved in servicing the sale and
building a lasting and growing relationship. Customers expect after-sale service, and it is
frequently the sales representative’s job to make sure that these activities are carried out.
PricewaterhouseCoopers measured the importance of this phase in a recent study when it
interviewed over 400 CEOs of fast-growing businesses. Executives were asked to rate 25
different strategies with respect to their contribution to profits and growth. As the results
shown in Figure 5-10 indicate, quality of customer service was ranked the highest in terms
of contributions to growth and profits.
The Wilson Learning Worldwide has identified four pillars of sales support involved in
after-sales followup. These are shown in Figure 5-11. Supporting the buying decision means
reducing any anxiety that may arise with the purchasing decision. This may be accomplished
through a followup sales call or by sending a card or letter thanking the customer for the

Sales support

Support
Manage Deal Enhance
the
the with the
buying
implementation dissatisfaction relationship
decision

F I G U R E 5-11 Servicing the Sale: The Four Pillars of Sales Support

148 CHAPTER 5 CUSTOMER INTERACTION MANAGEMENT

order. Managing the implementation includes offering support services, assisting with any
personnel training, and reporting implementation and utilization progress. Dealing with
dissatisfaction may include responding in an empathetic manner to any problems that arise.
Salespeople should always try to enhance the relationship by being available, ensuring
that the quality of the offering is maintained, and being a source of information, help,
and ideas. It is very important to perform these activities successfully because the bulk of
most salespeople’s volume is in repeat business. Team Exercise “Unkept Promise” presents
a particularly difficult scenario of customer dissatisfaction. How would you handle this
situation?

TEAM EXERCISE
“Unkept Promise”

WHOT, a Latin music radio station in Miami, decided to update its format from Latin standards
to new, hip Latin music in an attempt to reach young, upscale Hispanic residents. As part of
the changeover, you hired salesperson Rita Vasquez, a 30-year-old Cuban American woman
with a master’s degree in business, whom you felt embodied the station’s new target audience.
Vasquez also had a proven track record in advertising sales from her six-year stint with a radio
station in Tampa.
Most customers were pleased with the new format and planned to continue advertising on
the station. However, one media buyer at an agency that represented three of WHOT’s largest
accounts was unhappy and planned to cancel his current contract.
You decided to send your new rep to call on the disgruntled media buyer. Having already
succeeded in bringing in several new accounts, Vasquez happily accepted the challenge. After
an unsuccessful attempt to sway the buyer, Vasquez offered a guarantee that the buyer’s clients
would get “editorial mentions”—casual comments from the deejay about the client’s products
and/or services—on the station’s popular morning show if the agency agreed to maintain its
current media plans. With that, the buyer was sold.
A month later, the buyer calls you to complain that his clients were never mentioned on the
morning show as promised by Vasquez. He planned to pull additional advertising if the station
didn’t meet its promise beginning the following morning. Vasquez has put you in a difficult
position. You want to keep the customer, but editorial mentions are strictly against station
policy. Worse, Vasquez knew this when she made the promise to the buyer. It is 4:00 p.m.
when the customer calls. You need to think quickly. How would you handle the meeting/phone
call with the media buyer? How would you handle your meeting with Rita Vasquez? How is
each likely to react?

Relationship Enhancement
Relationship enhancement activities include two types of activities: cross selling and
up-selling. Cross-selling involves selling additional products and services to an account—
selling printers along with personal computers, for example. GE Medical Systems sells
a large array of products to hospitals, including MRI machines, CT scanners, and x-ray
imaging machines. In addition, it can design the imaging rooms for the hospital as well
as train the imaging personnel. Selling these additional services is a good example of
cross-selling. Up-selling is closely related to cross-selling and refers to selling bigger
products or enhanced services to an account that typically results in higher margins and
greater dollar commitments. Referring again to GE Medical Systems, an example of
up-selling would be for GE to offer to provide the personnel needed to run and manage a
hospital’s imaging department.
SUMMARY 149

Knowledge Management
Whenever salespeople conclude an interaction, they should immediately record what they
have learned about the prospect or customer—for example, the prospect’s chief concern,
who makes the final decision, and the prospect’s primary needs. Differences in customers
and situations lead to hundreds of natural experiments being carried out every day. The
systematic recording of this information helps to encourage learning from these experiments.
Sales management should reinforce this type of analysis for both successful and unsuccessful
sales calls and help formulate appropriate future behaviors.28
Some companies are aggressively adopting technology to facilitate the flow of account
information to and from the field. Pfizer not only has equipped its salespeople with laptop
computers with wireless internet connections, but also installed broadband access in each
salesperson’s home along with a wireless router. This allows them to use their laptops in
the kitchen or TV room. Pfizer estimates that this saves salespeople up to 38 hours a month
that they used to spend sending notes from physician visits to a corporate database via a
dial-up connection. Salespeople’s laptops are updated at the end of the day with client notes
and ordering histories for the next day’s appointments.29
To facilitate institutional learning, some companies are formalizing the process of col-
lecting customer information. Bergen Brunswig, a pharmaceutical and medical supplies
wholesaler, uses a customized interview guide with its customers aimed at collecting mean-
ingful and candid feedback, gaining a better understanding of needs and issues, and building
relationships. Between five and ten interviews are completed in every account. No selling
is allowed during these sessions. One executive at Bergen Brunswig commented, “We got
more information in doing the interviews with one account than we had in our ten years of
doing business with the account.”30
As the previous examples suggest, the collecting, gathering, disseminating, and use of
knowledge have become significant for many sales forces. Technology is helping to make
this possible, but the gathering and use of this knowledge are important management issues
as well.

SUMMARY
Salespeople and sales managers need to understand how to interact with clients in order to
properly execute the sales force program. In addition, salespeople respect a sales manager
who can help them achieve greater personal success in sales. Sales managers do not need
to be the best salesperson in the district, but they must at least have an understanding of
the process involved and the skills needed to execute the firm’s sales program.
1. Describe the basic types of selling models. We have discussed three basic selling
process models—standardized, need satisfaction, and problem solution. Each model is
appropriate in certain circumstances. A standardized presentation is designed to stimulate
a positive customer response. The presentation is well rehearsed and places minimal
emphasis on problem discovery. A need-satisfaction type of presentation is oriented
toward discovering and meeting customer needs. It relies on well-developed questioning
skills to elicit customer-buying needs. A problem-solution selling approach also involves
an analysis of the customer’s circumstances, but the analysis is more extensive and is
based on formal studies of the customer’s operations.
2. State the skills utilized in the preinteraction phase. The preinteraction phase takes
place prior to meeting with the customer. The planning skills involved in this phase
focus on setting a good objective for the sales call, obtaining relevant information about
the customer, and deciding how to open the conversation with the customer.
150 CHAPTER 5 CUSTOMER INTERACTION MANAGEMENT

3. List the skills involved in the interaction phase. The interaction phase includes all
face-to-face interactions with the customer prior to arriving at the sale. Our discussion of
this phase of the selling process focused on three skills important to all business situations:
relating skills, discovery skills, and advocating skills. In addition, we described two skills
more critical to success in transactional-type selling situations: gaining access and closing
skills.
4. Explain the skills involved in the postinteraction phase. The postinteraction phase
takes place following the purchase and involves the servicing of the sale and building a
lasting and growing customer relationship. Four skills were described in this phase: sup-
porting the buying decision, managing the implementation, dealing with dissatisfaction,
and enhancing the relationship.

KEY TERMS
Advocating skills Fact-finding questions Preinteraction phase
Alternative choice close Features Problem-solution model
Benefits Feeling-finding questions Relating skills
Call reluctance Followup Relationship anxiety
Canned presentation Interaction phase Solution presentation
Checking questions Managing the implementation Standardized model
Closed-ended questions Need-satisfaction model Summary close
Closing skills Open-ended questions Supporting the buying decision
Cross-selling Permission questions Task motives
Dealing with dissatisfaction Planning skills Trial close
Enhance the Relationship Postinteraction phase Up-selling
Evidence Precall planning

DEVELOPING YOUR COMPETENCIES

1. Coaching. Most salespeople are very comfortable with one-on-one interactions with
clients. But put some of them in front of an audience of executives and suddenly they
can’t even remember the product’s name. Nervousness can make otherwise competent
individuals look like novices. And it’s easy for potential clients to mistake a salesperson’s
public speaking anxiety for a lack of confidence in the product being sold. Salespeople
aren’t alone in this fear. A recent Gallup Poll shows that more people fear public speak-
ing than fear of heights, spiders, needles, or thunderstorms. How can managers help
salespeople put this phobia aside? Develop three specific recommendations by which
managers can help coach salespeople to make better group presentations.
2. Self-Management. A better understanding of the role of personal selling can be obtained
by traveling with a field salesperson for a day. Contact a salesperson and arrange to
observe his or her activities for a day. Keep a log of how much of the salesperson’s time
is spent on meetings, travel, and waiting and how much is spent talking to customers.
Write a report describing your experience and the salesperson’s activities. The Yellow
Pages and your college placement office can be used to identify firms with salespeople
in your area. Local chapters of Sales and Marketing Executives clubs and the American
Marketing Association are also good sources of salespeople for this assignment.
3. Strategic Action. The problem is “biting the bullet.” It’s the end of the quarter, and you
really need a strong finish to make your numbers. You ask your top district manager to
move a bit lower than usual on price for his clients, perhaps be a bit more flexible on
payment terms, waive the fees for a few value-adds, and beef up the service at a lower
cost. What harm can there be in biting the bullet . . . just once?
SHIELD FINANCIAL: “A VENDOR PROBLEM” 151

4. Global Awareness. Expanding into foreign markets often involves a healthy dose of
research and development. Experts recommend that companies set a specific goal to be
achieved in a twelve-month time period and to make sure that a significant portion of
business is coming from these new markets, instead of just seeing it as a way to dump
product in a new place. A good example of a company that needs to thoroughly research
and understand its goals when entering a new market is Speech Works International Inc.,
which sells conversational speech recognition technology and other products used for
telesales. Before opening a new overseas office, the company relies on experts at local
universities who understand the nuances of a local language. The technology needs to
translate such expressions as, “I want to fly from Singapore to Hong Kong next Tuesday
afternoon,” into a language the computer will understand. Besides getting the language
translated correctly, what additional information would you gather if you worked for
Speech Works and what additional actions would you take to ensure a successful expan-
sion into a city such as Mexico City or Singapore? www.speechworks.com
5. Technology. Sales force automation (SFA), according to recent reports, represents the
fastest growing segment of the computer software business. Unfortunately, many of these
efforts face the prospect of failure. To date, more than 60 percent of all SFA projects
have been unsuccessful according to industry reports. Given this prospect, the results of
a recent study by Mark Rivers and Jack Dart on the factors related to success in SFA are
particularly interesting. First, recall that SFA involves converting manual sales activities
to electronic processes through the use of various combinations of hardware and software
applications. This means that an SFA project may be as simple as substituting electronic
equivalents for paper daytimers or as complex as developing advanced systems relying
on computer-telephone integration to allow salespeople to enter orders electronically,
create their own presentations, correspond via e-mail, and do their own pricing. Which
of the following factors do you think were related to achieving SFA success among the
210 manufacturing firms participating in the study?
• The extent to which top management was involved in the purchase decision.
• The extent to which sales force management was involved in the purchase decision.
• Sales management’s predisposition toward the SFA concept.
• Management’s difficulty in assessing sales force performance.
• The resistance of the sales force to adoption of SFA.
6. Team Building. Making a presentation is usually difficult enough when you’re on your
own; when you’re part of a group making a team pitch, the stakes go skyward. Group
presentations require all the skills of solo flight, plus the ability to handle the tricky
dynamics of a public teamwork. What’s more, any missteps have an expanded audience
and perhaps angry teammates. How can you avoid group presentation blunders? What
tips would you offer?

SHIELD FINANCIAL: “A VENDOR

FEATURED CASE PROBLEM”

D
oug Bloom has always loved technology his sales force. Among the package’s features are a
and is very excited about the opportunities database, a contact and schedule manager, a proposal
to gather, store, and share market knowl- generator, a GPS (global positioning system), and a
edge and information. Six months ago he signed a price and specification estimator. Doug wants to tie his
deal with a vendor, Primary Software, that would pro- sales force to every other department in the office and
vide a comprehensive, custom software package for eventually the company, allowing everyone to operate
152 CHAPTER 5 CUSTOMER INTERACTION MANAGEMENT

more efficiently by having realtime access to customer After a few minutes, the conversation turned to Doug’s
activities, product information, and other necessary software problem. The vendor offered his company’s
information. services, promising to complete the project within two
When he called Primary today, however, he learned months, and offering extensive training and support
that the project had fallen behind schedule and that that surpassed what the current vendor was offering.
the beta version wouldn’t be ready for at least three The price would be about the same, but Doug had
months (it had been promised to him in one month). already paid $12,000 in unrecoverable dollars to Pri-
The vendor apologized, saying, “It’s the best we can mary. Doug said he needed time to consider the offer.
do.” Doug was aghast. He had already purchased lap-
tops for his salespeople, expecting the software to be
running internally by the time the shipment of laptops Questions
arrived. He had also based year-end sales projections
on the increased productivity and sales he expected as 1. Should Doug be patient and wait for Primary to
a result of automating the company’s sales process. complete the job or should he risk going with
Coincidentally, a salesperson from another vendor, All-Bright?
AllBright Software, called Doug to discuss some indus- 2. What other options does Doug have?
try information he thought Doug would find useful. 3. Are ethical issues involved?
CHAPTER

6 SALES FORCE
ORGANIZATION
The same old way doesn’t work any more.
Anonymous

Chapter Consultants:
Russel Donnelly, Sales Manager, Central Region, Ericsson Inc.
B. J. Polk, Customer Business Development Manager, Procter & Gamble

LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Explain the various ways by which sales forces can be organized.
Explain what a strategic accounts management program means.
State the reasons for the growth in telemarketing and its implementation issues.
Tell why and when sales agents are utilized.
Describe evolving trends in sales force organization.

XEROX REORGANIZES
During the mid-1980s, Xerox Corporation’s dominant position in the office equipment mar-
ket was in jeopardy. It was being challenged by lower priced Japanese firms, while new
electronic workplace technology was threatening to make Xerox’s flagship product, the
plain-paper copier, obsolete.
In response to these market changes, Xerox management implemented an aggressive
strategy aimed at repositioning the company as a leader in office automation. A key element
of this strategy was an increase in its customer focus. Xerox’s 4,000-plus member sales
force was at the center of this customer focus strategy. Historically, Xerox had maintained
separate sales forces for each of its major product lines. The largest sales force was dedicated
to selling copier equipment, while several smaller sales forces sold information processing
systems, printing systems, office systems, and sales engineering. As a result, many customers
interacted with several Xerox salespeople.
In 1985, the sales force was reorganized into a single full-line sales force assigned by
customer segment and geography. Five market segments were defined including customer
system users, standard commercial accounts, small businesses, third parties, and institutional
customers such as government and educational institutions. A separate sales force sold the
153
154 CHAPTER 6 SALES FORCE ORGANIZATION

full line of Xerox products to each customer segment within a designated geographic area.
One benefit of the reorganization was to increase productivity. The new structure also
allowed customers to work with a single Xerox salesperson, thereby improving Xerox’s
customer focus.
The 1985 reorganization at Xerox was an immediate success; the company experienced
steady revenue growth in the years following that reorganization. The sales force was rec-
ognized by Sales and Marketing Management magazine as one of “America’s Best Sales
Forces” and the company was lauded for its excellent reputation among customers and its
ability to retain and grow existing accounts.
Xerox continued to enjoy success throughout the 1990s, with its stock hitting a record
high of $64 in 1999. Despite this success, trouble was brewing for the company. The market
for high-tech stocks was weakening, and competitors continued to eat away at Xerox’s
market share. Xerox decided that changes were needed if it was to meet its aggressive
revenue targets.
Xerox management decided to implement a new, two-part business strategy consisting
of increased focus on large global customers and smaller independent customers. For large
customers, the Xerox strategy was to help these customers create new ways to use docu-
ments more effectively and creatively. Xerox salespeople were asked to sell industry-specific
bundled packages of products, including copiers, software, consulting, and outsourcing con-
tracts. For small businesses, the Xerox strategy was to reach a broader base of customers by
increasing its network of indirect channels such as office superstores, value-added resellers,
agents, telemarketing, and the Internet. This would also reduce costs due to the lower
overhead associated with these indirect channels.
The 4,300-member Xerox sales force played a critical role in the implementation of
the strategy and was realigned twice during 1999 to shift greater effort toward the largest
global customers and to create separate industry-specific selling teams. In the first reorga-
nization, four industry sectors were established: financial services and health care, graphic
arts, manufacturing/industrial, and the public sector. Several months later, two more sectors
were added: retail/wholesale and professional services. Product specialists were provided
and were called on when needed to help close a sale. Indirect channels took on even greater
significance and were assigned many of the medium-sized accounts formerly covered by
direct salespeople.
Unlike the 1985 reorganization, the 1999 sales force restructuring was not initially
successful, perhaps due to a series of internal tensions at the time involving bad accounting
practices and mismanaged implementations that sent the company’s share price plummeting.
Having a debt load of $14 billion didn’t help either.
By mid-2001, Xerox found itself in serious financial trouble with bankruptcy a real
possibility. Nevertheless, new CEO Anne Mulcahy, who began her career as a Xerox sales-
person, was optimistic about the company’s future and believed that the turnaround at Xerox
would depend largely on the success of its sales force.
While it took time, Anne’s faith in the sales force was not misplaced. Xerox returned
to full-year profitability in 2002, its stock rose 22 percent in 2004 compared with 9 percent
for the Standard & Poor’s 500-stock index, and Mulcahy expects new products to drive a
sales increase in 2005—the first for Xerox since 1999.1
As the Xerox example illustrates, sales forces must confront a wide variety of change
pressures. From a customer’s perspective, sales force organization determines the number
of salespeople the customer sees, how responsive the salespeople can be to the customer’s
needs, and how knowledgeable the salespeople are about the products they sell and the
customers to whom they sell. From the sales force perspective, the sales organization defines
the job. It determines the type of customers they call on, the breadth of products and services
they have to sell, and the activities in which they engage.
GENERALIST VERSUS SPECIALIST STRUCTURES 155

Structure

Compensation

Sales
management Performance
role evaluation

Recruiting/ Training
Selection program

F I G U R E 6-1 Decisions Affected by Sales Force Organization

Similarly, the sales force organization defines the sales manager’s role and report-
ing relationships, which is why we examine sales organization before discussing the other
management decisions, as shown in Figure 6-1. Since sales organization specifies the sales-
person’s job description, it affects the type of people selected for sales and management
positions, as well as the territory alignment, training programs, compensation plan, and
performance evaluation systems.
The discussion in this chapter is organized as follows. First, the questions of sales force
specialization and strategic accounts are addressed. This is followed by a discussion of the
advantages and pitfalls of telemarketing and independent agents, alternatives to the tradi-
tional field sales force. The chapter closes with a discussion of emerging sales organization
issues such as accessing global markets, working with sales partners, and sales teams.

Sales Strategic
Independent Emerging
force account Telemarketing
agents issues
specialization programs

GENERALIST VERSUS SPECIALIST STRUCTURES

Sales force organizational structures vary from generalist structures, where each salesperson
sells all products to all customers within a particular geographic area, to highly specialized
sales forces, where teams of salespeople focus on specific products, markets, or functions.
Figure 6-2 presents the results of a recent survey indicating how sales forces are orga-
nized today and in the future. Notice that sales managers are expecting big changes, with
many anticipating their sales force to be organized around type of customers. At the same
time, fewer organizations are expecting to be generalists calling on all customers within a
geographic area. Specialization, however, presents important challenges in terms of coordi-
nation, integration, and, most important, higher expenses.
In general, companies attempt to develop a sales force organization that is adaptable,
efficient, and effective. A sales organization is adaptive if the company can react quickly to
156 CHAPTER 6 SALES FORCE ORGANIZATION

Today In five years

17% 16%

45%
18% 49%
24%

20%
11%

Customer Generalist Product lines Functional

F I G U R E 6-2 How Sales Forces Are Organized

product and market changes without a major structural overhaul. Efficiency reflects the rate
at which key sales activities, such as calls, demonstrations, and proposals, are performed.
Effectiveness represents the buyer’s favorable reaction to the sales effort, for example,
the customer’s positive response to H-P’s sales calls is due to the salesperson’s superior
customer knowledge.
Four fundamental structures for organizing a sales force are generalist, product special-
ized, customer specialized, and functional specialized. The advantages and issues associated
with each of these structures are discussed in this section.

Generalist Structure
The least complicated sales force organization is a generalist structure, also referred to as a
geographic organization, in which each salesperson sells the firm’s entire product line to all
accounts and prospects, usually within a specific geographic area. For example, Figure 6-3
shows the Eastern region of the United States divided into eighteen sales territories, where
each salesperson sells to all customers and prospects located within a designated state.
Generalist salespeople typically have geographically small sales territories and minimal
travel time and spend a high percentage of their time face-to-face with customers. Thus, they
tend to be the highly efficient sales structures. A generalist organization works best when
the product line consists of related products or services that appeal to a rather homogeneous
group of buyers.2 Salespeople also have a greater opportunity to gain in-depth knowledge
of the local culture, economic, and competitive conditions.3
Serious shortcomings may arise, however, when salespeople sell a broad line of products
to a diverse set of customers. First, when salespeople sell many products, they tend to focus
their attention on the lines with which they are comfortable, neglecting the lines that are
newer, more difficult to sell, but possibly more profitable. With so many products to sell,
it is difficult to develop the expertise needed to develop creative solutions for customers’
problems. Second, salespeople may find themselves at a competitive disadvantage if they
are asked to sell to customers with problems and needs that are diverse and complex. There
is also the risk that salespeople will spend too much time with customers who are easy to
sell, but who are not necessarily profitable or high-growth opportunities. As a result, the
territory is not developed to its full potential.
With more mergers and acquisitions resulting in customer consolidation, a problem
arises in coordinating the selling effort across different geographic areas. For example, a
GENERALIST VERSUS SPECIALIST STRUCTURES 157

National
sales manager

Central Eastern Western

regional regional regional
sales manager sales manager sales manager

Northeast Midatlantic Southern

district district district
sales manager sales manager sales manager

Connecticut
New North South
and Rhode Maine Pennsylvania
Jersey Carolina Carolina
Island

New District of
Vermont Delaware Georgia Alabama
Hampshire Columbia

Massachusetts New York Virginia Maryland Mississippi Florida

F I G U R E 6-3 Generalist Sales Organization

customer’s regional headquarters may be located in one territory, but it may purchase prod-
uct for stores or plants located in other territories. In-store merchandising support or inplant
installation support may be needed for the sale. How would you achieve the coordination
needed to fully service this customer? How would you split sales credit among the salesper-
son who calls on the headquarters and the other salespeople who service the local stores in
their territories? Many organizations have decided that they need to specialize beyond sim-
ple geography. In many cases, firms will focus on one of three areas: products, customers,
or activities. We turn our attention to these forms of specialization.

Product Specialization
A product-based specialization is most appropriate when a firm has a large, diverse, and
complex line of products. This complexity may happen as a result of new products, mergers,
or acquisitions. There are 164 operating companies at Johnson & Johnson producing and
selling products such as orthopedic implants, pharmaceuticals, and sutures. How could one
person know enough about each product line? The answer is they couldn’t, so J&J has
organized its sales force around defined product lines.
A product-specialized sales force structure is shown in Figure 6-4. In this organizational
structure, each salesperson specializes by selling only a few of the products in the organiza-
tion’s total product portfolio and reports to a management structure that is also focused on
the same limited number of product lines. Each product-based sales force calls on its own
customers, sets its own goals, and rewards its own salespeople. Coordination occurs only
at the highest levels in the organization.
A product-based specialization is probably the most effective way to ensure that a
product or product line receives the desired level of selling effort. If, for instance, a product
line needs twenty people to sell into a market effectively, then the only way to ensure that
this amount of effort is actually devoted to the product line is to establish a sales force of
158 CHAPTER 6 SALES FORCE ORGANIZATION

National
sales manager

Eastern
regional
sales manager

Northeast Midatlantic Southern

district district district
sales manager sales manager sales manager

Printer Programmable Large

Server Minicomputer Copier
equipment calculator computer
salesperson salesperson salesperson
salesperson salesperson salesperson

F I G U R E 6-4 Product-Specialized Sales Force

twenty people. Training, coaching, and compensation programs can also be used to achieve
desired sales effort levels, but their success is not guaranteed.
Unfortunately, product specialization also has a number of limitations. It has low
geographic efficiency, meaning that each product specialist must usually cover a large geo-
graphic area. This situation increases travel expenses and reduces the amount of face-to-face
time with customers; it may also create confusion on the part of customers. A Hyatt Hotel
sales situation represents an extreme example of this customer confusion. It was discovered
that 63 Hyatt salespeople called on one customer. This happened because each Hyatt resort
property had its own sales force. Hyatt has since reorganized into central sales offices with
assigned customer accounts. The Hyatt example also points out another potential drawback
of product specialization, which is excessive internal competition—in Hyatt’s case, too
many salespeople competing against each other.
One way that organizations can achieve proper coordination of effort is to organize
around markets or customers.

Customer Specialization
In a customer specialization-type sales force organization, also referred to as vertical mar-
keting, each salesperson or sales team sells the entire product line to select types of buyers.
Thus, the six salespeople in Figure 6-5 are assigned to banks, retailers, and other types of
customers instead of to geographic regions or product lines, as before. In general, this type
of sales organization is becoming more and more popular with companies as they attempt
to become more market focused.4
IBM’s sales force of around 35,000 people is a good example of a company that
has organized its sales force around customers. The sales force is organized according
to customer size, industry, and location. Salespeople are part of a team that serves three
main customer groups: large, integrated accounts; clusters of aligned accounts; and small
and medium-sized accounts. The critical factor leading IBM to adopt this type of sales
organization is that 82 percent of the IT costs an organization incurs are in services needed
to support its IT equipment. In this environment, delivering a great product is not enough,
GENERALIST VERSUS SPECIALIST STRUCTURES 159

National
sales manager

National Eastern Manager

accounts regional of
manager sales manager export sales

Northeast Midatlantic Southern

district district district
sales manager sales manager sales manager

Salesperson Salesperson Salesperson

Salesperson for
for educational for government for bank
retail customers
institutions agencies customers

Salesperson
Salesperson
for wholesale
for manufacturers
customers

F I G U R E 6-5 Customer Specialized Sales Force

and providing solutions to customer needs requires a deep understanding of the customer
and its market situation. In such conditions, specializing by customers is highly effective.5
The most important advantage of customer specialization is that it allows salespeople to
gain a better understanding of the customer’s special needs and problems and become experts
in a particular customer or industry. Customer-based sales organizations are very adaptive
as well to changes in customer needs and buying behavior. Thus, a customer specialization
organization may result in an important selling advantage when an organization wishes to
execute a consultative or enterprise-level relationship strategy with its customers.
This type of sales organization has an additional benefit in that the sales force can be
organized so that each customer or market receives the appropriate level of selling resources.
Neither a generalist nor a product-based sales organization can make this guarantee.
A customer-based sales organization also has several downsides. First, it can lead to
conflict with the marketing organization, which is usually organized around products. In this
case, a product manager will have to work with multiple sales organizations to implement
a product’s marketing strategy. Another problem arises when in-depth product expertise is
critical to solving a customer’s problems. Salespeople may not have the necessary product
expertise to answer a customer’s product questions. To address this shortcoming, organiza-
tions with diverse and complex product lines may have technical product specialists that
the customer team can call on when needed.

Functional Specialization
A fourth type of specialization in sales organizations, functional specialization focuses on
the activities or functions performed by customer contact people (Figure 6-6). Product and
market heterogeneity and complexity may require a diverse set of skills and knowledge.
This increasingly characterizes the situation of many large global organizations. In such
160 CHAPTER 6 SALES FORCE ORGANIZATION

Division marketing
manager

Industry sales Systems Administrative

managers manager manager

Market
Account executives Systems Reps
administration
(salespeople) (technical support)
(training and installation)

F I G U R E 6-6 Functional Specialization

situations, the sales force gains considerable efficiency and effectiveness by specializing in
specific functions or activities.
Consider the following examples:
• New customer specialists. These people are charged with gaining new customers. The
type of person and the skills needed to successfully call on prospects are believed to be
quite different from those needed to service existing accounts. American Express is an
example of a company that has profited from this type of sales specialty. This type of
specialization also helps to ensure that an appropriate amount of effort is dedicated to
new customer acquisition.
• Retention specialists. Between 80 and 90 percent of most companies’ annual revenue
is from current customers. Retaining customers and, more importantly, realizing revenue
growth are critical to profitability. Browning-Ferris Industries, a large waste services
company, recently created a position titled Core Account Retention Specialist. People in
this position are responsible for retaining current revenue from current customers.
• End-user specialists. Companies that sell through distributors face the challenge of cre-
ating demand among end-users. Lexmark International, which manufactures keyboards,
printers, and related supplies, found that it needed to devote more effort to its end-users
rather than focusing exclusively on its resellers. To ensure that the majority of sales
resources went to end-user selling, Lexmark created a new sales position devoted to sell-
ing to end-users. In this way Lexmark redeployed its sales effort to spend 85 percent of
its effort on end-users.6
• Sales engineers. In high-tech companies, such as 3M, a new role has been developed,
called sales engineers, who are responsible for developing applications for their products
within an existing customer’s business. For example, a sales engineer at 3M might be
responsible for working with the design engineers in an account to take existing disk
drive products and create next-generation models.7 So, it is a technical sale, focusing on
technical issues that are usually beyond the expertise of the general sales force.
• Service consultants. It is not uncommon for salespeople to spend 15 to 30 percent of
their time in service-related activities: finding the status of orders, answering questions
about shipments, resolving billing disputes, and the like. To increase selling time, some or
all of these service activities are being assigned to specialists. A service consultant may
support three or four sales representatives and address customer issues that the salesperson
cannot handle adequately but that are important to creating customer value.
There is no one best way to organize the sales force, and companies are experimenting
with many different forms in order to compete profitably. A company should start by
STRATEGIC ACCOUNT MANAGEMENT PROGRAM 161

Organizational
Structure Advantages Disadvantages

Generalist • Low cost • Limited product line

(Geographic) • No geographic overlap knowldge
• No customer overlap • Limited customer knowledge
• Lack of management control
over product or customer
emphasis

Product • Product knowledge • Low geographic efficicency

• Control over product • Customer duplication
emphasis • Geographic duplication

Customer • Deeper customer • High cost

knowledge • Less product knowledge
• Control over customer • More geographic duplication
emphasis • Diffcult coordination with product
managers

Functional • Effectiveness in performing • Coordination

selling activities • Geographic duplication
• Customer duplication

F I G U R E 6-7 Comparing Sales Organization Structures

examining its customers and looking at its organization from the customer’s perspective.
Research suggests that when superior selling skills are required, some form of specialization
works best.8 In general, specialization produces effectiveness gains, but overspecialization
will create efficiency losses. The best sales organization achieves the right balance of the two.
The best advice is to present the customer as few selling faces as possible, while achieving
the greatest potential effectiveness gains.9 Put simply, some sales organization structures
are better in some selling situations than in others. Figure 6-7 summarizes much of what
has been discussed in this section by directly comparing the advantages and disadvantages
of each of the basic sales force structures. To help determine your understanding of sales
force organization options, you might try addressing the questions posed in Team Exercise
“The Optimal Sales Organization.”

STRATEGIC ACCOUNT MANAGEMENT PROGRAM

Regardless of whether the sales force consists of specialists or generalists, one of the most
significant changes occurring today is that many organizations are finding it necessary to
develop a strategic account management program in addition to their regular sales force.10 In
a recent survey upward of three-quarters of North American consumer goods manufacturers
have reorganized their sales forces since 2002. The primary reason for over 80 percent
of the firms reorganizing their sales force is to increase their focus on key customers.11
Also known as key, national, major, and global accounts programs, a strategic account
management program is more than a selling strategy. It is a marketing philosophy directed
at a select group of customers that account for a disproportionately large share of the seller’s
total revenues.
In Chapter 2, we discussed the need for companies to define an account relationship
strategy for the sales force. More and more companies are finding it necessary to establish
a strategic account program because, although they may have a consultative or transactional
162 CHAPTER 6 SALES FORCE ORGANIZATION

TEAM EXERCISE
“The Optimal Sales Organization”

Ferno-Washing (F-W), an emergency medical products supplier in Wilmington, Ohio, has

organized its sales force around broad groups of customers. The company sells to three kinds of
clients: ambulance manufacturers, national emergency medical service companies, and medical
supply distributors (i.e., wholesalers). Ambulance manufacturers purchase products based on
their technical specifications, safety, and the configuration of space within the ambulance.
Meanwhile, national emergency medical service companies are in the business of running
emergency centers for hospitals. They are most interested in distribution issues such as timely
delivery and consistency. Pricing is also important and usually based on a negotiated contract.
Finally, the most important success requirement for distributors is to get them to push the
F-W product line against F-W’s competitors. This means getting your products in front of the
distributor’s clients and getting your share of their salespeople’s selling time.
It has been some time since F-W reviewed its sales organization and you have been
asked to look at it to see if it is the best design for its sales force. What are the benefits
and shortcomings associated with this type of sales organization and are there any possible
alternatives to consider? What information would you need to determine if an alternative type
of organization is more appropriate for Ferno-Washing?

relationship with most of their accounts, they need to have an enterprise-type relationship
with some of their accounts. The case of U.S. consumer goods companies turning to strategic
account organizations was precipitated by the consolidation within the U.S. grocery retailers.
The top ten U.S. retailers held 29 percent of the U.S. grocery market in 1995, but their share
had increased to 55 percent by 2003.12
How do these relationships differ from traditional account relationships? The expe-
rience of Diageo a $19 billion company headquartered in London, is typical for many
companies.13 Diageo is a leader in the alcoholic beverage business with well-known brands
such as Smirnoff, Bailey’s Irish Cream, Jose Cuervo, Guinness Beer, and many more. Dia-
geo found that serving customers’ retailers and distributors who crossed multiple business
units was challenging and inefficient with its existing processes. Diageo therefore created
a new position, titled vice president of strategic accounts, for one who works across each
of the company’s five business units to coordinate best practices, develop the vision for
the group, and ensure consistent execution and similar business process in all business
units. Directors reporting to this vice president manage each strategic account. The strategic
account relationships at Diageo differ in many ways from the traditional account relation-
ship. Figure 6-8 shows the changes that have taken place in just the account planning aspect
of the relationship.

Previous Approach New Strategic Account

Business Plan Duration • 3–6 months • 2–3 years
Structure of Business Plan • Tactical promotional • Strategic business plan focused
program on growth and profitability
Personnel Involvement • Sales reps and • Senior management from both
purchasing agents companies

F I G U R E 6-8 Changes in Joint Account Planning

STRATEGIC ACCOUNT MANAGEMENT PROGRAM 163

Despite the potentially significant benefits of strategic accounts, companies often

encounter problems in setting them up. In a recent survey of 221 companies, only 21
percent rated their strategic account program as being fully functional and effective.14
As a result, researchers are starting to direct attention toward identifying the factors
associated with successful strategic account programs.15 Two issues have been particularly
problematic with new strategic account programs—account selection and organizational
structure.

Strategic Accounts Selection

Which customers, if any, should be treated as a strategic account? Many companies initially
choose too many accounts to participate in the program, resulting in an overworked strate-
gic account sales force and underserviced customers. There is often a tendency to focus
on customer size. This focus is understandable since the few largest customers often rep-
resent a major portion of a company’s sales and losing even one of these customers could
be a strategic disaster. A memorable example of this risk occurred for Goodyear-Dunlop
in England when the MG Rover Group stopped production in 2005. At the time, Rover
represented approximately 20% of Goodyear-Dunlop’s revenues. The loss in business was
obviously very significant in this case.16
On the other hand, size is not a good indicator that a customer wants or desires this
special type of relationship. An emerging view is that customers who best qualify for a
strategic account program are those who purchase a significant volume and exhibit one or
a combination of the following characteristics:
• Involve multiple people in the buying process.
• Purchase centrally.
• Desire a long-term, cooperative working relationship.
• Expect specialized attention and service.
• Align strategic intent.
As with many marketing decisions, deciding which company should be a strategic account
depends on learning the customer’s needs.
Kinko’s Inc., a California-based chain of printing and computer centers, is a good
example of how a company might use other factors in addition to size to identify its
strategic accounts. When Kinko’s Inc. launched its program, the company first attempted
to identify large Fortune 500-type accounts. It then looked for companies that had divi-
sions or operations in all fifty states, as well as a large mobile sales force that could
be serviced by multiple Kinko’s branches. But most important, the accounts had to have
characteristics similar to Kinko’s—a fast-growing business with a similar entrepreneurial
spirit.
Trane, a leading manufacturer of heating and air conditioning, designed a process for
selecting strategic accounts, which attempts to assure that Trane clearly understands the
account’s current and desired situation. The unique aspect of Trane’s account selection
process is that, throughout the process, both parties sign documented agreements, which
outline commitments to meeting the customer’s objectives. Trane has found that this process
aids in its strategic thinking and planning.

How to Organize?
Companies have taken a variety of approaches to organizing their strategic accounts pro-
grams. What works for one company and is appropriate for one situation may not work in
another.17 The major organizational alternatives are as follows.
164 CHAPTER 6 SALES FORCE ORGANIZATION

Existing Sales Force. As an initial effort, companies often rely on their existing sales force
to service the national account customer. This strategy has the advantage of being less risky
and less expensive than setting up a separate sales force. On the other hand, the relationship
with these strategic accounts may not be very different from that with regular accounts, thus
raising the question of whether a strategic accounts program is needed or is being executed.
These salespeople have a strong tendency to focus on closing orders and securing revenue
rather than building relationships. A short-term focus is especially likely when the sales force
is under constant quota pressure, such as when a monthly quota target has been set up.

Management. A step up in commitment is to assign strategic account responsibility to top

management. Computer Task Group, Inc., an Atlanta-based software services firm, assigns
a strategic account to each of the top twenty-five executives in the company. In addition to
being relatively inexpensive, executives are likely to have the authority and power to meet
special customer needs.
Other companies have taken a different approach when assigning middle managers to
key accounts. In this case, a majority of the manager’s time is spent on strategic account
activities, and they are likely to be located locally, near the customer’s headquarters. The
Diageo strategic account program described earlier is an example of this approach to strategic
account organization.

Separate Sales Force. Where the need for a strategic accounts program is greatest, a
separate sales force devoted strictly to strategic accounts often evolves. The Gold Bond
Building Products Division of National Gypsum is organized in this manner. Successful
field salespeople are promoted to the strategic accounts sales force. These people are usually
located near their customers and report to a strategic accounts manager, who in turn reports
to the national sales manager. Hewlett-Packard, Xerox, MCI, and other companies have
similar arrangements.

Cross-Functional Sales Teams. Where the selling process is very complex, sales teams
may be assigned to strategic accounts. AT&T has more than 370 such strategic account
teams; an account manager with broad product and account knowledge heads each team.
Providing technical support to the team are two or three product specialists and staff technical
specialists. IBM, Pitney Bowes, and many other organizations also employ national account
teams. Recent research has found that this type of strategic account organization stands out
from the others in terms of both sales performance and profitability, although this type of
organization can be quite expensive to build and maintain. This points to the need to match
the organization structure to the appropriate opportunity.
Strategic account management represents a significant opportunity for many companies
to grow through meeting the needs of their customers. We have just noted two of the impor-
tant problems associated with establishing these programs. In many industries, however, a
company has no choice but to play the game if it wants to be one of the big players in
the industry. Recent research on the performance of strategic account teams suggests that
management needs to consider and debate the following questions:
• To what extent are we able to gain greater customer investment in the relationship, sharing
of information, and trust?
• Are we able to proactively respond to changing customer needs? Is top management
significantly involved with our strategic account program?
• Is there a high level of esprit de corps within the program?
• Are sufficient marketing and sales resources committed to the program?
A positive answer to each of the above questions was found to be needed to develop a
high-performance strategic accounts program.18
TELEMARKETING 165

Customers are demanding more attention just when many companies—including Apple
Computer, IBM, Merck, and Procter & Gamble—are reducing the size of their sales forces.
Strategic account programs may pay off for large customers, but few companies have the
time or money to offer these kinds of services to all customers. An increasingly popular and
cost-effective way to serve small and even medium-sized customers is with a telemarketing
support system.

TELEMARKETING
Telemarketing refers to customer contacts utilizing telecommunications technology for
personal selling without direct, face-to-face contact. Business-to-business telemarketing
is growing at a rate of 30 to 40 percent a year and generated sales in excess of $200
billion.19 More than two million people are employed in consumer and business-to-business
telemarketing operations. The effectiveness and opportunity that telemarketing represents
are shown by the $17,894 value of the average business-to-business telemarketing sale.20
Corporations such as IBM, Procter & Gamble, Chase Manhattan Bank, and Union Pacific
Railroad have all developed telemarketing systems.

Advantages
One reason for the growing popularity of telemarketing is that it allows companies to
make cost-effective sales calls, especially on smaller customers. Telemarketing is five to
fifteen times more efficient and 70 to 95 percent less expensive than a field sales force
because telemarketing representatives cover their territory using the telephone instead of
battling traffic. AT&T built its National Sales Center to house and train telemarketers in
lead generation and qualification. Prior to using telemarketers to qualify prospects, the
national closing ratio on sales visits by AT&T salespeople was 1 in 10. After only one year
of the telemarketing program, the close ratio was improved to 6.5 in 10. Other companies
have also reported having success with telemarketing in developing leads for their field sales
force. See Table 6-1 for one company’s comparison of field sales and telemarketing costs.
The situation at the Medical and Surgical Products Division of 3M is typical of that
found in many firms. The company determined that it cost $200 for each call by field
salespeople. Because each sale required 4.3 calls, the selling cost per sale averaged $860.
Small hospitals did not generate enough sales to cover this cost, and about half of the
hospitals serviced by 3M’s salespeople were considered small. To address this imbalance,
3M instituted a telemarketing program. Because telemarketing reps can make many more
calls per day than field salespeople, the average cost of a telephone sales call is $25.
Companies are expanding the role of telemarketing within the marketing program of
most business-to-business firms. Figure 6-9 lists some of the activities that telemarketing is
performing for many companies.

T A B L E 6-1 Doing the Math on Account Management

Field Rep Telemarketing
Sales calls per day 5 25
Sales calls per quarter 325 1,624
Sales calls per year 1,300 6,500
Salespeople required 6.5 1.2
Cost per sales call $250 $15
Cost per year $1,998,750 $117,000
166 CHAPTER 6 SALES FORCE ORGANIZATION

Activity Description
Customer Service Companies provide customers with a number they can call if they have
questions.
Prospecting and Lead Firms are taking a proactive approach to prospecting by having
Qualification telemarketers call prospects or qualify them for face-to-face selling.
Account Management Secondary product lines are sold or small customers are serviced by
phone, thereby freeing their salespeople to concentrate on larger
customers and strategic product lines.
Promotion Support Newspaper and magazine ads are developed that feature either a local or
an 800 number to get additional product information or place an order.

F I G U R E 6-9 The Scope of Telemarketing Activities

Challenges
Despite considerable merit, telemarketing presents several unique management challenges.
Among these are gaining acceptance for telemarketing by the field sales force and managing
telemarketers.

Acceptance. Integrating telemarketing with a traditional sales force can be challenging

because many field salespeople feel threatened by telemarketers. Even when a company
continues to pay salespeople a commission on sales made by telemarketers to their accounts,
salespeople often fear that management will eventually cut their commissions on these sales.
As a result, salespeople may withhold critical customer information and refuse to integrate
telemarketers fully into the selling process.

Management. Hiring the right person for telemarketing can also pose a problem. The type
of individual needed is one who combines some of the attributes of a good customer service
person with those of a successful salesperson. The best telemarketers are concerned with
details and possess the positive outlook and aggressiveness of good salespeople. However,
customer service people are often reluctant to make the first call, and salespeople tend to
prefer one-on-one relationships and are likely to spend a lot of time on the phone with one
account. Many firms find it necessary to look outside the firm for the right person.

Motivation. Motivation and retention are also potential problem areas. Telemarketers do
not have the freedom of movement of field salespeople and may be required to make 20
to 30 calls per hour. Adding to the problem is lower pay than outside salespeople and
the status of second-class citizens relative to salespeople. Companies have tried to provide
telemarketers with significant bonuses based on performance, greater training, and increased
interaction with salespeople and customers. In general, motivation and retention continue to
be problems.

Role of the Internet. There are indications that the Internet has the capability to greatly
enhance company telemarketing efforts. This is because the Internet or corporate extranets
give telemarketing the visual supports not otherwise available when talking to customers
over the phone. When ordering a new computer from Dell over the Internet, for instance,
you can see the computer alternatives you might be considering purchasing. There is a
button that offers “Call me up,” so you can quickly make contact with a telemarketer to
answer your questions. This has been referred to as permission marketing, which means
that the customer asks for the information before it is provided. Notice in the Dell example
that the customer initiates the contact; that is, the customer gives the company permission
INDEPENDENT SALES AGENTS 167

to provide him or her with additional information instead of having it forced on him or
her. The advantage of permission marketing is that it increases the efficiency with which
information is broadcast. Instead of sending it out to a large group of people who the
marketer thinks will be interested in the information, the customer tells the marketer that
he or she is interested. The Internet and telemarketing are ideal media for this process.
Airlines, on the other hand, appear to be pursuing a strategy of replacing telemarketers
with the Internet, by encouraging people to make airline reservations over the Internet and
by offering discounts to those who do so. Here the emphasis seems to be on reducing
labor costs by having the consumer perform part of the labor. It is worth nothing, how-
ever, that recently airline reservation websites have a popup box asking if you would like
to talk to a telemarketer for help in making the reservation. Regardless of the strategy
pursued, the Internet offers companies additional choices as to how to best access their
customers.

SOME ADDITIONAL ISSUES

The effectiveness of a sales force structure will depend on a firm’s objectives, strategies,
capabilities, and external environment. Some additional points to consider when evaluating
specialization options are the following:
• If a company’s objective is to reduce costs, then full-line salespeople and telemarketing
are the best low-cost options.
• If a company’s objective is to increase revenue, then specialization (product, customer,
functional, and major accounts) supported by telemarketing should be considered.
• Exceptional training capabilities are frequently critical to the success of specialized sales-
people. Specialization by itself is rarely sufficient to produce exceptional results; develop-
ment of specialized skills must be fostered and enhanced by appropriate training programs.
• When specializing, a firm must have the capability of developing new products and
modifying existing products for individual product lines and/or markets. Sales force reor-
ganization cannot solve a product problem.
• If your market is susceptible to demand or margin downturns, then specialists may prove
too expensive and too difficult to redeploy.
These factors are likely to vary within the products/markets in which an organization
competes. Thus, many large companies combine a variety of specialized sales force struc-
tures within their overall selling organization. This also suggests that there is no optimal
way for all companies to organize.

INDEPENDENT SALES AGENTS

Up to this point, we have focused on how to organize a company sales force in which
all the salespeople and managers are employees of the firm. An important alternative is to
hire independent sales agents (sometimes referred to as manufacturers’ reps) to perform the
selling function. Sales agents are not employees, but independent businesses given exclusive
contracts to perform the selling function within specified geographic areas. They take neither
ownership nor physical possession of the products they sell and are always compensated
by commission. Agents are often used to develop new markets. They are able to get up to
speed quickly in such situations because agents usually handle five to eight noncompeting
but related product lines that they know fairly well and sell to similar buyers.
168 CHAPTER 6 SALES FORCE ORGANIZATION

When to Use Sales Agents

The decision to pay sales agents to cover a particular product/market is not easy to make or
to implement. Management should consider three factors: (1) economic consequences, (2)
level of control, and (3) market environment.

Economic Consequences. The economic issue centers on the fixed-cost nature of a ded-
icated sales force versus the largely variable cost nature of sales agents. A simplified
representation of cost differences between sales agents and a company sales force with
a straight salary compensation plan is shown in Figure 6-10. Although some fixed costs
may be associated with sales agents, sales administration costs are usually a relatively small
proportion of total selling costs.
Agents receive neither salary nor reimbursement for travel and entertainment expenses.
Because agents are paid strictly on commission, costs rise as sales volume increases. Con-
sequently, there is a breakeven sales volume below which sales agents are less expensive
and above which a company sales force costs less. These economic factors are one reason
small companies and secondary markets may use agents.
Suppose that independent sales agents receive a 5 percent commission on sales and that
administrative overhead costs $50,000. Company sales personnel receive a 3 percent com-
mission plus a salary. Total salary and administrative expenses are estimated at $550,000.
At what sales level would the cost of a company sales force equal that of sales agents? This
question can be answered by setting the cost equation for both types of sales forces equal
to each other and solving for the sales level amount as follows:
Cost of company sales force = Cost of sales agents
0.03x + $550,000 = 0.05x + $50,000
where x is the breakeven sales volume.
Solving for x, we see that breakeven sales volume equals $25 million. If sales are
expected to be below $25 million, then sales agents are less expensive. The cost of a
company sales force is less when sales exceed $25 million.
Although Figure 6-10 accurately depicts the essential economic relationships when
comparing agents with a dedicated sales force, the situation is often more complicated than
one might expect. Adding new salespeople to produce greater volume, for instance, results
in fixed costs increasing in a stair-step fashion. Thus, there may be multiple breakeven
points at ever-increasing levels of sales.
This analysis also assumes that sales volume can be maintained during a switch from
agents to a dedicated sales force. If agents are able to quickly pick up a competing line of
goods, your sales volume may fall below that which was sold by agents. Sales growth is

Independent
agents
Total selling costs

Own sales
force

Breakeven
sales

$2.5 million sales volume

F I G U R E 6-10 Total Costs of Independent Agents versus Own Sales Force

INDEPENDENT SALES AGENTS 169

driven by loyalty to the sales agent and not loyalty to the supplier company according to a
recent study of industrial product sales agents.21 These and other considerations can make
the decision to build a dedicated sales force far less clear-cut than may first appear.

Level of Control. Costs are not the only consideration. Managers can control a company
sales force through the selection, training, and supervision of salespeople; establishment of
operating policies and procedures; and various evaluation and reward programs. Salespeople
who are part of an in-house sales force spend 100 percent of their time on the company’s
products.
When selling through agents, you face competition at two levels: manufacturers selling
competing products and firms selling products through the same agents. In other words, the
company competes for the agent’s selling time. Although management should try to establish
a personal relationship with its agents and sell the agents on the company’s marketing
program, the primary control mechanism with agents is the commissions paid on sales.22
This is a market-driven control method, and agents can be expected to spend their time in
a manner that will enable them to meet their income objectives. That is, they will evaluate
both the amount of commission and the time it will take to earn the commission when
deciding how to spend their time.

Market Conditions. Sales agents possess established selling skills, existing client rela-
tionships, and general product knowledge. In addition, they represent a largely variable
expense, as discussed earlier. These factors combine to favor the use of sales agents in
certain market conditions (see Figure 6-11). Notice that these conditions may describe the
market conditions that a company faces, or they may be relevant for only certain product
lines or markets into which a company sells. As a result, a company may sell all or only
some of its products through agents. Large manufacturers such as ITT, Corning, Monsanto,
Teledyne, and Mobil Oil supplement their own sales force by contracting with sales agents
in secondary markets. Xerox, for instance, sells strictly through agents in rural areas and
recently switched to selling smaller metropolitan accounts through agents.
As the above discussion suggests, a company must be very cautious in switching from
a sales agent organization to a dedicated field sales organization. A recent example of a
company that has successfully made the switch is Sara Lee Corporation, the $4 billion
company selling fresh-baked goods, meats, tea, and coffee. Key to its decision to make
the switch was the move from a transactional type of relationship to a more consultative
relationship with its grocery customers. The consultative relationship is based on data-driven
decisions and close customer relationships as opposed to the individual relationships and
loyalties that characterized many of its past relationships. The revenue and market share
results have been very positive in all of Sara Lee’s divisions.23

• The market is fragmented, and customers are difficult to find or understand.

• Buying is decentralized.
• Local knowledge and local distribution are important.
• The company is selling only a few products.
• There is a good potential sales agency who has significant marketing expertise in the industry.
• The company is not well known and has little equity in the market.
• The products are easily understood commodities that have been around for a long time.
• The selling cycle is short, and orders are typically small.
• It is not necessary to tightly control the selling effort.
• Ongoing support activities are not important, and the company does not need customer
information.

F I G U R E 6-11 Market Factors Favoring the Use of Sales Agents

170 CHAPTER 6 SALES FORCE ORGANIZATION

EMERGING SALES FORCE ORGANIZATION ISSUES

Five issues related to sales force organization are getting increasing management
attention—marketing-sales disconnect, cross-functional coordination, global account organi-
zations, sales teams, and selling partners.

Marketing-Sales Disconnect
According to the results of a recent survey, aligning sales and market more closely is one of
the top three priorities of chief sales executives.24 This might surprise some because it would
seem that sales and marketing would naturally align with their mutual focus on the customer.
When sales are disappointing, however, marketing tends to blame the sales force for not
executing the marketing plan. The sales team, in turn, attributes the results to marketing
setting prices too high and using too much of the budget for advertising instead of hiring
more salespeople or paying salespeople higher commissions. More broadly, according to
another survey, sales departments tend to believe that marketers are out of touch with what’s
really going on with the customer, while marketers believe the sales force is myopic—too
focused on individual customer experiences while being insufficiently aware of the larger
market. In short, each group tends to undervalue the other’s contributions.
Figure 6-12 reflects the ways in which marketing and sales influence customer purchas-
ing. There are two sources of friction between sales and marketing. One is economic, and
the other is cultural. The economic reason results from the need to divide the total budget
between sales and marketing. The budget for each group is likely to reflect the power each
department wields within the organization.
The cultural conflict between sales and marketing is even more entrenched than the
economic conflict. In part, this is because the two functions attract quite different types of
people who spend their time in quite different ways. Marketers tend to be highly analytical,
data oriented, and project focused. They are all about building competitive advantage and the
future. Often, this does not look like much action to sales because it all takes place behind a
desk rather than out in the field. Salespeople, in contrast, spend their time talking to existing
and potential customers. They are skilled relationship builders and are also attuned to the
product features that customers desire and those that customers don’t value.
What can be done to encourage greater alignment between sales and marketing? Experts
suggest that the following steps should be considered:25
1. Encourage disciplined communication. Hold regular meetings between sales and mar-
keting. Make sure the agenda include major opportunities and problems. Focus the
discussion on action items.
2. Create joint assignments and rotate jobs. Create opportunities for marketing and sales
to work together, such as marketers going along on sales calls and salespeople helping
to develop marketing plans and sit in on product-planning reviews.
3. Co-locate marketers and salespeople. By locating in physical proximity, they will
interact more often and are more likely to work better together.

Cross-Functional Coordination
The traditional flow of communications in most organizations has been directed outward
from the organization to the customer through the sales force. Although the sales force had
some interaction among other functional areas—R&D, production, logistics, and accounting
and finance—the need for coordination was limited owing to the mostly one-way flow of
communications out to the sales force.
EMERGING SALES FORCE ORGANIZATION ISSUES 171

Customer Awareness

Brand Awareness

MARKETING
Brand Consideration

Brand Preference

Handoff

Purchase Intent

Purchase

SALES

Customer Loyalty

Customer Advocacy

F I G U R E 6-12 The Marketing–Sales Handoff

With an increased focus on solving customers’ problems, the flow of communications

between sales and other departments is becoming more of a two-way communications
flow. The sales force now communicates customers’ needs and expectations back to the
organization. Wal-Mart’s and Procter & Gamble’s teams have constructed a formal, written
code of conduct, for instance, in which each has agreed to be the other’s advocate within
their respective firms. If both teams agree that a particular type of promotion would work
best in Wal-Mart, for example, then the P&G sales team is responsible for selling the
program inside P&G. To facilitate more honest and candid exchange of information between
functional areas, some companies are turning to networked personal computers to facilitate
consensus building and brainstorming26
With which functional areas is the sales force most likely to interact? Depending on the
organization and situation, sales will often need to work harmoniously with the following
departments to successfully address customer needs.
• Engineering—new product and product modification ideas
• Marketing—advertising themes and media, cooperative advertising efforts, development
of sales aids, channel issues, competitive pricing, and competitive market information
• Production—product availability, sales forecasting, production scheduling, technical prod-
uct information, special product features and characteristics, and delivery schedules
• Accounting and finance—special pricing and credit schedules, customer credit informa-
tion, budgets and quotas, compensation programs, and control of expenses
172 CHAPTER 6 SALES FORCE ORGANIZATION

• Operations/Customer Service—equipment installation, customer training, equipment

upgrades, ordering problems, warranty servicing, and emergency needs of customers
According to a recent survey by Accenture, front-line sales are most likely to inter-
act with operations and customer service, followed by product development.27 Ensuring
proper coordination and communications between sales and these functions is often diffi-
cult. Nevertheless, the benefits of a coordinated effort to address customer problems are
often worthwhile.

Global Account Organizations

Customer expansion to global operations and into new product lines and businesses requires
suppliers to have global capabilities and real-time knowledge and responsiveness across busi-
nesses and functions. Global account management programs treat a customer’s operations
worldwide as one integrated account with coherent terms for prices, product specifications,
and service.28
Technology firms were some of the first to utilize global account management (GAM)
teams. Typical of these firms is Solectron, an $18 billion electronic manufacturing service
firm, which works with many of the technology giants like IBM, Hewlett-Packard, Sun,
Nortel, and Sony to design, manufacturer, deliver, repair, and support their product lines.
Solectron began its global accounts effort in 1996 with Cisco. Cisco had little interest in
manufacturing and relied on providers like Solectron as an essential part of its supply chain.
The Cisco global account team began with two members—a global account executive and a
global account manager. Over the last six years, Solectron has continued to evolve the Cisco
global customer team and has developed fourteen new teams for a total of fifteen global cus-
tomer teams, which collectively account for 75 percent of Solectron’s revenues. The global
teams are truly cross-functional, including people in operations, sales, finance, marketing,
and new product introductions. The teams are designed around an understanding of cus-
tomer needs and priorities and are built to reflect specific customer strategies.29 Despite the
increased adoption of GAM programs by suppliers, a recent research study found that only
about a third of the suppliers that have adopted GAM programs are happy they did so, and
that even for them success can be hard.30 Many of the successful programs have had over ten
years of trial and error to arrive at a place where their gains, a bigger share of the customer’s
business and a richer sales mix, outweigh the pain of lower prices and a higher cost to serve.
The two biggest difficulties with GAM programs are selecting the right global customers
for a GAM program and developing the right structure for implementing a GAM program.
The selection question is similar to that of selecting customers for a strategic account
management program discussed earlier with the added complexity that there also needs to
be a geographic fit as well. Also similar to the discussion of strategic account management
programs, the right structure of a GAM program is essentially a tradeoff between tailoring the
program for individual customers and minimizing the resources that each program consumes.
Additionally, there is a major issue with respect to how much responsibility to give the
central GAM group and how much to give the national sales organizations.
Despite the difficulties, market forces are leading more and more companies to adopt
GAM programs. Hewlett-Packard has over 200 corporate accounts with global account
status. IBM has a similar number of global accounts. For more analysis of global account
issues, you should address the issues raised in Team Exercise, “A Global Assignment.”

Sales Teams
Today’s customers have increasingly customized and complex needs—needs that frequently
cannot be met by individual salespeople. In these situations, success depends on the ability to
EMERGING SALES FORCE ORGANIZATION ISSUES 173

TEAM EXERCISE
“A Global Assignment”

As Global Sales Director for Access Communications in California, you need to fill a sales
slot in Bath, England. You have the perfect candidate for the assignment: Grace Bowens, a
strategic account manager in Denver. The problem is, can you convince Grace to take an
international assignment given Access’s expatriate policy? Access will pay relocation expenses
for a contracted two-year-or-more assignment but offers no base pay increase for time abroad.
Management believes that an expatriate assignment should be treated the same as any in-country
relocation. Otherwise, the company would have to pay too many people a percentage increase
because Access has salespeople and managers in more than two dozen countries.
Trying to convince Grace to take the assignment is complicated by the fact that she is
married to a successful graphics designer, who probably wouldn’t give up his job and lucrative
salary. You would like Grace to take the expatriate assignment for three years. If all goes well,
you intend to bring her back and promote her as the head of a top-five global account based
in the United States. You know you need a creative solution, but what is it? Do you agree
with Access’s policy for expatriate assignments? What do you recommend? How would you
negotiate with Grace? Should Access find an equivalent position for Grace’s husband?

marshal resources effectively across a range of buying locations, buying influences, product
lines, and internal organizational boundaries. Now, companies such as AT&T, Baxter, Dun
and Bradstreet, and Procter & Gamble are discovering that meeting customer procurement
requirements and perfecting the overall customer interface require a customer-focused sales
team consisting of salespeople, customer service, technical specialists, and other functional
areas. The objective of these teams is to consolidate greater knowledge and skills to focus
on a more creative and complete solution to a customer’s needs in order to build stronger
customer relationships.
Xerox has used a team approach for some time, utilizing the slogan “Team Xerox.”
The account team comprises of an account representative, a highspeed duplicating specialist,
an electronic printing specialist, an office systems and networking specialist, an electronic
keyboard and workstation specialist, a copier specialist, and an account manager.
Figure 6-13 illustrates how part of Ericsson’s Key Account sales force is organized.
The account manager for a major customer can call on the expertise and support of the
account coordinator, a project manager, and a technical support engineer. If the situation
is appropriate, the team may also call on the additional technical expertise of the specific
product manager. If the customer has international operations, then a global account manager
will also work with the team to coordinate their effort worldwide. In Ericsson, Key Account
sales teams are responsible for building on existing customer account relationships, while the
National Account Team (not shown in Figure 6-13) is responsible for finding new business
with totally new customer accounts. Ericsson, as in many large companies, incorporates
aspects of different types of sales force organization discussed in this chapter: geographic
territories, product specialization, customer specialization, and functional specialization, as
well as major accounts and selling teams.

Selling Partners
With the shift to direct channels and the need to customize solutions to individual cus-
tomers, companies are finding it necessary to market through selling partners. These are
salespeople who are not on the payroll and who not only sell but also provide technical and
174 CHAPTER 6 SALES FORCE ORGANIZATION

Country president

V.P. business operations

key account team

Director of Director Global account

Sales director
operations product support director

Account Product Account

Project managers
managers managers managers

Account Technical support Account

coordinators engineers coordinators

F I G U R E 6-13 Sales Team Organization at Ericsson

operating support. An example is Siebel CRM, a division of Oracle Corporation, which uses
partner companies to customize its software for large- and medium-size customers. Siebel
provides the software code, and the selling partner provides the consulting and systems inte-
gration services to install the software in a company. To get the software product to market,
Siebel needs value-added selling partners that actually implement the software package.
This arrangement raises many strategic issues for Siebel. It does not have to shoulder all
the selling costs involved in getting the attention of the final customer, but it also must
be creative in attempting to control the selling process. If a conflict arises with its selling
partners, will Siebel have the power to influence its resolution?
IBM is another large company that works with selling partners to address the infor-
mation and technology needs of smaller customers. Worldwide, IBM has relationships
with nearly 50,000 “business partners” consisting of independent distributors, value-added
resellers, system integrators, and software vendors. The 20 percent of small business cus-
tomers that account for 80 percent of the dollar sales receive one-on-one attention from
the IBM sales force. However, salespeople are responsible for effectively managing the
customer relationship by working with their distributors and resellers to present a coor-
dinated and effective message to the customer. To accomplish this coordination, the IBM
sales force works closely with its strong telemarketing group. IBM is a good example of
a very successful company that has incorporated specialization, sales teams, telemarketing,
and selling partners into its sales force organizational design.31

SUMMARY
Changes in the competitive environment and in the way your customers want to purchase
often require a reorganization of the sales force. Decisions must be made about how many
salespeople are needed, how they should work together, and how they should be organized
to ensure both efficiency and effectiveness in accessing an identified customer base. These
decisions are likely to have a profound effect on the performance of the sales force and the
organization as a whole.
1. Explain the various ways by which sales forces can be organized. Almost all sales
organizations use some sort of geographic breakdown to help control the costs and
DEVELOPING YOUR COMPETENCIES 175

activities of field salespeople. Firms with diverse lines of high-technology products often
can improve their sales performance by specializing selling efforts by product. Where
buyers have special needs, customer specialization can improve efficiency by eliminating
duplication of calls and by more effectively identifying and meeting customers’ needs.
With complex products, the sales organization may be divided along functional lines into
initial contact people and account maintenance people.
2. Explain what a strategic accounts management program means. This is a marketing
philosophy directed at a select group of customers that account for a disproportionately
large share of the seller’s total revenues and have complex needs and problems. These
customers have been selected for special attention because they put more emphasis on
value-added options such as education, electronic data interchange, and management
information system compatibility.
3. State the reasons for the growth in telemarketing and its implementation issues.
Telemarketing refers to customer contacts utilizing telecommunications technology for
personal selling without direct, face-to-face contact. One reason for the growing pop-
ularity of telemarketing is that it allows companies to make cost-effective sales calls,
especially on small customers. Another reason for its success is that many customers
prefer this method of communications owing to time pressures. The primary obsta-
cles to successful implementation of telemarketing are resistance by field salespeople
and the special management issues associated with hiring, motivating, and retaining
telemarketers.
4. Tell why and when sales agents are utilized. Independent sales agents are not employ-
ees, but independent businesses given exclusive contracts to perform the selling function
within specified geographic areas. They take neither ownership nor physical possession
of the products they sell and are always compensated by commission. Because they are
paid on commission and are therefore largely a variable cost, agents are often used to
develop new markets or cover geographic areas in which demand is not sufficient to
support a company sales force.
5. Describe evolving trends in sales force organization. Five sales force organization
issues are receiving increasing management attention—centralization versus decentraliza-
tion, cross-functional coordination, global account organizations, sales teams, and selling
partners. These issues are arising due to changes in the technology and the needs of
companies’ customer bases.

KEY TERMS
Build-up method Independent sales agents Starting points
Customer specialization Mapping programs Strategic account management program
Functional specialization Permission marketing Telemarketing
Generalist structure Sales teams Territory
Global account management Selling partners Vertical marketing

DEVELOPING YOUR COMPETENCIES

1. Self-Management. The world of business-to-business management is changing, radi-

cally and permanently. New selling methods, especially national accounts programs and
telemarketing, have altered the role of traditional face-to-face selling. The role of the
traditional field sales force has shrunk, while telemarketing focuses on small customers
and strategic accounts programs sell to the largest customers. How do you think these
developments will affect the role of the traditional sales manager and the skills required
176 CHAPTER 6 SALES FORCE ORGANIZATION

for the position? How does the sales manager’s role compare with the roles of national
accounts managers and telemarketing managers?
2. Strategic Action. Corporate restructuring is becoming an everyday occurrence in
today’s business environment. Such restructuring may happen when one company
acquires another company or picks up a new product line. It may also occur in the
process of divesting a business or product line or when merging several product lines,
each with its own sales and distribution forces, into a single division. Restructuring
offers opportunities and also poses threats to sales force management. If, for example, a
national company decides to combine its separate housewares and audio business sales
forces, what issues must be considered? What kinds of analysis would you do prior to
any reorganization? How would you execute a merger between these two sales forces?
3. Technology. The 3M Company offers an 800 number to assist its telecommunication
equipment customers. The 3M National Service Center, located in St. Paul, Minnesota,
is staffed 365 days a year, 24 hours a day, with skilled technicians and coordinators.
Through systematic questioning and a variety of facsimile, ASCII communication termi-
nals, the latest monitoring and testing equipment, and a sophisticated on-line computer
system, the staff can isolate an equipment problem or operator error. The 3M Center has
found that in more than 30 percent of the calls, the equipment failure can be corrected in
minutes, without dispatching a service technician. Considering the other possible telemar-
keting roles besides customer service, what are other possible applications of technology
in telemarketing?
4. Global Perspective. The goal of Oracle’s Global Account Management Program
(GAMP) is to dramatically improve international customers’ ease and effectiveness
of doing business with Oracle. To accomplish this goal, Oracle uses its own database
technology to support a worldwide GAMP information networking system. In addition
to the customer having access to the database, any Oracle employee supporting an
account can access the system. What are the possible risks and uses for such a database?
www.oracle.com.
5. Team Building. Minneapolis-based ADC Telecommunications strategically uses sup-
pliers as part of its sales team to support its account management efforts. A variety of
consulting and training firms serve as resources to address strategic account issues. These
firms are brought together on an as-needed basis to address issues collectively rather than
independently. By using this approach to address customer needs and issues, ADC has
an opportunity to bring additional value to its customers. The practice has been found
to improve customer relationships and generate new revenue opportunities. A number of
issues are critical to the success of this teamwork effort. For instance, how does ADC
ensure the quality of advice given by these outside firms? How does ADC coordinate
the efforts of these partners with its own efforts? What are some other issues critical
to the success of this program, and how might an organization address these issues?
www.adc.com.
6. Coaching. A marketing and sales executive for a leading industrial organization who
is a relative newcomer to the firm shares the following summary of his initial meeting
with one of his larger accounts with whom they do over $10 million in business annu-
ally. “While the account is one of our older, more established customers, the account is
undergoing some changes that have been difficult for us to put our arms around. Several
years ago, they centralized purchasing. It seemed to me at the time that the existing
contracts were reasonable and fair. Nevertheless, purchase orders were no longer being
placed as frequently from the customer’s local plants as in earlier years. When my strate-
gic account team has tried to introduce new product developments, the discussion has
quickly transformed itself into requests for price reductions. In addition, the account
executive’s efforts to bring the latest training concepts to the customer’s field team are
SHIELD FINANCIAL “A SPECIAL ASSIGNMENT” 177

being met with a lukewarm reception. The customer’s field team seems to be extraordi-
narily concerned with inventory and delivery issues, not training. As a result, the rate of
revenue growth with this account has receded over the last several years, and the oppor-
tunity with this account is languishing.” What is possibly going on with this account?
What advice would you give this executive?

PROBLEMS∗

1. Your company currently generates $200 million in revenue selling through 50 indepen-
dent sales agencies. The agencies are paid a flat 5 percent commission on sales they
generated. You are wondering whether it would be less expensive to develop your own
dedicated sales force. Your industry’s trade association conducts an annual compensation
survey, which indicated that the average salary for salespeople is $60,000 including ben-
efits. In addition, an incentive compensation of 0.5 percent (i.e, one-half of 1 percent)
of sales was also typical. You estimate that you would need to hire 100 salespeople to
replace the sales agents. Given the information provided, which would cost you less at
$200 million in revenue—your own dedicated sales force or independent sales agents?
What is the breakeven sales volume for your company; that is, when do the two sales
force alternatives cost the same?
2. Upon further reflection on the previous problem, you realize that you have neglected
to consider several relevant costs in your calculations. You have one national sales
manager and a marketing manager who presently interface with the independent sales
agents, but additional management levels will be needed to train and manage the number
of salespeople you are anticipating hiring.
First, you have decided to divide the nation into two regions with a regional sales
manager in charge of each. According to industry sources, a regional sales manager’s
average salary is $120,000. Second, a number of district managers will be needed to
manage the salespeople directly. A span of control of 10:1 (10 salespeople to 1 manager)
is believed to be necessary. Salaries for district managers average $90,000. Incentive pay
for managers, both regional and district, is expected to be 0.35 percent of sales. Third,
it should cost $12,000 to recruit and train each salesperson. Finally, management wants
sales to grow by 10 percent next year to $220 million, so more than 100 salespeople will
need to be hired. Average sales per salesperson are expected to be $2 million. Given this
new information, which type of sales force will be less expensive? What is the breakeven
sales volume now?

SHIELD FINANCIAL “A SPECIAL

FEATURED CASE ASSIGNMENT”

I
t’s been 18 months since he took over the Des he understood himself better and had grown as an
Moines office, and Doug Bloom is finally feel- individual. At dinner the other night, he mentioned
ing like he has the job under control. His office to his wife, “You know, as you get involved in this
has exceeded its sales quotas for each of the last five job, your personality changes. Some managers become
quarters and profits are improving. He also felt as if very people-directed and others are more sales- and

*Excel spreadsheets for working on these problems are available at www.wiley.com/college/cron. Go to “Student
Companion Site.”
178 CHAPTER 6 SALES FORCE ORGANIZATION

customer-directed. I doubt that you find many peo- informs Doug that he has two months to complete a
ple who are perfectly balanced on these dimensions. plan for starting the new sales force. Doug says that he
I think I’m leaning toward the people side now, which had better begin right away and suggests that he meet
surprises me. I always loved the customer contact so with the two regional sales managers.
much when I was selling.” The following week, Doug arranges a meeting with
The next day at work he received a call from Vinny the two regional sales managers. Doug informs them of
Raccioppi, Vice President of Marketing and Sales for the impending change in organization and the necessity
Shield, informing him that as part of his management of developing a thorough and thoughtful plan of action.
development he was given a special assignment. Vinny After expressing their surprise, the regional sales man-
would like to meet with him in New York the following agers mention their concern with agents’ reactions.
week to discuss this assignment. They both indicate that there is no way this plan can
In New York, Doug is informed that his special be kept a secret until it is implemented and that the
assignment is to plan for the phasing out of independent brokers are likely to be angry about losing the 20 per-
insurance brokers in the mountain states of Montana, cent commissions they have become used to receiving.
Idaho, Wyoming, Utah, and Colorado. Shield intended During this discussion, possible retaliatory actions by
to hire full-time salespeople to cover these areas. the brokers are discussed. At the conclusion of the
Among other reasons for the change, the population in meeting, the vice president suggests that they all think
these states is growing and the company feels that it can about how to “ease out” the 34 agents without suffer-
get better penetration of the market with its own dedi- ing undue economic recriminations. They agree to get
cated sales force. Vinny also mentions that he believes back together for a meeting the next week to discuss
the sales agents have grown “older and wealthier” and alternative plans.
are losing the “energy and drive” of earlier years.
Shield currently has two regional sales manag-
ers who supervise the brokers in these states. These Questions
regional managers are responsible for recruiting
high-quality brokers, working with them to ensure 1. How would you advise Doug to conduct the meeting
that they understand and know how to sell Shield’s with the two regional sales managers?
products, and producing the sales volumes quotas in 2. How would you attempt to control the potential eco-
these areas. The sales manager will need their help nomic damage that may occur when switching from
to put together an in-house sales force and undertake brokers to your own sales force?
damage control when the sales agents are informed of 3. What would you suggest doing if one of the brokers
the new organization. asked you whether it was true that shield was going
Doug’s reaction is one of surprise, followed by a to release all its brokers and switch to a dedicated
realization of the magnitude of the undertaking. One of sales force?
Doug’s immediate concerns was controlling the dam- 4. What issues would you have to address in starting
age to customer relationships that may arise when the your own sales force?
brokers are told of the new sales organization. Vinny

MANAGEMENT RESOURCES

TERRITORY DESIGN
In the previous chapter on sales force structure, we mentioned that one of the most common
sales force structures is to assign salespeople all accounts in a particular geographic area.
Even when sales forces are organized according to specialties (e.g., products, customers,
or functions), salespeople’s responsibilities are often restricted to a particular geographic
boundary or territory, which is what Xerox has done. So the majority of sales forces have

Resource Consultant: David Pinals, President, TTG, Incorporated

MANAGEMENT RESOURCES: TERRITORY DESIGN 179

some sort of exclusive territory alignment that specifies each salesperson’s or sales team’s
account responsibility and activity mix. The purpose of this chapter is to discuss processes
for designing geographic territories and issues that may arise when assigning salespeople to
a particular territory.

THREE REASONS WHY PROPER TERRITORY ALIGNMENT IS IMPORTANT

Customers and prospects have a level of activity and coverage that is required to service
them properly. Salespeople likewise have an activity capacity. A territory is defined as
the customers, located in a specified geographic area, that are assigned to an individual
salesperson. Thus, although territories are often referenced in geographic terms, the defining
element of a territory is the set of customers in the geography.
A properly aligned sales territory is one in which customers receive the proper amount
of attention and the workload is balanced across salespeople. Figure MR6-1 illustrates the
territory imbalance that existed in a cosmetics firm. According to experts, it is indicative
of the imbalance that exists in many sales forces. The vertical axis indicates the amount
of workload in a territory, with 1.0 indicating the ideal workload for one salesperson.
All 200 territories in the sales force are sorted from highest to lowest, and each territory
is represented along the curved line. Territories with indexes above 1.0 have too much
workload for one salesperson to properly handle, while those below 1.0 have insufficient
work and sales potential. With a tolerance level of +15 and −15 percent, approximately
60 percent of territories have an unacceptable deviation from the ideal workload level. A
study of over 4,800 territories indicates that this is not an unusual situation. The study found
that well over half of the territories were not the right size. Approximately 25 percent of
the territories were too large to be covered effectively, while 31 percent were too small to
keep a salesperson sufficiently busy with productive work.1
Research on territory alignment suggests that there are at least three reasons for properly
aligning sales territories by bringing all territories within a proper workload tolerance level.2
• Increased sales
• Cost savings
• Higher morale

Increased Sales
In a properly aligned sales force, work shifts among salespeople so that all customers
receive appropriate coverage. A salesperson who has additional time to call on customers
is assigned an account that is currently managed by a salesperson who is too busy. This
neglected account could turn out to be the best account in a low-workload territory because
this salesperson has enough time to work with the customer, while salespeople with too
little time are not seeing important customers. Research by ZS Associates indicates that
rectifying a workload imbalance can improve sales by between 2 and 7 percent.

Cost Savings Through Reduced Salesperson Travel

Sales territories can be justified economically because they help reduce marketing costs.
When only one person covers each geographic area, duplication of sales calls and related
travel costs are eliminated. Salespeople in well-designed territories spend less time traveling
and more time selling, resulting in lower sales costs as a percentage of sales. For example,
a large industrial distributor with over a 1,000 salespeople was able to reduce travel time by
13.7 percent by properly aligning its sales territories. This translated into almost $1 million
180 CHAPTER 6 SALES FORCE ORGANIZATION

2.0
Workload across sales territories
1.8

1.6 Actual territory workload

1.4
+15%
1.2
Workflow 1.0
Ideal territory workload

0.8
–15%
0.6

0.4

0.2

1 20 40 60 80 100 120 140 160 180 200

Territories sorted by workload

F I G U R E M R6-1 Unbalanced Territories for a Cosmetics Company

in savings and increased selling time by 2.7 percent. The company estimated that this
increase in selling time resulted in over $15 million in additional sales and over $3 million
in additional profits. Another benefit of reduced travel included salespeople having more
nights at home and higher morale.

Higher Morale and Reduced Turnover

Studies have consistently shown that sales potential is the single best predictor of territory
sales, regardless of any factors related to the salesperson. In other words, high sales potential
will lead to high sales, regardless of the sales person’s efforts. The reverse is true for low
sales potential territories. In a consumer goods company with 250 territories, for instance,
the territory ranked fourth highest in sales for the year had been without a salesperson for
most of the year. Analysis indicated that the territory had huge sales potential.
The strong sales potential–territory sales relationship suggests that management must
be careful to reward the salesperson and not the territory. Inequitable and unfair rewards are
likely to result from improper territory alignment. Some very good salespeople may become
dissatisfied with the job because they feel they are in a “no-win” situation or because they
start questioning their own abilities and career choices. On the other hand, the salesperson
who has been going on reward trips for the last ten years may not really deserve the trips.
His or her territory may simply have too much sales potential, so that it produced more
sales than other territories despite the salesperson’s efforts. Compensation systems with a
high percentage of incentive pay tend to accentuate the morale and turnover effects of poor
territory alignment.

WHEN DO TERRITORIES NEED TO BE REALIGNED?

In a recent survey of 278 sales managers, 62 percent reported that they had had to realign
sales territories within the past 12 months.3 A number of events may require a minor
realignment of sales territories. For instance, a large customer may relocate. A new account
may need to be shifted from a customer acquisition specialist to an account service and
MANAGEMENT RESOURCES: TERRITORY DESIGN 181

A change in sales force size

A change in sales force structure
Mergers and acquisitions
Shifts in market opportunities
Demographic shifts
New products
Need to shake things up

F I G U R E M R6-2 Reasons for a Major Territory Realignment

maintenance specialist. A salesperson may leave the company, and the uncovered accounts
may need to be temporarily assigned to other salespeople.
Major territory realignments usually occur every few years at large U.S. companies.
These realignments usually result from a major sales force change or restructuring. Figure
MR6-2 lists some of the more likely reasons for a major territory realignment.
On the other hand, management must be careful not to make too many significant
changes in territories. Reasons for carefully considering such a change before jumping into
it include:
• It disrupts people’s lives.
• It disrupts customer relationships.
• It is a cumbersome process.
• It can be costly.
• Data for making realignment decisions are limited.
Despite these reasons for not realigning territories, the costs of a poor alignment are
high, as discussed earlier.

TERRITORY DESIGN PROCEDURES

There are many ways to assign accounts to salespeople; in fact, there are more than 1,000
ways to assign ten accounts to two salespeople. The number of solutions rises exponentially
as the number of accounts and salespeople increases. Understandably, there are a number of
potentially good alignments and an enormous number of poor ones. Fortunately, data and
information processing technology advances are facilitating the process.
An effective design of sales territories can be achieved by following the six-step process
outlined in Figure MR6-3. The remainder of this Resource focuses on describing these steps.

Select Geographic Control Units

The first step in the process is to select an appropriate geographic control unit, which is a
unit of geography that can be combined to form sales territories. Control units must be small
enough to allow flexibility in setting boundaries. They must have less area than a territory
and clearly recognized boundaries. Examples of commonly used geographic control units
are listed in Table MR6-1. At first glance, countries would seem to be too large a unit for
designing sales territories. However, a firm that is exporting goods to Europe might combine
several small countries such as Holland, Belgium, and Luxembourg into one territory. States
or provinces may also appear to be too big for combination into territories. States are
most often used as control units when a firm attempts to cover a whole country with a
few salespeople. Small states such as Rhode Island, Connecticut, Massachusetts, and New
Hampshire are frequently combined to create a single territory.
182 CHAPTER 6 SALES FORCE ORGANIZATION

1
Select geographic
control units

2
Decide on
alignment objectives

3
Choose
starting points

Revise territory
4 boundaries to
Combine control units balance workload
adjacent to starting points and potential

5
Make final adjustments

6
Assign salespeople to
new territories

F I G U R E M R6-3 Territory Design Process

When a firm has a lot of urban business, cities or metropolitan areas can be desirable
control units. Firms that divide up cities into several sales territories often rely on zip codes
or census tracts as control units. The smallest control unit might involve building territories
by combining individual customers. Only when a company has a very limited number of
large customers can accounts serve as territorial design control units. The most common
approach in the United States is to build up territories using counties. They are small enough
to expedite territory construction, and potential data are routinely published for these units.

Decide on Alignment Objectives

Although a company may choose a variety of objectives when realigning territories, balanc-
ing workload and sales potential are usually selected as important alignment goals. Balancing
sales potential is particularly important when incentives, such as commissions and bonuses,
are a major part of the compensation system. It is important that salespeople have equal
earning opportunities for income. Some common measures of sales potential include:
• Total industry sales
• Buying Power Index

T A B L E M R6-1 Geographic Control

Units Used in Territory Design
Countries Cities
States or provinces Zip codes
Counties Census tracts
Metropolitan areas Customers
MANAGEMENT RESOURCES: TERRITORY DESIGN 183

• NAICS Code Information

• Demographic Information (population, number of accounts, etc.)
Balancing company sales is not the same as balancing sales potential. Sales reflect where
the sales force is spending its time. Sales potential reflects where the sales force should be
spending its time. Territories that are balanced on sales can become inherently unfair, as it
punishes salespeople for past success by taking accounts away from high producers.
When the sales force performs a set of well-defined tasks for their customers, then
balancing workload should be emphasized. Examples would include many consumer
goods sales forces selling to retailers or distributor salespeople who call on existing
customers to replenish inventory. In such cases, workload usually can be accurately
measured, and a balanced workload should be emphasized to encourage optimal customer
coverage.
Measures that could be used to balance workload include:
• Number of accounts
• Number of accounts by segments
• Number of prospects
• Number of hours required to cover accounts and prospects
• Time needed to cover accounts and prospects
Although the measures used to determine sales potential and workload may differ,
multiple measures may be considered when designing territories. W. W. Grainger Inc., a
$4.8 billion distributor of maintenance and repair supplies, divided its account list among
its more than 1,500 salespeople using what it calls an alignment index. An alignment index
for each account is based on its revenue history and workload. Workload is measured as
the number of service hours devoted to each account. Whether a salesperson manages four
small accounts or one large account, the alignment index will total approximately 1,000
points, thereby balancing each territory on both important criteria.
Although balancing sales potential and workload are the most common allocation cri-
teria, a company may also be interested in minimizing travel time and disruption of client
relationships. Minimizing travel time is particularly important when it is important to con-
trol the number of hours worked, such as when a part-time sales force is employed. In such
a case, allocation measures such as square miles and average travel time might be used
as allocation criteria. On the other hand, minimizing account disruptions may be important
when a consultative and enterprise-type selling is used and in-depth customer knowledge
is important. The percentage of accounts and the percentage of dollar sales that have been
reassigned would be important allocation criteria.

Choose Starting Points

The third step in territory design is to select geographic locations to serve as starting points
for new territories. Since geographic control units are combined to form territories, one
control unit must be chosen around which to combine the additional control units. This
control unit is referred to as the starting point. The starting point that is chosen often
determines the geographic boundary of the territories.
A common choice is the salesperson’s present home because the cost of relocating
salespeople can be avoided and representatives remain near family and friends. Another
popular starting point is a large city. Salespeople in urban locations usually have access to a
large number of customers, and there is less need for extensive travel. An alternative method
is to design the sales territory around the needs of major clients. In this case, the location
of the largest customer in an area might be selected as the home base for the salesperson,
and other areas might be added to complete the territory. Occasionally, a starting point will
184 CHAPTER 6 SALES FORCE ORGANIZATION

The numbers in each county are

Cincinnati
population figures and are OHIO
a measure of potential. Covington Campbell
Boone
45842 Kenton83317 Ohio
Gallatin 137058 R I v er
4842 Pendleton
Carroll Grant 10989 Bracken
Trimble 9270 13308 7738 Mason Greenup
6253
INDIANA Owen Robertson 17760 Lewis 39132
8924 2270 14545
Oldham Henry Harrison Boyd
12740 Fleming
28094 15166 Nicholas 12323 Carter 8513
Louisville Scott 7157
25060
Shelby Franklin 21813
23328 41830
Bourbon Rowen WEST
Jefferson Bath 19049 Elliott
684793 Lexington 19409
10025 6908 Lawrence VIRGINIA
Mont- 14021
Wood- Fayette gomery
Spencer Anderson
Ohio Bullitt 5929
ford 204165 Clark 20046 Menifee Morgan
R i v er Meade
22854 43346
12567 17778 28322 5117 12103 Johnson
Jessamine Powell 24423 Martin
Nelson Mercer 139215
26653 11101
Owensboro Hancock 7743 Breckinridge
27584
Washington
19011
Madison
Wolfe Magoffin
Henderson Estill 6698 13515
Union 40849 16861 10764 53352 14495 Floyd
Daviess Hardin Boyle Lee
17821 Garrard 48764
85949 88917
ILLINOIS Webster McLean Larue Marion 25066 10853 7754 Breathitt
17004 Pine
11983 17910 81123
14832 10090 Ohio Grayson Lincoln Jackson Owsley
21765 19053 11996 5709 Knott
Crittenden 20854 Taylor Rockcastle 17940
9207 Hopkins 21178 Casey 13473 Perry
Living- Hart
46174 Butler Green 14818 33763
ston Muhlenberg Edmonson 15402 Clay
Paducah 9219 Caldwell 32238
11064
9964
11043
Laurel 22752
Letcher
30687
Pulaski Leslie
Ballard 13473 Adain 38982
Warren 45803 14882
5798 McCracken Lyon 15233 Russell
61310 6490 Bowling 71828 Barren Metcalfe 13705 Knox
Christian 9484 Harlan
Carlisle Marshall 66878 Green 34009 30239 41889 VIRGINIA
5487 Trigg Logan Cumber- Wayne
25637 Todd Whitley Bell
Graves 9384 24138 Simpson Allen land 17022
11574 Monroe Clinton McCreary 33396 34330
Hickman 34049 14128 7289
14673 12353 9321 15634
6065 Calloway
8974 30031

TENNESSEE

F I G U R E M R6-4 Kentucky Counties, Major Cities, and Population Centers

be a central geographic location, and the preference of the salesperson or the presence of a
city is disregarded. This approach assumes that a place can be found for the salesperson to
live after the territory has been created.
The problems of finding starting points for sales territories can be illustrated by look-
ing at a map of the state of Kentucky (Figure MR6-4). This map shows the location of
counties, major cities, and county population as a measure of potential. If two salespeople
are placed in Kentucky, one will probably be located in Louisville to cover the western
half of the state, and the second will be placed in Lexington to handle the east. Neither
location is very good because they are both located in the north-central part of the state.
In addition, the Lexington-based salesperson would have to travel to the northern tip of
the state to cover Covington, which is across the Ohio River from Cincinnati. The heavy
concentration of business in the Cincinnati area would probably lead this salesperson to
neglect some of the mountainous areas in the southeastern part of the territory. One possi-
ble solution would be to give Boone, Kenton, and Campbell counties to the Cincinnati-based
salesperson.
If three salespeople were assigned to Kentucky, then the third territory would be placed
in the western part of the state. Possible starting points for this territory would be Bowling
Green, Owensboro, and Paducah. Owensboro has the disadvantage of being on the northern
edge of the territory, and Paducah is too far to the west. A Paducah location would require
extensive travel in an east-west pattern. Also, the north-south orientation of Kentucky Lake
and Lake Barkley further complicates travel patterns in the area. One solution would be
to carve off the seven most westerly counties and give them to a salesperson in another
state. This example shows how difficult it is to find starting points for sales territories
when you have an irregularly shaped state bounded by rivers and containing noncentral
population clusters. You can also see why some firms use independent agents to cover
sparsely populated areas.
MANAGEMENT RESOURCES: TERRITORY DESIGN 185

Cincinnati
Covington OHIO
Major superhighways
Boone Campbell
Kenton
Territory borders
Gallatin
Pendleton
Carroll Grant Bracken
Trimble Mason
Greenup
INDIANA 71 Owen Robert- Lewis
Henry son
75 Harrison Fleming Boyd
Oldham Carter
Nicholas
Louisville Scott
64 Shelby Franklin Bourbon 64 Rowen WEST
Jefferson Bath Elliott
Lexington Mont- Lawrence VIRGINIA
Spencer Anderson Wood- Fayette gomery
Bullitt ford Clark Morgan
Menifee
Meade
Territory Jessa-
Powell 402
Johnson
Martin
mine
Owensboro Hancock
way Nelson 2 Mercer
Wolfe
Henderson Breckinridge P ark Washington Madison Estill
Magoffin
ky Hardin Territory 3
Union Daviess tuc Boyle Lee
Ken
Garrard Floyd
ILLINOIS Marion
Breathitt
Webster McLean 65 Larue 75 Pine
Ohio Grayson Lincoln Jackson Owsley
Knott
Crittenden
Hopkins
Territory 1 Taylor
Casey
Rockcastle
Hart Perry
Living- Butler Green
Edmonson
Paducah ston Caldwell
Muhlenberg
Laurel
Clay
Letcher
Pulaski Leslie
Ballard Adain
McCracken Lyon Russell
Metcalfe
Bowling Warren Barren
rkway
Cumberland Pa
Christian Knox Harlan
Carlisle Marshall Green VIRGINIA
Trigg Todd Cumber- Wayne
Graves Logan Allen land Whitley Bell
Simpson Monroe Clinton McCreary
Hickman
Calloway

TENNESSEE

F I G U R E M R6-5 Three Kentucky Sales Territories

Combine Control Units Adjacent to Starting Points

Once starting points have been selected, the next step is to begin combining control units.
The most popular way of doing this is known as the build-up method. To be effective, you
need to keep running totals on the allocation criteria for each new territory. If number of
customers per county is the criterion, you first combine the counties adjacent to each starting
point and keep track of the total number of customers in each territory. Then you assign
counties between different starting points to territories to balance the number of customers
across the new territories. The process of allocating counties to starting points continues
until all control units are assigned to individual salespeople.
An example of three sales territories that were built up around the suggested starting
points for Kentucky is shown in Figure MR6-5. The territories were constructed using the
country population figures shown in Figure MR6-4. Note that the solution was simplified by
including the three northernmost counties in the Cincinnati territory. Territory 2 turned out
to be the smallest because of the heavy population concentration in the Louisville–Frankfort
area. Territory 1 is large and ungainly, but it can be covered quite well from Bowling Green
using Route 64, Cumberland Parkway, Kentucky Parkway, and the Green River Parkway.
Routes 64 and 75 are available to travel the northern and western parts of territory 3.
However, the rest of territory 3 is mountainous and will be extremely difficult to cover.

Make Final Adjustments

After making an initial allocation of control units on your primary set of allocation criterion,
you should compare territories on secondary criteria. For example, after balancing sales
potential, you may wish to examine the square miles in each territory to see how the
territories compare in size. If there is an imbalance, you may look at counties on the borders
of the territories to see if some switching could improve the initial allocation. The solution
may be to shift a large county with few customers from the largest to the smallest territory.
186 CHAPTER 6 SALES FORCE ORGANIZATION

T A B L E M R6-2 Comparing Three Kentucky

Sales Territories
Potential as Measured
Territory by Population Number of Counties

1 1,124,897 47
2 1,129,290 27
3 1,131,137 43

Unfortunately, large and small territories are not always contiguous, and switches often must
be made across several territories.
A comparison of three sales territories created for Kentucky (Figure MR6-5) is shown
in Table MR6-2. The three territories are well matched in terms of potential as measured by
population. The largest and smallest territories vary less than 1 percent on this dimension.
In terms of size, however, territory 2 is only 60 percent as large as the other territories.
This means that territory 2 would be relatively easy to cover, whereas the others present
some problems. With the present boundaries, the salesperson in territory 3 has to cross part
of territory 1 to get to Whitley County in the south (Figure MR6-5). If the salesperson has
to cross Laurel County, why not shift Laurel from territory 1 to territory 3? Although this
move would help balance the territories in terms of size, it would lead to greater imbalance
on potential. The salesperson in territory 1 would have to give up potential represented by
38,982 people. In this particular case, territory 1 might be willing to give up Laurel County
because the Cumberland Parkway stops in neighboring Pulaski County. Given the uneven
distribution of potential across Kentucky, there is no way that the three territories can be
perfectly balanced on both size and potential.
The problem of designing three territories for Kentucky gets more complicated when
you introduce a third allocation factor, such as the number of customers. Because many
salespeople receive commission income, it is important to balance territories based on exist-
ing customers so that wages do not get out of line. However, keeping track of three allocation
variables as you move counties back and forth among territories gets rather confusing. One
solution that we will discuss later is to use a computer to help you design sales territories.

Additional Factors. Additional factors to be considered when finalizing sales territories

include the location of rivers, lakes, bridges, mountains, and roads. Sales managers often
keep relief maps in their offices so that they can see how topographical features will influence
sales force travel patterns. The availability of bridges and superhighways often influences
how boundaries are drawn for sales territories.

Dividing a Large Territory. A common problem encountered by sales managers is how to

divide a territory that has grown to have too many present and/or potential customers for
one person to handle. A map of an area to be divided into two sales territories is shown in
Figure MR6-6a. The map shows the present number of customers per county for one sales-
person working the territory from Brockton. A logical home base for the second salesperson
is Hillsdale, located in the west-central part of the territory. If these two cities are used as
starting points, two new territories can be constructed by adding and subtracting adjacent
counties until all counties are assigned and the number of customers is the same for both
territories.
Proposed new territories are shown in Figure MR6-6b. Note that the heavy concentration
of customers in the Brockton area has produced one small territory in the eastern region
and one very large territory in the west. Although the two new territories have the same
MANAGEMENT RESOURCES: TERRITORY DESIGN 187

6 8 7 13 19

5 7
20 25
14
11 17
48
24 Brockton
10 12 Hillsdale
7 14
8 10 18 35
30 26
10
4 6
5 10 31 8

(a)

Hillsdale Brockton
Western
225 Customers Eastern
225
Customers

(b)

F I G U R E M R6-6 Dividing a Large Territory

number of customers (225), the western territory requires considerable travel because the
customers are more scattered. This solution may be acceptable if the current salesperson
is located in Brockton and has reached an age where a smaller geographic territory would
be appreciated. An alternative solution is to divide the area into northern and southern
territories, with Brockton located at the boundary between the two. Although the size of the
territories, number of customers, and travel time would be equalized, the territories would
be wide and narrow. If both salespeople were traveling west from Brockton, travel expenses
would be greater than the solution shown in Figure MR6-6b.
You may also wish to consider sales potential figures for each county. The western
territory has more undeveloped potential than the eastern region, and the two new territories
would be more balanced on size and potential if four or five western counties are shifted to
the Brockton territory. Unfortunately, the current workload is then out of balance, since the
eastern territory would have about fifty more customers. This example shows that variations
in the dispersion of customers and potential across areas make it extremely difficult to
construct territories that are equivalent in terms of travel time, number of present customers,
and sales potential. Since both the build-up and workload methods create territories by
combining geographic areas according to a set of rules, computers can be employed to
speed the search for the most efficient territory boundaries.

Getting Buy-in. Up to this point, the territory design steps are likely to be, and should be,
performed centrally for the company or business unit as a whole. This is the only way to
ensure true balancing of territories. It is important to get management and salesperson input
into the process before finalizing a new territory design structure for several reasons. First,
188 CHAPTER 6 SALES FORCE ORGANIZATION

local conditions need to be taken into account, including customer relationships, salesperson
preferences, and local trade patterns. Second, first-line management must take ownership of
the alignment. Territory alignment affects people’s lives; therefore, it needs to be supported
and accepted by the sales organization.
The following quote from a human resources director at a large pharmaceutical firm
summarizes the importance of getting buy-in on the new alignment: “A lot of people don’t
realize this, but after an alignment, most of the dirty work ends up in my office. After
we aligned poorly five years ago, I received almost a thousand complaints from the field
force. We did it right two years ago. I received only two complaints. We had a minimum
of disruptions, relocations, and turnover.”4
The following quote by a district manager is a good sign that a new alignment will be
successful: “My input was taken into account. Management didn’t just give me an alignment
and say ‘go work it.’”5

Assign Salespeople to New Territories

The last step in our territory design process is to assign salespeople to individual territories
(Figure MR6-1). First-line sales managers, perhaps in consultation with their managers, will
usually complete this task. The decisions involve matching the background and needs of
salespeople with the opportunities in each geographic area. Factors considered include the
present home location, age, and experience of salespeople; the size of the territories; and
the customer mix located in each area. For example, some firms initially try to place newly
hired young people in territories near areas where they have grown up or have gone to
school. This makes it easier for new reps to get started and can reduce first-year turnover.
For existing salespeople whose lives are being affected by a territory realignment, it
is important that they understand that every effort has been made to balance territories
with respect to sales potential and workload. They must also be assured that they will
have the opportunity to maintain or increase their income under the new alignment. Many
companies provide a transitional compensation adjustment when a major change in accounts
results from territory realignment. These adjustments take the form of some sort of income
guarantee for a short period of time while the salesperson gets up to speed in the new territory
and with the new list of accounts. Research indicates that transitional compensation plans
are very important steps in ensuring salesperson buy-in to the new alignment, as well as
promoting overall motivation and morale.6
You should realize that territory boundaries do not last forever, and you have to adjust
them regularly to resolve local issues (Figure MR6-1). These include situations where sales-
people encounter personal problems and are unable to handle all their accounts. Also, you
may have a situation where the special needs of a customer require a more experienced rep.
Often these problems can be resolved by assigning a few accounts to salespeople in adja-
cent territories. The idea is to fine-tune territory boundaries without having to go through a
complete redesign that may upset everyone.
Having said this, however, you should keep in mind that customization to fit a specific
salesperson’s strengths should be kept to a minimum. A territory should not be customized
too much because territory alignments typically outlast a specific salesperson’s assignment
to the territory.
Experts advise that the following questions be addressed when considering making a
territory change:7
• Is this the right thing to do regardless of who the salesperson is?
• Is this right thing to do for the geography and the set of accounts?
A territory is designed to serve the customer. How will customers perceive the cover-
age? It is important not to forget the customer when realigning territories. Read what one
MANAGEMENT RESOURCES: TERRITORY DESIGN 189

customer had to say after having been assigned a new salesperson following a realignment
of territories:
It would have been helpful to have the company do something in advance of the transition. They
could have provided me with a written notice of the change. They could have given me written
or verbal indication as to the readiness and qualifications of the new person.8
The lesson to be learned here is not to surprise anyone with a change in territories. And
don’t forget the customer.

DESIGNING TERRITORIES BY COMPUTER

Computer software programs are now routinely used to help design sales territories. Territory
design programs function by automating some or all of the design processes shown in
Figure MR6-1.

Mapping Programs
Mapping programs include spreadsheet information necessary for territory alignment and
a geographic program that displays the control units for a particular geography. The user
can allocate control units to any number of territories by a simple click of the mouse
and is immediately provided with a visual representation of the new territories. At the same
time, the program’s spreadsheet automatically tracks the relevant statistics for each territory.
Through an interactive process of trial and error, you can reallocate control units to balance
the new territories on any criteria for which there is data.
Align Star, published by TTG, Inc., is an example of a commercial mapping program.
This software can be purchased for under $1,000 and is used to reallocate territories and draw
maps for salespeople. In this program, territory maps are tied in with spreadsheets, which
show current potentials, sales, and target number of calls. Any changes made in allocations
of control units to territories are automatically reflected in the spreadsheet data. You should
be aware that Align Star is an interactive program that helps you create territories, but it does
not find an optimum design. To better understand how this type of program really works,
data for the Kent Plastics problem that follows has been entered in the Align Star program
by TTG, Inc., and can be downloaded from the web site for this book under “Companion
Site” at www.wiley.com/college/cron.

Optimization Routines
The most sophisticated design programs balance territories that are financially optimal,
using a customer response to selling effort and minimizing driving time. These optimizing
programs are quite complicated and must be run on high-powered computers. TerrAlign4
by Metron, Inc., for example, works on a Windows operating system, uses a built-in digital
road network for realistic drive time calculations during optimizations, and can override
geographic assignments on an account-by-account basis.9 This type of product and the
consulting that accompanies it can be quite expensive. Its use is therefore largely limited to
Fortune 1000 companies, which, due to the size of their sales force and the magnitude of
their territory realignment problem, can justify the expenditure.

PROBLEMS
Note: Both the Align Star program and an Excel sheet of the data for the Kent Plastics
problem that follows are available at www.wiley.com/college/cron. Go to “Companion Site.”
190 CHAPTER 6 SALES FORCE ORGANIZATION

South Bend
Lagrange Steuben
Laporte St. Joseph Elkhart
Gary
Porter
Lake Noble Dekalb
Marshall
Kosciusko
Starke
Allen
Whitley

Jasper Pulaski Fulton Fort

Newton Wayne
Wabash Hunt- Adams
White Cass ington
Wells
Miami
Newton Carroll Howard Grant Black- Jay
Tippe- Kokomo ford
Warren canoe
Clinton Tipton Delaware
Randolph
Fountain Madi-
Mont- Hamilton son
Boone
gomery
Henry
Wayne
Vermilllion

Marion Hancock
Parke Hendricks
Indianapolis Union
Putnam
Rush Fayette
Terre Morgan Shelby
Haute Johnson Franklin
Vigo Clay
Decatur
Owen Brown Bartholo-
Monroe mew Dear-
Ripley born
Sullivan Greene
Columbus
Jennings Ohio
Jackson
Lawrence Switzerland
Jefferson
Martin
Scott
Knox Daviess
Washington
Orange
Clark
Pike
Dubois
Crawford Floyd
Gibson

Harrison New Albany

Vander- Warrick Perry
Posey burgh Spencer
Evansville

F I G U R E M R6-7 Current Sales Territories and Location of Indiana Counties

and Major Cities

Kent Plastics
The regional sales manager for Kent Plastics, Jill Hayes, was considering how to reorganize
the Indiana district. This area had been divided into two sales territories in the past, with
Bill Hicks covering the northern half of the state from Kokomo and Sally Hall covering
the southern counties from Columbus (Figure MR6-7). However, market growth suggested
that four salespeople were now needed. Company policy stated that, when sales in an area
exceeded $900,000 per territory, the district had to be divided into smaller segments. Sales
in Indiana were currently running $3 million per year.
The Kent Plastics Company began operations as a supplier of plastic parts to man-
ufacturers, but it had expanded into selling plastic bags and meat trays to retailers. Sales
personnel were paid a salary plus an annual bonus based on district performance and achieve-
ment of territory sales quotas. Travel expenses were paid by Kent, and each salesperson
was supplied with a company car.
Jill Hayes wanted to create four compact territories in the state of Indiana that would
be similar in terms of sales potential and workload. She felt that equal-opportunity terri-
tories would improve morale and make it easier to compare the performance of individual
salespersons. Travel expenses would be lower if the territories were designed to minimize
the distance from the salespersons’ home to different customers’ locations. Jill realized,
however, that the job of selecting home bases for salespeople was complicated by the heavy
concentration of customers located in Marion County in the center of the state.
MANAGEMENT RESOURCES: TERRITORY DESIGN 191

Counties seemed to be the most logical control units for building new territories, and
Jill quickly assembled some statistics for Indiana from secondary sources. She obtained the
location of each county and major population centers from maps supplied by the Indiana
Highway Department (Figure MR6-7).
As Jill Hayes looked over the available figures, she wondered what factor or factors
would make the best allocation criteria. Jill had recently obtained a copy of a territory design
program published by TTG. Perhaps it was time to call this program up on her computer to
help redesign the Indiana district. She knew she had only a few days left to carve out four
new territories from the Indiana district before she presented the plan to the sales force at
the annual convention. She also had to decide which of the new territories to assign to Bill
and Sally.
 CHAPTER

7 RECRUITING AND
SELECTING PERSONNEL
Nothing matters more in winning than getting the right people on the field. All the clever
strategies and advanced technologies in the world are nowhere near as effective without
great people to put them to work.
Jack Welsh, Winning

Chapter Consultants:
Howard Stevens, Chairman, The H. R. Chally Group
John Schreitmueller, Partner, Ray & Berndtson
Jonathan Scarborough, District Marketing Manager, Federated Insurance

LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Discuss how to plan for recruiting and selection.
Identify relevant hiring criteria for sales jobs.
Identify the different sources of recruits.
Understand the selection and validation process.

FEDERATED INSURANCE’S RECRUITING PROCESS: A MODEL FOR SUCCESS

When it comes to recruiting and hiring salespeople, Federated Insurance has a proven model
for success. It all starts with the District Marketing Manager whose number one priority
is finding and hiring quality people. An important first step in the recruiting process is
to cultivate strategic relationships with influential people such as university faculty and
religious and community leaders who can help identify individuals who may have the
success qualities Federated is looking for. Once identified, candidates are invited to submit
their resumes for an initial review by the District Marketing Manager. If a fit is perceived,
the candidate will be invited to a low-key discussion of the career opportunities available
at Federated. The purpose of this discussion is to provide candidates with a realistic job
preview and to determine if a mutual interest exists.
If a mutual interest is established, the candidate will then complete an online personality
profile. The purpose of this step is to match the candidate’s profile to the profile of successful
Federated salespeople. If a match is not found, the recruiting process is terminated. However,
those fitting the success profile will complete a handwritten application. The application
is not only checked for completeness and grammar, but also for the length of time to
complete—which is an indicator of interest. At this stage all references and past employers
192
FEDERATED INSURANCE’S RECRUITING PROCESS: A MODEL FOR SUCCESS 193

are contacted, including past sports coaches and professors. In addition to these phone
conversations, Federated managers will conduct face-to-face meetings with at least two of
the references.
If no red flags are found, the candidates will then be invited to participate in three
patterned interviews with the district manager. In these interviews, the manager will ask
questions such as, “Give me an example of how you demonstrated a particular success char-
acteristic.” The third interview is an in-home meeting with the candidate’s parents, spouse,
or significant other. This interview is designed to assess the attitudes and commitment level
of the candidate’s support system. At the conclusion of the patterned interviews, the can-
didate is ranked on each of the success characteristics. In between the three interviews, the
candidate is required to hold an open forum via phone with ten current Federated salespeople
from around the country and summarize the findings in writing. In addition, the candidate
will spend one day shadowing two different salespeople. Federated has found that these
two assignments help set the candidate’s expectations as a new salesperson. A final one-day
interview with the Regional Manager and the Director of Field Operations completes the
interview process. While the expense of Federated multistep recruiting process is one of the
highest in the industry, the investment has more than paid for itself. Federated’s turnover
rate of first-year salespeople has been lowered to 13 percent, which is tops in the industry.1
One reason Federated and many other companies have placed more emphasis on recruit-
ing salespeople is the increased strategic role the sales force has in leveraging customer
relationships.2 This shift requires some companies to continuously upgrade the competency
level of the sales force, which enhances the importance of attracting and selecting the “right”
person for a particular sales position. Let’s face it: Regardless of how well you train, moti-
vate, coach, or counsel your sales staff or develop your sales and marketing strategy, without
properly qualified people, you are in the same predicament as a great basketball coach with
a team of six-footers who can neither run, jump, shoot, nor rebound.
The costs associated with a poor hiring decision are significant. An often-quoted figure
is that out-of-pocket costs associated with recruiting and selection range from 20 to 80
percent of a salesperson’s annual salary. Costs go up dramatically, however, when a poor
hiring decision is made. Costs associated with a poor hiring include (1) initial training
and subsequent training costs needed to overcome deficiencies; (2) costs of absenteeism,
poor customer service, and excessive expense account spending associated with gradual
withdrawal from the organization; and (3) the opportunity cost associated with lost profits
that a qualified person would have generated during the time a poor hire occupies a territory.
Experts estimate that the value of the sales lost by a single ineffective salesperson could be
as much as $300,000 to several million dollars per year.3
In addition to the direct costs, a poor hiring decision can negatively affect a company’s
culture and productivity. Especially in the case of a termination, the morale among the
salespeople who stay on may suffer, since they may be required to pick up the slack caused
by the departure of their colleagues. Furthermore, higher turnover leads to a sales force that
is low on the productivity and learning curves, thus potentially damaging client relationships.
Effective sales managers, therefore, should be especially aware of the total costs, both direct
and indirect, of poor hiring decisions.
Selection of good salespeople obviously represents an important opportunity to gain a
competitive advantage. However, why is the selection of good salespeople so difficult for
many managers? One reason is the pressure to fill open territories. When unemployment
is at a historical low, finding and hiring good performers are challenges for managers in
every industry. On the other hand, when unemployment is high, managers are vulnerable to
making a hiring mistake from the large number of applicants they receive. Recruiting and
selecting a successful salesperson is also difficult because many companies fail to provide
194 CHAPTER 7 RECRUITING AND SELECTING PERSONNEL

effective training for sales recruiters and fall prey to the many biases and mistakes of
untrained interviewers.

Recruitment &
Recruit Select Validating
selection
candidates prospects the process
planning

Our discussion of the recruiting and selection process is based on a model that empha-
sizes proper planning. First, the number of people to be recruited must be determined,
together with an analysis of each sales job. A careful review of the activities to be per-
formed by salespeople helps sales managers prepare a list of specific job qualifications,
which can then be used to build a profile to guide the search for successful recruits. Next,
management must decide where to look for recruits. From a pool of recruits, sales managers
then must select job candidates. Finally, a validation of the selection criteria and saleperson
success is conducted. We start our discussion with the planning phase of the recruiting
process.

PLANNING PROCESS
The recruiting planning process should include a preliminary analysis of personnel needs,
company culture, a job analysis, and a job description with the necessary job qualifications.
Based on the results of these analyses, sources of sales recruits and selection procedures
should be planned. Proper planning will help ensure the success of the recruiting process
and provide more time for locating the best candidates.

Personnel Needs
The number of new salespeople needed will depend on several factors, including sales
growth targets, distribution strategies, changes in sales force organization, and sales force
turnover. For example, open territories should be continually reassessed to determine
whether any economic changes have occurred that may have affected previous sales growth
estimates. Based on the reassessed growth estimates, a company might combine an open
territory into existing territories and not hire a new salesperson, or split the territory and fill
it with multiple hires. Additional analyses, therefore, may be necessary when determining
the number of new salespeople needed.
Understanding the reasons for salesperson turnover is an especially important factor
in assessing personnel needs. Examples include resignation because of poor performance,
resignation for another job, retirement, or promotion. To calculate an estimate of the rate
at which salespeople leave requires an estimate of the sales force turnover rate. The rate is
calculated by dividing the number of separations during a year by the average size of the
sales force. Thus, if 30 people leave each year and the size of the sales force is 150, the
turnover rate would be
Separations per year 30
Turnover rate = = = 20%
Average size of the sales force 150
However, just knowing your turnover rate is 20 percent does not provide a complete picture
of the situation and may hide some unpleasant truths. For example, suppose you found
out that 15 percent of the 20 percent who left were high performers. Losing top performers
could have two or three times the economic impact of losing a bottom performer. Even when
replacements are found, it may take months to find them and possibly a full year before
they are up to minimum productivity levels. Also, when comparing your turnover rate to
PLANNING PROCESS 195

TEAM EXERCISE
“Turnover and Counteroffers”

Your top account executive, Angela Harris, just finished telling you that your best customer,
Bernard Wells, president of Sterling Corporation, made her a generous offer to come sell for
him. Although Harris hadn’t agreed to take the position, she was tempted. She would receive
a 15 percent increase in base pay, keep the three weeks vacation she had accumulated working
seven years for Austin’s ad agency, and could earn a year-end bonus of up to 25 percent of
her total compensation. Not to mention that she knows the customer’s company as well as she
knows your agency (since Sterling has been her client for six years).
You ask Harris to give you a few hours to think about the situation and then you will talk
more. She agreed.
As soon as Harris closed the door behind her, you slump into your chair, elbows on your
desk, face leaning into your hands, shaking your head. A lot of questions begin racing through
your mind. You could wish her well and let her go, but how many accounts would you lose
because their key contact at Austin Advertising left (you know too well that advertisers can be
a fickle bunch)? Will Sterling leave you for another agency if she stays? Should you counter
the offer (you could)—she was well worth it. Is she a loyal employee?

the industry (an average of 10 percent), you realize that you are losing salespeople at twice
the rate of the competition. This type of defection may make your customers nervous and
eventually harm product sales. These examples demonstrate that simply reporting turnover
as a percentage of the workforce should only be used as a starting point for understanding
the magnitude of the turnover problem.
Turnover can be too low as well as too high. A well-entrenched sales force may be
unable to adjust to a changing environment. While promoting company loyalty, low turnover
may also indicate a lack of career growth opportunity by promotion or lateral movement.
This suggests that turnover is not something to be minimized or maximized; rather, it is
a useful guide for administrative action. The objective is to have enough turnover so that
new personnel and enthusiasm can be added to the sales force, yet not so much that sales
managers spend all their time recruiting and training new employees.4 Obviously, you would
want to keep your top salespeople from leaving, so what would you do in the team exercise:
“Turnover and Counteroffers” to keep Angela Harris, the top salesperson, from taking the
new position?

Company Culture
The process of aligning a company’s recruiting strategies to its core values should help
attract and retain higher performing salespeople as compared with those companies whose
recruiting processes are reactive and culturally disconnected.5 A well-educated, high-energy,
articulate candidate, for example, might seem like a superb addition to the sales team.
However, if a recruit does not perceive the company’s cultural needs and demands as a
match with his or her values, the potential for turnover increases dramatically. For instance,
some people thrive in a highly competitive environment, while others abhor it. The fact that
cultures are likely to vary from one sales branch to another even within the same company
makes the task more difficult but even more necessary. Klein Tools, for example, has been a
family-run manufacturer of high-quality hand tools since 1857. The firm’s success over the
past 150 years can be attributed to its focus on quality in all aspects of the business—from
196 CHAPTER 7 RECRUITING AND SELECTING PERSONNEL

making the best hand tools to hiring the right salesperson. Klein’s philosophy is to hire a
person, not for one or two years, but for an entire career. Klein feels that getting the proper
fit with the company’s family-friendly culture is a key aspect of its hiring process that keeps
turnover low and customers happy.6

Job Analysis
Before managers can effectively recruit new salespeople, they must clearly understand
the activities, tasks, and responsibilities of their sales representatives. A job analysis is a
systematic way to describe how a job is to be performed, as well as the tasks that make
up the job.
A job analysis should focus on the tasks of high-performing salespeople and compare
those with the low-performing salesperson tasks. This can serve as a “reality check” on
management’s assumptions and can lead to some surprising conclusions. For example, a
sales manager might describe a job as the merchandising of sales promotions to store
managers. However, if more effective salespeople actually spend their time stocking shelves
and checking inventory, those salespeople hired to sell to store managers are likely to be
unhappy when they discover that the job entails duties that are similar to a glorified stock
clerk. Indeed, research suggests that incongruency between a candidate’s job expectations
and the actual job activities can lead to increased turnover.7 In short, job analyses must
incorporate the unpleasant as well as the attractive aspects of the job.
A number of different procedures may be used for performing a job analysis. One is the
job analysis interview, whereby in-depth interviews are conducted with management and
salespeople. Management would be queried, for instance, about the sales and marketing plans
of the company so as to clarify the role of the sales force. Salespeople would be interviewed
to determine how they see their role and how much time they spend on particular activities.
In addition to the interviews, the sales force may be sent questionnaires in which they
indicate the frequency of performance as well as the importance of each task in their job.
Another job analysis method is to send an observer into the field. The observer can
record the differences in the amount of time higher- and lower-performing salespeople
spend talking to customers, traveling, record keeping, setting up displays, and attending
meetings. Additional information concerning sales jobs can be obtained by interviewing
customers, using daily diaries, and reading sales reports to pinpoint critical incidents that
spell the difference between success and failure. Written customer ratings of the sales force
are particularly important in identifying salesperson critical success factors.

Job Description. Information from the job analysis should be used to produce a job descrip-
tion, which is a written document that spells out the job relationships and requirements that
characterize each sales position. A complete job description explains (1) to whom the sales-
person reports, (2) how the salesperson interacts with other staff marketing people, (3) the
customers to be called on by the salesperson, (4) the specific tasks to be carried out, (5) the
mental and physical demands of the job, and (6) the types of products to be sold.
An example of a job description for an entry-level marketing development trainee at
Federated Insurance is presented in Figure 7-1. Notice that the job description states that the
trainee is expected to develop the necessary product knowledge, communication, and sales
skills to successfully fulfill the duties of a Marketing Representative. In this position, the
person is expected to master the Marketing Representative competencies in a three-tiered
development program with each tier building upon the competencies learned in the previous
phase. In the first phase, trainees are expected to understand basic concepts such as equity,
integrity, respect, and teamwork in all aspects of the job, whereas in the third phase, trainees
will develop specific product and competitive knowledge, selling skills, as well as complete
any required licensing prior to taking over a territory.
PLANNING PROCESS 197

FEDERATED INSURANCE
SALARIED POSITION DESCRIPTION

Position Title: Marketing Development Trainee

Job Code: 0126
Department: Learning Center Trainee
Status: Exempt
Division: Home Office
Reports to: General Manager-Training & Development

Primary Purpose of Position

Participate in Company-sponsored training programs to gain the level of knowledge required to successfully
perform the duties of a Marketing Representative, including using all available time and resources for
self-development in product, communication skills, and sales techniques.

Essential Job Functions

The Marketing Development Trainee must have the ability to:

Phase I:
1. Demonstrate the corporate cornerstone of equity, integrity, respect, and teamwork in all aspects of the job,
including dealing with employees, policyholders, and others. Treat others in a nondiscriminatory, lawful, and
ethical manner, respecting the differences among people, and the value they bring to the company.
2. Attend formal 9-week classroom session covering Personal Auto, Homeowners, Commercial Property and
Liability, Group Health and Life insurance.
3. Actively participate in other activities or programs recommended by Federated to raise the level of competence,
maturity, and effectiveness as Marketing Representatives through Federated Speakeasy Program, field trips,
and self-study courses. These programs continue through all the phases.
4. Establish and maintain good working relations with other Company personnel to facilitate achievement of
learning objectives of this position.

Phase II:

5. Actively participate in on-the-job training concentrating on Federated’s products, risk identification, programming
methods, and marketing philosophy.
6. Acquire and maintain a good working knowledge of underwriting principles, Company policies, and marketing
concepts.
7. Begin “How to Master the Art of Selling,” “Business Insurance Basics,” and “Life Underwriting” courses to build
selling skills and life product needs.
8. Complete all necessary assignments and projects, and participate in classroom discussion to further devel-
opment.

Phase III:

9. Concentrate on programming techniques and coverages for all types of businesses including ability to identify
risk and accurately set up a Right Report.
10. Develop and keep current on selling skills through the completion of the “Six Figure Selling” program and
participate in role-playing sessions with a trainer.
11. Maintain knowledge of competitors in the marketplace by completed audits on competition’s policies and keep
abreast of current events through various industry magazines.
12. Successfully handle the responsibilities of an assigned open territory to provide service to clients and
prospects.
13. Complete any additional licensing required in assigned territory.

Other Responsibilities
Follow safe practices in all work activities to avoid injuries and accidents.
Perform other duties and responsibilities as assigned.

Supervision of Others
None.

Minimum Position Requirements

Four-year college degree.
Licensed agent for Property/Liability, Life and Health in respective state.
Prefer 1–3 years general business experience. Recent college graduates are acceptable.
Self-motivated, independent, and customer-oriented skills. Occasional travel required. Weekend and extended
business hours required.

F I G U R E 7-1 Job Description for a Federated Field Sales Representative

198 CHAPTER 7 RECRUITING AND SELECTING PERSONNEL

Job Qualifications
Whereas a job description focuses on the activities and responsibilities of the job, job
qualifications refer to the aptitudes, skills, knowledge, and personality traits necessary to
perform the job successfully. A statement of job qualifications would typically include
education, previous work experience, technical expertise, aptitudes, and interests. These
qualifications, based on the job description, not only serve as a set of selection criteria that
will help sales managers choose the best prospects from among those who apply, but they
also should drive the type of questions asked in the interview. Keep in mind that you should
be able to demonstrate to the Equal Employment Opportunity Commission that your job
qualifications are required for the job.
Given the increased emphasis on solution selling, customer satisfaction, and building
longerterm customer relationships, each company needs to understand its own unique set
of success characteristics for adaptive selling, problem solving, and service requirements.
One way to do this is to build a profile of success traits by analyzing the specific behaviors,
skills, and traits of its own high-performing salespeople. Once all of the success attributes
are compiled, the company should then organize these specific success characteristics into
a few broad categories. For example, notice that in phase I of Federated’s job function
(see Figure 7-1) a person is required to possess excellent organization skills, an ability to
work in teams, and an aptitude to build relationships of trust inside and outside of the
organization. These basic aptitudes and skills were distilled from successful salespeople and
are considered essential sales success at Federated.

Desirable Salesperson Qualifications. There is an extensive volume of research investi-

gating the relationship between personal characteristics and sales performance. From this
research, two themes emerge that have implications for recruiting. First, certain person-
ality traits have been linked with higher performing salespeople. Recent studies indicate
that extraverted, optimistic, and conscientious salespeople, as compared to other person-
ality types, tend to perform better.8 In addition, these personality traits have been shown
to be particularly important in sales jobs that explicitly reward high performance (e.g.,
commission-based sales positions).9 Empathy, however, was found not to be related to sales
performance because empathetic people have a tendency, when faced with stress, to cope
through self-sacrifice.10 In other words, highly empathetic salespeople are less likely to ask
for the order. Note that personality is an enduring characteristic of a person and is impos-
sible for a manager to influence or change. Thus, this research highlights the importance of
identifying recruits with desirable traits.
The ability to adjust sales behaviors to a selling situation (i.e., sales adaptiveness) is
another desirable trait that research has linked to sales success.11 However, sales adaptive-
ness comprises more than one personality characteristic. For example, personality traits such
as an internal locus of control (i.e., a tendency to believe that performance is caused by one’s
own behavior, not luck), high self-monitoring (i.e., the ability to change one’s personality
in different contexts), and an androgyny trait (i.e., both assertive and yielding) have been
associated with sales adaptiveness. Each of these personality traits can be measured using
its respective scale, which can be found in academic journals. Thus, this research highlights
the importance of proper planning and identifying recruits with desirable traits.
The second theme that emerges is the importance of personal characteristics that are
more developmental in nature. A consistent finding across many studies is the direct
cause-and-effect relationship between one’s ability to plan and organize and job perfor-
mance. Highly successful salespeople have excellent time and territory management skills
that enable them to maximize their time with the most profitable customers. Higher per-
formers also have a better understanding of the selling procedures needed to close a sale
as compared to lower performers. They are also better able to recognize critical contin-
gencies as they emerge in a sales call, which enhances the person’s adaptability.12 Other
PLANNING PROCESS 199

T A B L E 7-1 Individual Traits Linked to Sales Success

Personality Trait
Optimism Optimism refers to the tendency to hold positive expectations across time
and situations. Optimistic people tend to have a more long-term
orientation, more cooperative behavior, and persistence in the face of
failure.
Extraversion Exraverts are people who are sociable, friendly, self-confident, and
outgoing. An extraverted salesperson is energized by being around
other people and, when given the chance, will talk with someone else
rather than sit alone and think. When extravert salespeople are feeling
bad, low in energy, or stressed, they are likely to gravitate toward others
to find relief.
Sales Adaptiveness Sales adaptiveness is comprised of a number of personality traits
consisting of internal locus of control (a belief that performance is
caused by one’s own behavior), high self-monitoring (the ability to
adapt one’s personality to a particular social setting), and an androgyny
trait (the tendency to be both assertive and yielding).
Integrity Integrity refers to basing of one’s actions on an internally consistent
framework of principles. One is said to have integrity to the extent that
everything he or she does and believes is based on the same core set of
values. Salesperson integrity has been linked to higher performance
because of the higher level of trust buyer–seller trust.

Job Skill
Time and Territory Skills Salespeople possessing greater skill in managing their time and territory
tend to perform better. Higher performers recognize that
business-to-business outside sales is equivalent to running their own
business and developing and pursuing professional goals as well as
focusing on the most profitable customers leads to greater productivity.
Working Knowledge Working knowledge refers to the ability to identify customer types and the
sequences of selling behaviors that guide the salesperson in interacting
with the customer. Salespeople with a greater level of working
knowledge are able to negotiate a wider range of sales call contexts and
customer types because of more developed patterns of sales call
experiences.

developmental characteristics such as specific selling skills, motivation level, and role per-
ceptions can have an impact on performance, depending on the type of customer and the
product or service being sold. This evidence, as summarized in Table 7-1, suggests that
sales managers can and do have an important influence on the performance of a sales force.
Ultimately, regardless of education, experience, or any other tangible qualification, it is
often the hiring manager’s impression of “fit” that stacks the deck in favor of a particular
candidate. Keep in mind, however, that when forming such impressions, research suggests
that sales managers may be predisposed to favor one candidate over another equally qualified
candidate.13 For example, one study found that sales managers who are hiring for their own
sales staff would take significantly more risk on a candidate who has a higher performance
potential than human resource managers for whom the decision holds less direct impact on
their job. This again underscores how sales cultures may differ from other cultures in a
company and places a significant burden on the applicant to understand these differences.

Legality of Job Qualifications

Although lists of qualifications are useful in recruiting for sales positions, they must be
employed with caution. The main concern is to avoid employment discrimination which
is caused when qualifications are used to exclude some individuals from certain jobs.
200 CHAPTER 7 RECRUITING AND SELECTING PERSONNEL

T A B L E 7-2 Legal Issues Affecting Recruitment and Selection

Legislation Purpose
Civil Rights Act (1964) Prevents employment discrimination based on race, color,
religion, national origin, or sex.
Age Discrimination in Employment Prohibits discrimination against people ages 40 to 70.
Act (1967)
Fair Employment Opportunity Act Founded the Equal Employment Opportunity Commission
(1972) to ensure compliance with the Civil Rights Act.
Rehabilitation Act (1973) Requires affirmative action to hire and promote handicapped
persons if the firm employs 50 or more workers and is
seeking a federal contract in excess of $50,000.
Vietnam Veterans’ Readjustment Requires affirmative action to hire Vietnam veterans and
Assistance Act (1974) disabled veterans of any war by firms holding federal
contracts in excess of $25,000.
Americans with Disabilities Act Prohibits discrimination based on physical or mental
(1990) handicaps or disabilities.

The Civil Rights Act of 1964 was the first of several laws designed to prevent illegal
employment discrimination. These laws, as summarized in Table 7-2, make it illegal to use
as job qualifications any attributes that result in discrimination against persons of a given
race, religion, nationality, sex, or age.
A particularly important federal civil rights law is the Americans with Disabilities Act
(ADA). This law prohibits employment discrimination against qualified individuals with
disabilities. Disabilities covered by the law include visual, speech, and hearing impairment,
human immunodeficiency virus infection, cancer, mental retardation, emotional illness,
drug addiction, and alcoholism. The law specifies that employers have an obligation to
make reasonable accommodation to an individual’s known physical or mental limitations.
Examples of accommodations include making facilities available, restructuring jobs,
reassigning, modifying work schedules, modifying equipment, and providing readers
or interpreters. The implications of this law are far-reaching. It is important to point
out, however, that employers can take action on an unproductive person and still be in
compliance with the ADA. For example, it is well within the employer’s right to terminate,
or refuse to hire someone, if the employee cannot perform the minimum job requirements,
such as having a valid driver’s license.

RECRUITING
The goal of recruiting is to find and attract the best-qualified applicants for sales positions.
The number of applicants needed to meet personnel requirements will be larger than the
number of people to be hired. Not every applicant will have the job qualifications, and
not everyone offered a job will accept the offer. The number of applicants needed can
be determined by using a simple formula based on the company’s experience from past
recruiting efforts. The number of recruits (R) is
H
R=
S×A
where
H = required number of hires
S = percentage of recruits selected
A = percentage of those selected who accept
RECRUITING 201

Thus, if a company needs to hire 10 people and expects to select 10 percent of those
applying, and if 50 percent of those offered a position typically accept, then R = 10/(0.10 ×
0.50) or 200. Therefore, the company needs to plan its recruiting process so as to attract
200 applicants.
Notice that the number of recruits (R) can be reduced by either increasing the percentage
of people selected (S) or increasing the percentage of those selected who accept an offer (A).
One way to increase the acceptance rate of those selected (A) is to understand that today’s
sales recruits are looking for more than just a high salary. According to a recent study,
candidates for sales positions place more importance on attributes such as job satisfaction,
advancement opportunity, employee morale, and job security than salary.14
Finding an adequate number of recruits is not as easy as it sounds. Fortunately, sales
managers can use a number of sources to find candidates. Each source, however, is likely to
produce candidates with somewhat different backgrounds and characteristics. Thus, sources
of applicants can vary widely, depending on the job to be filled and past hiring success.
For example, referrals and employment agencies tend to be the most popular sources for
sales trainees. On the other hand, educational institutions and present employees are good
sources for sales candidates who require the ability to learn the technical aspects of the
product. Companies rarely rely exclusively on only one source for sales applicants because
each source has advantages and limitations. These sources are discussed in the following
sections.

Classified and On-line Advertising

Advertisements in newspapers, trade journals, and on the Web are often used to attract
salespeople. One advantage of these types of ads is their ability to attract a large number of
applicants. The Wall Street Journal and employment-related Web sites, such as Monster.com
and careerbuilder.com are full of ads for experienced sales reps, sales managers, and sales
executives. These ads have the advantage of reaching a wide audience for relatively little cost
and may attract candidates who are not actively looking for a job. Advertising’s strength in
attracting job applicants may also be its greatest drawback. There is a tendency to overburden
the selection process with underqualified applicants, resulting in an extensive and costly
screening process, which produces a high cost per hire despite a low cost per applicant.
A company can sharpen its focus and attract higher-quality applicants in several ways.
First, an ad should provide enough information to successfully screen unqualified applicants.
Information such as the types of products sold, the specific tasks to be carried out, the
physical demands (e.g., amount of travel required), and the amount of experience from an
ideal candidate could be used as screening devices. It would also be important to include
the pay range and type of compensation plan (e.g., commission, salary, etc.). But, keep
in mind the legal guidelines discussed earlier in this chapter when developing the hiring
qualifications.
For print ads, placing them in industry-specific business publications would help recruit
candidates with relevant business experience and help reduce applications from obviously
unqualified applicants. Planning is important when considering such ads as the lead time is
often much longer than newspapers—typically six to eight weeks.
For Web-based recruiting, there are a number of options available. Internet sites spe-
cializing in recruiting and human resources tend to have a large database of sales positions.
Monster.com, for example, has over 5,000 sales positions listed on its Web site. Sales
and Marketing Executives International (www.smei.org) is another organization that spon-
sors sales recruiting resources. Newspapers, such as The New York Times, have Web-based
versions of their classified sections.
Many companies are also turning to their own Web sites to advertise job openings
and allow candidates to apply on-line. A company Web site has an advantage of making
202 CHAPTER 7 RECRUITING AND SELECTING PERSONNEL

a favorable first impression since it can provide ample information about the position and
the company. To help organizations automate the review of on-line applications, it may be
useful to use Web-based analytic tools, such as PeopleClick (www.peopleclick.com) to sort
through resumes in looking for specific characteristics.
Recruiting on-line provides several benefits. Posting a job on-line on a national job Web
site is relatively inexpensive (from $100 to $300 for 30 days) compared to a local Sunday
newspaper ad ($1,000 or more). A one-day full-page color ad in the Wall Street Journal,
for example, costs approximately $250,000. On-line ads also have the potential for a fast
turnaround. Web-based ads can be posted online in one day, while a week may pass before
an ad appears in the Sunday paper. A week’s delay could be the difference between finding
a top recruit and losing the person to a competitor. As more and more people turn to the
Web for their job search, having a presence there is critical. However, not all demographics
use the Internet equally; therefore, we recommend using other forms of advertising in the
recruiting effort so not to exclude portions of the population.

Present Employees
Present employees often make good candidates for sales jobs because they are familiar with
the company’s products and procedures and do not require as much training as prospects
recruited from outside sources. They have established job histories with the firm and can be
observed in action when evaluating their potential as sales representatives. People usually
consider a transfer to the sales department to be a promotion because of the job’s inde-
pendence and frequently higher earnings potential. This could potentially bolster company
morale as employees become aware of the advancement opportunities outside their own
department or division. Results of a survey also suggest that salespeople hired from within
tend to perform well, as one-third of the top-performing reps surveyed previously held
non-sales positions within the same firm.15
Candidates for major account sales positions are also most likely to come from company
sources. Sources of candidates for these sales positions are likely to differ from those of
regular sales positions because of the differences in the responsibilities in major account
sales. For example, Banta Corporation, a printing company, has been very successful in
hiring its customer service employees for its major account sales force. Banta targets its
customer service employees in part because these employees tend to work in cross-functional
teams involving logistics, purchasing, and accounts payable, which gives them a basic
understanding of how these functions interact to affect the customer. In addition, Banta has
found that its customer advocate role has prepared these employees to provide the high
level of service and attention a major account requires.16 While Banta has found success
with hiring its customer service employees, the majority of companies tend to recruit their
major account salespeople from the regular sales force.
Hiring from within the company, however, can have potential pitfalls. Bad feelings may
arise, for example, if managers in other departments think that their best people are being
pirated by the sales force. In addition, some companies find that employees may harbor
hidden prejudices about sales and rely too heavily on their previous experience. Engineers,
for example, may tend to overuse facts and figures, whereas customer service people may
find it hard to take a tough negotiating stance.

Referrals/Networking
Another major internal source of recruits is recommendations by present employees. Statis-
tics prove networking and referrals to be among the top conduits for effective recruiting
in today’s workplace.17 Well-informed students and graduates in entry-level positions learn
RECRUITING 203

each day the values of networking with other sales professionals, executives, senior exec-
utives, faculty members, and others whose daily routines immerse them in the business
community. Because informed interviewees have probably gained a significant grasp of
the company’s cultural, ethical, and business issues, these individuals often make superb
candidates for sales representatives and at reduced risk for the company.
References from managers and salespeople are particularly valuable because these peo-
ple tend to have wide social contacts and often meet individuals who make good prospects
for a sales team. They also understand the needs of sales programs and are in a good posi-
tion to discuss the merits of a sales career. Moreover, they are likely to know when people
are looking for new jobs and to have some personal knowledge of their qualifications. A
number of companies are also providing financial incentives for employee referrals. Cisco
Systems, Inc., for example, has been known to provide a referral fee starting at $500 and a
lottery ticket for a free trip to Hawaii for each “friend” who is hired.

Employment Agencies
Employment agencies are a frequently used source of salespeople. Employment agencies are
popular because they can save busy sales managers time and money. The agencies advertise,
screen resumes, interview prospects, and present successfully prequalified applicants to the
client. A private agency is paid only when a person is actually hired. Employment agencies
that charge applicants a placement fee must be given a detailed set of specifications because
they tend to refer candidates on their current lists. Agencies that charge the employer a
fee are more likely to find recruits who match a particular job. Often firms find that the
best agencies with which to work are those that specialize in finding sales recruits, such as
IndustrySalesPros.com and Findasalesagent.com.

Colleges and Universities

Perhaps the best source of sales trainees is educational institutions. For many firms, colleges
are the focal point of their total hiring process. College placement centers, for example, often
provide companies with resumes of applicants, arrange interviews, and provide facilities for
interviewing candidates. Many placement centers also provide access to alumni in addition
to current students. College campuses are also common sites for career fairs where multiple
companies participate in a trade show format to introduce students to sales job opportunities.
Merck, a recognized leader for recruiting the best salespeople in the pharmaceutical industry,
relies on its college recruiting efforts to fill its entry-level sales positions.
College graduates are an attractive source for entry-level sales positions because gradu-
ates tend to be more easily trained and are often more poised and mature than those without
college training. Successful college students typically know how to budget their time and,
perhaps most important, have the perseverance needed to get jobs done.
College students, however, usually lack sales experience and require considerable train-
ing and one-on-one coaching before they become productive salespeople. One way com-
panies are overcoming these issues is by offering sales internships. With an internship, an
individual is hired for a limited period of time during which he or she is asked to perform
certain tasks as well as work and observe the actions of others in the company. Internships
allow the company and the student to preview each other to determine if a match exists. For
example, a sales internship can not only provide an initial assessment of the person’s selling
skills, but it also helps determine the person’s fit with the company’s culture. O’Neal Steel,
a Birmingham, Alabama–based steel distributor, has gone so far as to provide a tuition
scholarship in addition to an internship as a means to attract the very best students. The
scholarship/internship program is a two-year commitment that begins in the student’s junior
year. The student is rotated throughout the company’s departments during the internship as
204 CHAPTER 7 RECRUITING AND SELECTING PERSONNEL

a means of providing experience in all aspects of the company’s operations. O’Neal reports
an 80 percent success rate in turning the interns into full time employees.18

Customers, Suppliers, and Competitors

Customers and suppliers may also be a source of good recruits. They know the business, are
familiar with the company, and may know what is expected of a salesperson. Care should
be taken to ensure that the customer or supplier is aware of the recruiting process and is
willing to cooperate.
Hiring competitors’ salespeople is particularly attractive when a firm’s training capa-
bilities are limited, when customers are loyal to the salesperson and will therefore buy from
the new company, and when new salespeople must be productive in a short period of time.
When it decided to sell to large corporate accounts, Apple Computer targeted experienced
salespeople currently working at companies such as IBM in its recruiting. Competition is
also a common source among insurance firms, stockbrokers, office equipment suppliers, and
clothing representatives.
Hiring competitors’ salespeople and customers’ employees is not without problems.
Salespeople from rival companies may find it hard to adjust their selling styles and commu-
nication patterns to fit with your company.19 Indeed, managers often overlook the difficulty
in retraining the salesperson to unlearn old practices and adapt their sales practices to the
new firm. It also gives rise to ethical and legal issues when the suspicion of divulging
company secrets is involved. Retaliation and lawsuits are often the reaction of firms in
industries where salesperson raiding is not common. Furthermore, because people rarely
leave a job they like strictly for financial reasons, the new company may “buy” an unhappy
employee. In fact, the higher costs associated with attracting these people may offset their
higher productivity, making this source of sales candidates the least profitable.

SELECTING PROSPECTS
After recruiting a pool of sales candidates, managers must screen out candidates who do
not meet the hiring criteria. The procedure for selecting prospects is a sequential filtering
process, as depicted in Figure 7-2. The recruiter begins the selection process by evaluating
application blanks and resumes and proceeds to interviews and background checks. In this
way, obviously unsuitable prospects can be eliminated with low-cost methods, and the more
expensive testing procedures can be saved for a smaller group of promising candidates. Each
of the major selection tools is discussed in this section.

Application Forms
A popular way to gather personal history data is to have candidates fill out an application
blank. It is easy to administer and requires very little executive time because the information
is in a standardized format, as opposed to a resume. The basic purposes of application forms
are to (1) provide information, gathered in a standardized manner, that is useful in making a
selection decision and (2) to obtain information that may be needed during an individual’s
employment.
Sales managers are primarily interested in several types of information found on appli-
cation blanks. First, the sales manager wants information about the candidate’s educational
background. A second category of information is the past employment record. Sales man-
agers are looking for any employment gaps and prefer candidates whose employment records
show a natural progression in job responsibilities and wages. Reasons why a candidate left
each previous job can be gathered on the application blank as well.
SELECTING PROSPECTS 205

Direct recruit to control

location or phone number

Complete application
blanks

Conduct screening
interviews

Check credit and

Hiring background
criteria
for
sales
Complete psychological
jobs
and achievement tests
used
to
guide
selection
Secondary interviews
process

Make offer for sales

position

Physical exam Reject

Modify hiring
criteria, Measure subsequent
tests or interview success on the job
procedures

F I G U R E 7-2 A Model for Selecting Salespeople

Companies are also interested in the extracurricular activities the candidate may have
held in the past. Examples of these activities include offices held in organizations, member-
ships in social, service, and business organizations as well as hobbies and athletic endeavors.
This type of information can be used to gain some understanding about the candidate’s
leadership potential, interests, and personality.
Questions about marital status, gender, religion, race, handicaps, and age exceeding 18
years are typically not asked. These questions are not included in employment applications
for fear that recruiters might use the answers to discriminate against certain candidates. Some
applicants may include extraneous information about themselves on an application so that
they can later claim they were rejected for unlawful reasons. Thus, all application forms
should include a statement indicating that any applications with unrequested information
will be automatically rejected.20 Many application forms ask for data on military service, so
that the firm can comply with affirmative action regulations on the employment of veterans.

Personal Interviews
The personal interview is a crucial part of the selection process for all sales positions
because interpersonal skills are so important in sales. Interviews are typically conducted
at two levels. The first interview is used primarily to inform the candidate about the job
206 CHAPTER 7 RECRUITING AND SELECTING PERSONNEL

and to look for knockout factors, which are characteristics that would eliminate a person
from further consideration, such as poor speech patterns, unacceptable appearance, or lack
of necessary maturity. This initial interview is followed by the main interview, in which
candidates are screened in order to identify people who best match the job’s qualifications.
The main interviewing process may include a series of interviews with sales managers,
typically including the person to whom the candidate would report. The type of interviews
can vary widely, depending on the company (different interviewing styles will be discussed
later). For example, after an initial interview with a divisional manager, Hewlett-Packard
holds a series of five or six more interviews at the regional sales office where the job
opening exists.
One benefit of interviews is that managers can follow up on information obtained
from application blanks. For example, candidates can be asked to explain gaps in their
employment or educational record and defend decisions to leave previous employers. A
second advantage of interviews is that they allow sales managers to assess the applicant’s
level of interest and desire for the job. Interviews also allow managers to observe a can-
didate’s conversational ability and social skills. One of the problems with the personal
interview, however, is that managers fall into a trap of assessing how easy the candidate
would be to manage instead of assessing how effective the candidate would be in selling.
In addition, recruiters must avoid asking questions during the personal interview that can be
used to discriminate by hiring on the basis of race, sex, religion, age, and national origin.
This is sometimes easier said than done because some seemingly innocent questions can
be viewed as attempts to gain information that might be used to discriminate against a
candidate.

TEAM EXERCISE
“Questions About Interviewers”

Throughout this chapter, we suggest that recruiting the “right” salespeople is critical to a
firm’s success. While there is no guarantee of the perfect hire, the chance of making the wrong
decision can be minimized by understanding some biases that can occur in the hiring process.
Below are eight questions that research has addressed regarding the interview process. After
reading each question, see if you can make an educated guess as to the research findings. How
many did you answer correctly?
1. Does extensive interviewing experience help an interviewer to make better judgments?
2. Does pressure to recruit impair the judgment of experienced interviewers less than inexpe-
rienced interviewers?
3. When interviewing multiple recruits, do interviewers tend to use previous applicants as the
standard of comparison for subsequent applicants?
4. Will the positive effects of good appearance offset an unfavorably rated personal history for
a recruit?
5. How much of the factual information presented in an interview will the interviewer remem-
ber immediately after a short interview if no notes are taken?
6. How will lack of notes and factual recall affect the interviewer’s rating of the recruits
interviewed?
7. How reliably can a group of interviewers rate a recruit’s qualifications for a job?
8. How reliably can a group of interviewers rate future job performance by a recruit?
SELECTING PROSPECTS 207

Why Should We Hire You?

Regardless of the company and type of sales position for which you may interview, there are some
interview questions that are typically asked. Below are just a few of the structured interview questions
asked by Federated Insurance managers to sales recruits. You should be prepared to answer these
questions.

• You know yourself better than anyone. What do you regard as your major strengths and limitations
at this time? Share some experiences that portray each major strength . . . each weakness.
• What have you accomplished or achieved in life that you are most proud of?
• Success means different things to people. What does it mean to you?
• If there was a job that had everything you are looking for, what kind of a job would it be?
• What goals have you established for yourself in the short and long term?

F I G U R E 7-3 Typical Interview Questions

Figure 7-3 includes some structured interview questions used by Federated Insurance.
It is interesting to note that the questions require candidates to be able to successfully, but
effectively articulate how they might add value to an organization. The candidates for any
professional selling position should be prepared to present their background and career goals
in a capsulation of approximately 2 minutes. This is often referred to as a “Two-Minute
Drill,” and responds to the question most typically asked at the beginning of the interview
cycle, “Tell me about yourself.”
Interviewing is a subjective process, so there are bound to be a few mistakes. Substantial
evidence indicates that applicant ratings based on personal interviews vary dramatically
among interviewers because the interviewer stressed unimportant job attributes during the
face-to-face interviews. A recent study found that interviewers have a poor understanding
of what job characteristics are important to candidates.21 Thus, top candidates may be
turned off by a particular job because of the way the job was described by the recruiter.
Worse yet, studies have found that unstructured personal interviews are not a good predictor
of subsequent job success. However, the interview is a useful technique in evaluating a
candidate’s social skills.22
Because of the personal nature of selling, the interview has remained the preferred selec-
tion tool of most sales managers. One way to minimize selection mistakes is to train sales
managers on what questions to ask, how to ask each question, and how to rate applicants.
SmithKline recruiters, for example, are required to be certified by their internal recruiting
program so they can consistently apply their standard process around the world.23 Another,
more informal way to improve the interviewing process is to inform recruiters on a regular
basis about the progress of candidates previously hired. Feedback on successes and failures
can be a tremendous help in refining or improving interviewing techniques.

Patterned Interviews. There are several types of interviewing styles from which to choose.
One type of interview is a patterned interview, in which the sales manager asks each
prospect a set of questions and records the responses on a form. The primary advantage
of such structured interviews is that they facilitate comparison of candidates when more
than one person is conducting screening interviews. When different questions are asked
of each candidate, a comparison of candidates is often based on impressions rather than
on recall of relevant information. Indeed, the most consistent finding is that interviews are
improved by using a structured approach. The patterned interview is also good to use when
the interviewer is inexperienced at evaluating candidates.
208 CHAPTER 7 RECRUITING AND SELECTING PERSONNEL

Semistructured Interviews. A completely structured interview may not always be appro-

priate for choosing among candidates. When interviewing veteran salespeople for a major
account sales position, an interviewer may be looking for someone who will take control
of the situation because this is expected of the individual. In such a situation, it may be
more appropriate to use a semistructured interview that is intended to gather critical pieces
of information, but the questions are not repeated word for word, and the candidate is
expected to take a more active role in the direction an interview takes.

Field Observation. A special kind of interview that has proven effective for some organi-
zations is field observation, which includes taking candidates out to observe a day of field
sales work. The prospect travels with a salesperson, making calls on regular customers. The
major benefit of the field interview is that prospects are shown exactly what the job entails,
and those who feel they aren’t likely to meet the challenge can eliminate themselves before
being hired.

Followup
The interview does not end when the face-to-face discussion has ended. The interviewer
should rate his or her impressions of each candidate following the interview process.
An example of Federated Insurance’s candidate evaluation form is shown in Figure 7-4.
Note that the form summarizes every piece of information gathered about the candidate.
This includes an evaluation of the candidate in the screening interview, the written inter-
view, the patterned interview, and the home interview. An evaluation is also made of
the information gathered from the candidate’s personal references. All of these inputs
are rated using a scale of 1 to 5 (1 = outstanding, 5 = quite low) on ten different cri-
teria. The form also provides room for comments to help the evaluator remember the
candidate’s pros and cons at each stage of the interview process. Recruiters should also
track the timely response of candidates for sales positions by their responses in the form
of letters, notes, or other means. This tends to correlate to on-the-job accountabilities,
where the most successful sales professionals typically have penchants for following up
on their telephone and face-to-face encounters with customers, suppliers, and other key
contacts.

Background and Credit Checks

How honest are people about their educational and employment histories? In a recent survey
by the Society of Human Resource Management, 90 percent of human resource profes-
sionals said that they encountered candidates who had falsified their salaries and time at
previous jobs. In addition, 78 percent of those surveyed said that they had detected appli-
cants who had lied about their college degrees.24 The message is clear: Don’t assume
that people are telling the truth. While an in-depth probe of a large number of refer-
ences can be time-consuming and costly, failure to check resumes may result in hiring
overpaid and unqualified salespeople. Web-based search tools allow firms to investigate
an applicant’s job history and criminal record within 4 to 8 hours at a very reasonable
cost.
Credit checks are also commonly used to assess the financial responsibility of applicants,
since financial responsibility goes hand in hand with job responsibility. Although no research
has verified this relationship, Equifax, Inc., of Atlanta, claims it sold 350,000 of its credit
reports to 15,000 employers in one year. Under the Credit Reporting Act of 1971, applicants
must be told that a credit check is being conducted, and they must be given the name and
address of the source if the check results in the rejection of a candidate.
SELECTING PROSPECTS 209

EVALUATION SUMMARY
PROSPECTIVE MARKETING REPRESENTATIVE
Name District Marketing Manager
Has the applicant reviewed the position description? Yes No
Are any accommodations necessary for the applicant to perform the Marketing Representative position? Yes No
If yes, has the Division Office been contacted regarding accomplishing the accommondations? Yes No
Screening Written References Patterened Home
Interview Interview Interview Interview
I. ACHIEVEMENT ORIENTATION * * * * *
A. Goal and Results Orientation Comments:
B. Energetic and Industrious
C. Work Ethic
D. Economic Drive
E. Competitive Drive
F. Desire for Status and Recognition
G. Enterpreneurial & Sales Recognition

II. INTERPERSONAL SKILLS * * *

A. Sociability Comments:
B. Service Orientation
C. Positive Image
D. Assertiveness & Impact

III. COMMUNICATION SKILLS * * *

A. Oral Presentation & Persuasiveness Comments:
B. Questioning /Listening Skills
C. Written Presentation Skills

IV. SELF-CONFIDENCE & OPTIMISM * * *

A. Self-Confidence Comments:
B. Enthusiasm & Optimism

V. SELF-RELIANCE & INDEPENDENCE * * * *

A. Self-Reliance Comments:
B. Coachable
C. Team Player

VI. ADMINISTRATIVE & TIME MGT.SKILLS * * * *

A. Organized & Efficient Comments:
B. Coping with Papework/Detail
C. Computer Literacy

VII. MENTAL ABILITY & PROBLEM SOLVING * *

A. Intelligence to Learn the Business Comments:
B. Problem Solving Orientation
VIII. MATURITY & STABILITY * * * * *
A. Assuming Responsibility for Actions Comments:
B. Flexibility & Adaptability
C. Loyalty & Stability

F I G U R E 7-4 Federated Insurance Interview Evaluation Form

210 CHAPTER 7 RECRUITING AND SELECTING PERSONNEL

IX. ETHICAL & PROFESSIONAL BEHAVIOR * *

A. Ethical & Moral Standards Comments:
B. Conveying Integrity and Honesty
C. Act on Customers' Best Interest
X. ENVIRONMENT & CIRCUMSTANCES * * * * *
A. Education & Experience Comments:
B. Support/Encouragement of Family
C. Personal Financial Circumstances
D. Geographic Location Desirable
E. Appreciate Business Plan

INSTRUCTIONS: Complete each section as that step is completed. Write positive and negative comments to help you
remember pros and cons at that stage. Be alert to "contrary evidence" seek it out.
Ratings are: 5-outstanding; 4-well above average; 3-average; 2-below average and of concern;
1-quite low. Fell free to allow new information to increase or lower your rating as you learn more.
Use outline of Building Blocks as a guide in making ratings.

Strong Points for This Position:

Weak Points for This Position:

5 4 3 2 1 Yes No
Overall Rating Recommendation to Employ
Do not add or average these dimensions in making the overall rating.
Match the overall qualifications of the applicant against the requirements of Federated Marketing Representative.

District Marketing Manager Date

Regional Marketing Manager Date

F I G U R E 7-4 (continued )

Testing
Today some form of testing is being used more often than in the past to help select field
salespeople. Tests often provide more objective information than can be obtained from
subjective conversation. Interviewers frequently reject prospects on the basis of personal
biases and whims. Candidates have been rejected after interviews for such minor matters
as speech accents or wearing short-sleeved shirts, short socks, or light-colored suits. These
biases can be offset by the use of valid and reliable tests. Testing was found to be one of
the most reliable predictors of entry-level job success.
Three types of tests are being used in sales force selection: (1) intelligence, (2) person-
ality, and (3) aptitude tests.

Intelligence Tests. Intelligence tests measure the degree to which a candidate has the
minimum mental capabilities to perform the job. Cognitive ability tests have been shown
to be the most valid predictor of job success as compared to personality and aptitude tests.
As such, the test is used as a knockout factor; that is, not meeting a minimum level will
eliminate a candidate, but scores beyond the minimum will not determine the final candidate
selection. The Wonderlic Personnel Test is a widely used general intelligence test because
it is short and it has been extensively validated. It consists of 50 items and requires only
about 12 minutes to complete.
SELECTING PROSPECTS 211

Personality Tests. General personality tests, such as the Edwards Personal Preference
Schedule, evaluate an individual on numerous personality traits. Unfortunately, such gen-
eralized tests may provide some traits that are irrelevant for evaluating future salesperson
success. However, some companies develop specialized tests designed to measure specific
personality traits felt to be important in a particular sales position, such as team building.
Such tests are generally thought to be a weaker approach than the others mentioned here,
but they could provide useful information about candidates if properly validated by careful
job analysis.

Aptitude Tests. Aptitude tests are designed to determine whether a candidate has an inter-
est in certain tasks and activities. The Strong Vocational Interest Blank, for example, asks
respondents to indicate whether they like or dislike a variety of situations and activities.
Creating or tailoring tests to a company’s specific requirements is also recommended. It is
possible that top performers selling different product lines within the same company may
have different critical success skills. Responses can be compared with those of success-
ful people in a certain type of sales position to determine whether the candidate will be
successful in the position.

Assessment Center. An assessment center is an additional selection tool to help choose

the best candidate by having him or her participate in job-related exercises. The basic
way an assessment center works is that candidates are given simulated exercises that they
must perform as if they were in a real organization. The types of exercises can vary from
individual presentations, role-playing, and case analyses to business games and team-based
assignments. Merrill Lynch, for example, has used sales simulation exercises in its selection
of account executives. At one brokerage house, candidates were asked to sell a particular
stock to a prospect, who is really a psychologist hired by the firm. The prospect greets the
telephone caller saying how busy he is at the moment. In this simulation, the employer is
assessing the candidate’s persistence, an important attribute in this type of sales position.
The wide spread use of this tool has been limited due to its high cost.

Recommendations. One common error made by recruiters is to adopt some readily avail-
able intelligence or psychological test that may be inappropriate for selecting field sales-
people. Better results are achieved when tests are tailor-made by testing experts and human
resource specialists for the needs of a particular firm or industry. It is also important to
base the test on an analysis of the job in question and to validate the relationship between
test scores and subsequent job performance. Comparing scores of the most successful and
least successful salespeople currently employed by the firm is a frequently used validation
method. A word of caution is recommended, however. Such tests should only be used as
a part of the selection process, not as the sole decision criterion. There is little statistical
evidence that these tests successfully discriminate between future high- and low-performing
salespeople. One reason may be that candidates provide responses they think management
wants, and thus their answers may not be an accurate reflection of the person’s feelings or
behaviors.

Physical Examination
Traditionally, the last step in the selection process for salespeople has been a routine physical
examination (which typically includes testing for illegal drugs). Field selling is strenuous,
often involving extensive travel and hauling sample cases into and out of customers’ offices.
Because salespeople typically must endure a lot of stress and frustration, the sales manager
wants to be certain that the candidate has the stamina needed for the job, as well as to avoid
costly medical bills.
212 CHAPTER 7 RECRUITING AND SELECTING PERSONNEL

Although preemployment medical examinations are prohibited, such examinations are

permitted once an employment offer is made and prior to commencement of the job. An
employer could therefore make a job offer contingent on successful completion of the
physical. However, questions about whether the person has a disability, and the nature and
severity of the disability, are prohibited.

An Issue of Integrating Diversity

It should come as little surprise that the United States is becoming more diverse. According
to the U.S. Census Bureau, one-half of the U.S. population will be African American,
Hispanic American, Native American, and Asian American by 2050, and the median age of
the U.S. population is projected to rise from the current 36 years to 39 years by 2010. While
these statistics suggest significant changes in the future U.S. workforce, future problems
could emerge as some companies find it difficult to integrate and utilize a truly heterogeneous
workforce at all levels in the organization. Companies that attempt to address diversity issues
by meeting hiring quotas are unlikely to be successful. Changes must be made in the way
corporations work. Although the solutions are not clear, some of the problems companies
are grappling with include the following:
• Identifying and eliminating discrimination in hiring and managing people based on eth-
nicity, age, and gender.
• Developing creative ways to encourage productive people to stay in the workforce longer
by offering part-time, flexible schedules and retraining to upgrade skills.
• Recognizing the concerns of men and women with different family structures and family
responsibilities by addressing the issue of family care.
It is important for corporate America to address these concerns because, unless
employee differences are taken into account, companies may be unable to attract a sufficient
number of qualified people to meet their needs. Another reason is that the markets for
products are becoming more diverse, and it is necessary to have an in-depth understanding
of those markets that may be facilitated by employee diversity. As a result, managers
are faced with a number of challenges in leading newly diversified sales organizations to
optimal performance. Not only are we faced with challenges at home, but throughout this
text there are examples of how global companies must recognize and adjust to cultural
differences in other countries.

VALIDATING THE HIRING PROCESS

The last step in the hiring process involves validating the relationship between the selection
criteria used by the firm and job success. Validation is generally most useful in large samples
where information is collected on the progress of sales personnel and is fed back into
the system to modify the factors considered in the hiring process. Validation requires that
managers specify exactly what distinguishes top performers from poor performers.
A new insurance salesperson, for instance, might have to meet the following criteria
by the end of the first year of work: sales premiums of $120,000; renewal of policies
at a rate of 60 percent or more; and submitting orders, reports, and paperwork that are
legible, accurate, and timely. Those who achieve the standard will be examined carefully
to see what common traits they share. The common traits of those who fail to meet the
standard will also be examined to determine differences. The objective of the validation
process is to build a profile of the successful performer that can be used to select additional
salespeople.
SUMMARY 213

Suppose that an analysis of fifty first-year insurance salespeople reveals that the typical
successful salesperson has more than six months’ prior sales experience, a score of 65 or
better on the Selling Aptitude Test, and a college degree. These results can then be used to
help standardize the hiring criteria to screen applicants. Persons who do not have a college
degree or six months’ sales experience can be weeded out on the basis of information
supplied on their application forms. Those who survive the initial screening hurdles would
have to take the Sales Aptitude Test. Candidates who score below 65 on the test would be
dropped before the final interviews.
Validation seeks to build a set of hiring criteria that filters out poor prospects and makes
offers to those who have a high probability of success. No system can be 100 percent correct,
but a carefully designed program can improve the ratio of successful hires to failures. The
stringency of the hiring criteria will depend on the type of sales job for which the person
is being recruited. For some routine sales jobs, a set of fairly easy hiring criteria may be
adequate. In more specialized industrial selling jobs where a heavy investment in training
is required, a more rigorous set of experience and educational criteria may be justified. The
goal of validation is to learn what factors are related to success so that they can be used to
select new additions to the sales force.

SUMMARY
The recruitment and selection of salespeople constitutes one of the primary responsibilities
of field sales management. A poor hiring decision will not only increase out-of-pocket costs
but, in some instances, will damage employee morale, productivity, and client relationships.
After reading the concepts discussed in this chapter, you should be able to:
1. Discuss how to plan for recruiting and selection. Proper planning for recruiting is
essential. To aid in planning, a multistage model for recruiting and selecting salespeople
is presented. First, the number of people to be recruited is determined. The sales manager
then prepares a thorough analysis of each sales job. A careful review of the activities
to be performed by salespeople helps the sales manager in preparing a list of specific
job qualifications. These job qualifications can then be used to build a profile to guide
the search for successful recruits. Next, management must decide where it will look
for recruits. From a pool of recruits, sales managers then must select job candidates.
Finally, validating the hiring process helps to modify the hiring process for continued
success.
2. Identify relevant hiring criteria for sales jobs. Job qualifications refer to the aptitudes,
skills, and knowledge necessary to perform the job successfully. These qualifications
should be the basis for the posted job opening and serve as a set of criteria that will help
limit the number of applicants and help sales managers choose the best prospects from
among those who apply. Research suggests that there is no natural-born salesperson,
so an important criterion should include customer-focused selling abilities, such as a
willingness to follow through for the customer and the ability to adapt to the selling
situation.
3. Identify the different sources of recruits. Depending on the type of job to be
filled and company policy, the sales manager should seek applicants through various
sources—educational institutions, other departments within the firm, present employees,
employment agencies, classified advertising, competing or customer firms, and even
Internet-based sources.
4. Understand the selection and validation process. Managers must evaluate the pool
of applicants in order to select the most promising candidates. The selection process
214 CHAPTER 7 RECRUITING AND SELECTING PERSONNEL

involves the use of application blanks, interviews, background and credit checks, and
examinations in order to identify those persons who meet the job qualifications. Then
the sales manager must decide which, if any, of the candidates should be offered selling
positions. Hiring criteria should be validated by identifying traits associated with success
on the job and including these traits as screening criteria for new candidates.

KEY TERMS
Application blanks Hiring criteria Patterned interview
Aptitude tests Intelligence tests Personal interview
Assessment center Internship Personality tests
Classified advertisements Job analysis Recruiting
Credit checks Job description Referrals
Drug testing Job qualifications Semistructured interview
Employment agencies Knockout factors Turnover
Field observation Networking Validation

DEVELOPING YOUR COMPETENCIES

1. Strategic Action. Representatives in the pharmaceutical sales industry deal with two
distinct groups. They call on physicians, attempting to convince them of the product’s
superior quality, and they call on pharmacists, who must be persuaded to stock the
product instead of a competitor’s products. In recruiting salespeople, some firms hire
only pharmacy school graduates, whereas others hire business or liberal arts majors and
put them through an intense training program. What are the advantages and disadvan-
tages of each method? What implications might this have for sales management? Will
there be a difference in the number or type of persons moving into middle and upper
management?
2. Coaching. The first few days on the job can be very important in determining how
quickly the new salesperson gets started in the territory. How would you answer the fol-
lowing questions about the initial socialization of salespeople into the company? Should
new people set their own pace during their first week on the job? Should new salespeople
be asked to assess their territory before taking it over?
3. Team Building. SmithKline’s “team interview” process requires that each candidate
meet with a team of managers, including a sales manager, service manager, sales director,
and technical director. To make an offer of employment, the team must approve an
applicant. What are the advantages of using the team approach to interviewing? What
types of problems could occur by using such a team?
4. Self-Management. The pressure to fill an open sales position frequently leads to situ-
ations in ethically gray areas. Earnings potentials may be slightly inflated, or optimistic
three-year predictions may be based on one high performer, whereas the average earnings
are much lower. Relating how one person was promoted in only eighteen months, even
though this was highly unusual, may lead the candidate to believe that quick promotion
is very probable. What if your company is in a changing industry in which the role of
the salesperson is likely to be quite different in the near future and the earnings poten-
tial limited? What if you, the interviewer, are thinking of quitting? Should you let the
candidate know? Should candidates be informed when it is likely the organization will
go through a downsizing event sometime in the foreseeable future?
SHIELD FINANCIAL: “HIRING PRESSURES” 215

5. Global Perspective. The Czech economy is booming, and many U.S. companies with
facilities there are hiring. The challenge is that the local workforce is steeped in the
traditions of socialism, and no one has a track record in selling and servicing in a free
market economy. Companies such as Warner Lambert, Kmart, and Amway have turned
to Caliper Corporation, a recruiting firm, for help. How should Caliper choose the right
person for the job?
6. Technology. Peoria Resin and Plastics is a regional manufacturer of special grade plastics
that are used as a key component in manufacturing a wide assortment of molded plastic
products. The company is located in the three Midwestern states of Illinois, Indiana, and
Michigan but is planning to expand its current regional focus to include the adjoining
states of Ohio on the east, Kentucky to the south, and Missouri to the southwest. You
have been asked to develop an estimate of the number of additional salespeople who will
be required to support this expansion. In carrying out your assignment, you have elected
to use the “workload approach.” Analysis of your sales management database provides
you with the following information:
(a) On average, each one of Peoria Resin and Plastics salespeople can make 500 sales
calls annually.
(b) Each prospect/customer account served requires an average of 25 sales calls over
the course of any given 12-month period.
(c) The company’s sales force turnover has averaged 18 percent over each of the previous
five years.
Access the Big Yellow Pages Web site at the URL: www.superpages.com and search
for the number of firms in each of the three new states that are active in the manufacture
of molded plastic products. In order to do this, type in “molded plastics” in the “Cate-
gory” box, select one of the states of interest, and click on <Find It>. Do this for each of
the three states of interest and record the number of plastic molding firms active in each
state. Sum these individual state figures to determine the total number of firms actively
involved as manufacturers of molded plastics products in the three new states. Using the
workload approach, incorporate this total number of firms in the three states with the pre-
vious information produced from the company’s sales management database to derive an
estimate of the number of new salespeople who will be required to support the expansion.

FEATURED CASE SHIELD FINANCIAL: “HIRING PRESSURES”

D
oug Bloom, the newly appointed branch Do whatever it takes to rehire Susan Kelleher. While
sales manager of the Des Moines location an assistant sales manager at Shield, Kelleher had
of Shield Financial, recently had to fire his increased the revenue and profitability of her accounts
assistant sales manager because of consistently under- by 47 percent. Two years ago she left the company to
performing accounts. In seeking to fill the position, he move to a competitor. Treadgold’s mandate was so firm
wanted to promote from within and put on a list three it implied that Bloom’s own job would be in jeopardy
reps who have solid sales performance and the skills if he couldn’t convince Kelleher to rejoin the firm.
and personality traits necessary to succeed as assis- During the next few days, as Bloom prepared an
tant manager. However, before he could arrange to offer to woo back Kelleher, two of the reps he was
meet with those reps to discuss the situation, the com- initially considering approached him to apply for the
pany CEO, George Treadgold, gave Bloom an order: job. Now he was feeling the pressure.
216 CHAPTER 7 RECRUITING AND SELECTING PERSONNEL

Questions 3. If he does meet with them, how does he conduct

the interviews when he knows that he has only one
1. What do you think Bloom should do? true choice to fill the spot?
2. If he didn’t at least meet with these reps, would he 4. Should Bloom take a huge risk and confront Tread-
lose them—either physically (to the competition) or gold with a solid explanation of why he should
mentally (the reps might be disappointed because promote from within rather than rehire Kelleher?
they were not considered for the spot)?
CHAPTER

8 SALES TRAINING
When you are through changing, you are through.

Chapter Consultants:
George Pettegrew, Senior Sales Training Manager, Johnson & Johnson Medical
Jerry Willett, National Sales Manager, Software Spectran
Bruce Barton

LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Understand the benefits of sales force training.
Determine specific training needs for a sales force.
Discuss the topics to include in a training program.
Describe the advantages of centralized and decentralized training.
Understand the use of line, staff, and outside trainers.
Recognize the value of alternative training methods.
Describe the different methods for evaluating training results.

SALES TRAINING PAYS OFF

Micros Systems, Inc., the world’s leading developer of hardware and software applications
for hotel and retail industries, had a problem: Margins were being squeezed and salesperson
confidence was on the skids. Management was convinced that a complete overhaul of its
sales training was needed. It was decided that even before Micros hires a new salesperson
to tout its point-of-sale hardware and software to restaurants, sales managers needed to
assess a candidate’s potential for consultative selling. All applicants for sales positions are
asked to read and report on one of six pre-selected books as the first step in the recruiting
process. The purpose is to assess the candidates’ writing, thinking, logic, and storytelling
skills, which are some of the fundamental skills needed in consultative sales. The task is
also an indication of the person’s motivation to work for Micros. The fact that four out
of six applicants opted out of the assignment helped reduce the pool to highly motivated
candidates.
In the first 90 days on the job, sales hires complete a three-part, six-day “Sales 101”
course. The first part covers the marketplace, the second introduces the product, and the third
teaches a basic strategic selling approach. Upon graduation, each salesperson is provided
a customized sales development plan. The plan includes activities such as books to read,
additional product training, and personal milestone goals. Dan Interlandi, Executive Vice
217
218 CHAPTER 8 SALES TRAINING

President of North American sales, says, “Salespeople by nature want to take the shortest
distance to the goal line, and we know that a winning person takes the appropriate steps.”
Sales managers are instructed to review progress weekly to ensure that reps don’t skip any
steps or activities.
Micros takes the perspective that sales training is an ongoing developmental process of
knowledge, skills, and ability. From year one through year four of employment, salespeople
take a weeklong “Sales 201” course that reinforces the strategic selling concepts as well
as teaches reps how to handle customer objections and craft sales opportunities. More
education on restaurants follows. After four years at Micros, salespeople take an annual
three-day “Sales 301” course that’s not only focused on strategic relationship selling but
also includes a full-day refresher of the basics. Has this investment in training paid off?
Salesperson confidence is at an all-time high and sales per salesperson have increased over
20 percent while cost of systems has dropped by 30 percent.1
Micros Systems, along with many other companies, adheres to the philosophy that
good salespeople are made, not born. Research results also indicate that characteristics
that can be developed—such as selling skills, motivation, and role perceptions—are more
closely related to sales performance than enduring traits such as appearance, aptitude, and
personality.2 This is one reason why sales training is such a booming business today with
U.S. companies spending over $8 billion annually.3
Training requirements and spending are closely related to other management decisions
such as recruiting and selection procedures. If a firm believes it needs to hire young, aggres-
sive people with little prior sales experience, then training of new recruits takes on special
significance. For example, nearly every one of Armstrong World Industries’ salespeople has
been recruited right out of college. Initial training is conducted at Lancaster, Pennsylvania,
near company headquarters. Trainees live in a dormitory-style building called The Manor.
Although the total cost of recruiting and training is quite high, Armstrong believes that the
benefits of hiring people without industry-related biases and conflicting opinions are worth
the cost.
If a firm hires mostly veteran salespeople from within its industry, then training of
new salespeople is less expensive and generally focuses on company procedures. DuPont
usually hires people with technical backgrounds, and although their compensation is higher
than that of trainees with a nontechnical background, the training period is shorter (only a
couple of weeks) and focuses on “people sensitivity.” There are also obvious differences in
the type and level of compensation plans that are appropriate for each situation. The point
is that the various management decisions are related and must be compatible. Spending less
in one area often means spending more in another area.
The main sales training issues covered in this chapter are highlighted in Figure 8-1. As
shown in Figure 8-1, successful training programs consist of four phases: planning, program
development, evaluation, and followup actions. In each phase, managers need to make a
number of decisions that require time and money. Our goal in this chapter is to provide you
with the tools to maximize the return on those decisions. First, we begin by examining the
benefits of sales training in more detail, then we discuss the training process model.

WHY TRAIN SALESPEOPLE?

Effective selling is a learned, intellectual process that requires developing sophisticated
persuasive, product, and customer relationship skills. Such knowledge enables salespeo-
ple to recognize, analyze, interpret, evaluate, and remember effective and appropriate sales
strategies and tactics and how to adapt them to fit any sales call contingency. Unfortu-
nately, sales executives and purchasing agents generally agree that most salespeople are not
adequately equipped with this type of sophisticated knowledge. In fact, when asked what
WHY TRAIN SALESPEOPLE? 219

Planning for Sales Training

Assess Setting Setting a

Training Objectives Training
Needs Budget

Developing the Training Program

Training Where Training Who

Topics to Methods Should
Train Train

Evaluating Sales Training

Followup Training

F I G U R E 8-1 Sales Training Process

qualities make a top salesperson, purchasing agents frequently mention qualities that can be
influenced by training, such as a salesperson’s selling skills, ability to understand customer
needs, and product knowledge. Indeed, research has shown that sales training can enhance
selling effectiveness, improve customer relationships, and improve organizational effective-
ness and retention.4 This is why some of the most respected companies are willing to spend
a great deal on sales training. The average new hire for a business-to-business sales job
will cost a company a lot of time and money; some estimates are in excess of $100,000 per
salesperson.5 When you add in the costs of pulling in experienced salespeople from the field
and lost productivity of the entire sales-force, the costs for larger firms can escalate into
the millions. Most of the best sales organizations, however, consider training costs as an
investment in the future success of the firm rather than simply as a current expense. Given
this investment mentality, what, then, are some of the returns these organizations hope to
realize from their sales training programs? Figure 8-2 illustrates some of the common sales
training objectives.

Increased Productivity
The ultimate objective of any training program is to produce profitable results. Allstate
Insurance Company, for example, realized a 29 percent increase in production on an on-line
training program for IRA products. By tracking the 1,633 participants who completed the
training over a twelve-month period, it became clear that within the first six months fol-
lowing the training, the agents who accessed an on-line course sold significantly more
IRA products than agents who had not accessed the course.6 A pharmaceutical company
also found that just by bringing the bottom half of the sales force up to average through
proper training increased sales by 9 percent.7 Although money spent on poorly conceived
and executed training programs is largely wasted, these examples illustrate the potential
220 CHAPTER 8 SALES TRAINING

Increased
Productivity Reduced
Turnover

Sales Training
Objectives
Improved
Efficiencies
Improved
Customer
Relations
Better
Morale

F I G U R E 8-2 Sales Training Objectives

for significant returns on money spent on training. Unfortunately, most firms today do not
formally evaluate the financial impact of their sales training because of the perceived diffi-
culties and added expenses.8 However, useful cost-benefit analytical models are becoming
available for managers to systematically evaluate the financial impact of a sales training
program.9 One benefit of these models is that they allow managers to translate the skills
and knowledge gained in a specific training context into a dollar-based estimate of the
resulting revenues. Sales trainers report that companies are increasingly requiring this type
of justification from training investments.

Reduced Turnover
As discussed in the previous chapter, turnover is the ratio of the number of people who
leave to the average size of the sales team. Salespeople who go into the field without
adequate training typically find it difficult to see buyers, answer questions, or close orders.
The resulting confusion and disappointment often cause novices to quit before they have a
chance to learn how to sell effectively. Although this may not surprise you, the question
remains, does training really help with turnover? The results of one study found that sales
training will help keep a new salesperson focused and less affected by the successes and
failures that can take an emotional toll on an untrained salesperson. The study also showed
that proper training reduces salesperson role ambiguity.10 These are important factors to
control in reducing a person’s intention to quit.

Improved Customer Relations

Industrial buyers, in particular, complain that too much of their time is wasted in dealing
with untrained salespeople. Buyers do not like to spend their time counseling salespeople
on market conditions and product needs. They prefer to work with trained salespeople who
have a thorough knowledge of the industry, their firm’s business, and their own product
lines. Companies are attempting to respond to these concerns. For example, companies such
as Caterpillar are teaching their salespeople how to leverage their customer knowledge to
gain more share of the customer’s business. As a result, prefered vendors are now relied on
to provide complete solutions.
With more and more buyers requiring vendors to provide a total business solution, the
number of a sales rep’s contact points within the buying firm is also increasing. Today’s sales
PLANNING FOR SALES TRAINING 221

training programs are responding by providing information about the buying motives for
other potential key influencers, such as finance executives, operating officers, and accoun-
tants. Tellabs salespeople, for example, are now trained to discuss strategic growth and
capitalization requirements with a prospect’s senior executives.11

Better Morale
The majority of sales training is designed to increase product knowledge and improve selling
skills; one by-product of acquiring these skills is increased self-confidence and enthusiasm
among the sales force. When salespeople know what is expected of them, they are in a better
position to withstand the disappointments and meet the challenges of a sales career. Trained
salespeople start producing orders faster, and the increased earnings help boost morale. In
fact, in our personal experiences with sales training over the years, we consistently find sales
trainees listing a positive attitude most frequently when asked to describe the characteristics
of a successful salesperson. When brought together for training, people get a sense of
belonging to a team in which they can exchange successful selling techniques and ideas.
When Lucent Technologies, a large telecommunications company, was hit by the com-
munications slump in 2003, its stock price fell over 95 percent. To increase morale and
refocus its sales force, Lucent doubled the amount spent on sales training. Salespeople felt
more valued and as a result became a harder-working and more dedicated group.12

Improved Time and Territory Efficiency

Enhancing salesperson time and territory management skills is important for all sales orga-
nizations. Salespeople are constantly faced with time pressures that make it difficult to
effectively allocate resources. A recent study of 289 salespeople, for example, reported that
32 percent of the respondents spent fewer than 5 hours per week with customers.13 Fre-
quently, it is difficult to determine what is really important and what only seems important.
Understanding the difference, however, is often what separates the stellar from the average
performer.

PLANNING FOR SALES TRAINING

Planning for sales training involves three related processes: (1) assessing sales training
needs, (2) establishing specific objectives for the training program, and (3) setting a budget
for the program.

Assessing Sales Training Needs

Without oversimplifying the issue, sales force productivity needs generally break down into
one of three elements. The sales force either does not know what to do, or how to do it, or
why they should do it. A training needs analysis is a process for determining where problems
and opportunities exist and whether training can best address the issues. A complete training
needs analysis includes a review of the firm’s strategic objectives, management observation
and survey of salespeople, customer input, and a review of company records.

Strategic Objectives. An organization’s strategic programs frequently involve changes in

the types of products sold, the customers called on, and the type of customer relationships
developed. For example, Pfizer, a New York–based pharmaceutical firm, recently acquired
222 CHAPTER 8 SALES TRAINING

TEAM EXERCISE
“Sales Training for Profits”

You just came on as vice president of sales for General Industries, overseeing 150 salespeople
and 10 sales managers. General’s sales were solid, but profit margins were abysmal. General’s
president charged you with fixing the situation.
During your first few months on the job, you spent much of your time on the road
with your salespeople visiting customers. Your mission was twofold: introduce yourself to
General’s customers and observe the selling styles of your reps. What you discovered was that
price cutting was rampant. Your predecessor, you learned, had managed with the credo “sales
at any cost.” Unfortunately for General, the practice cost the company profits.
You have to devise a turnaround strategy. Your biggest challenge will be to get 150
salespeople to drastically adjust the way they have been selling for the past four years under
the former sales VP. And you have to get his ten sales managers to support and encourage the
change. You know that your toughest challenge will be managing the drop in sales that may
result from your new mandate of “sell on value, not on price cuts.” But you’re also worried that
many of your reps will leave the company over fears that their commissions will be reduced in
the short term. How can you introduce your new policy without creating resentment among the
reps? What would you focus on in the “retraining” program? What could you do to minimize
the financial impact to the sales force when it loses accounts due to the increased prices?

Pharmacia to expand its market coverage. Pfizer quickly realized that a massive training
program was needed for the Pharmacia sales reps that it acquired. The company had to
rapidly train the Pharmacia’s sales reps on Pfizer’s products, sales strategies, and culture.
In addition to mergers and acquisitions, changing markets, products, customers, and cus-
tomer relationship strategies will often trigger additional training. DuPont’s salespeople,
for example, are taking more courses in international areas, in addition to technical and
product-oriented courses, as a result of changes to its marketplace. These examples illus-
trate the necessity of identifying training needs as a result of changes in strategy, market
environment, and competitive environment. How would you deal with the changes the vice
president of sales was planning to implement in the Team Exercise “Sales Training For
Profits”?

Sales Force Observation and Survey. Observation of salespeople is an excellent way to

identify shortcomings to target for future training. Managers could observe the macro-level
strategies that salespeople use in their approach to conducting business as well as interactions
with customers. Observation is especially useful when comparing the superstars with the
lower performing salespeople. Observation of the sales calls of a company selling auto
parts, for example, revealed that the discussion during successful sales calls focused on
which products the customer should order. Less successful salespeople spent far more time
waiting or talking about nonbusiness subjects. This type of assessment often identifies a
number of areas that need improvement.

Customer Information. Sending customers questionnaires can also be quite revealing.

Questions to be asked may include: What do you expect from a salesperson in this industry?
How do salespeople disappoint you? Which company in the industry does the best job? In
what ways are its salespeople better? An alternative to surveys is to conduct a series of focus
group sessions with six to ten customers. A focus group is essentially a meeting with a group
of customers to elicit specific information, in this case information on training needs. O’Neal
PLANNING FOR SALES TRAINING 223

T A B L E 8-1 Cross-Tabulations from Company Records

Average Order Size New Customers Total Customers
per Salesperson per Salesperson per Salesperson
Experience
Less than 2 years 392 21 86
3–5 years 593 29 145
6–10 years 565 5 152
Over 10 years 470 8 139
Regions
Northeast 528 6 140
Southeast 520 8 161
Midwest 512 18 111
Southwest 421 26 107
West 544 21 131

Steel, a Birmingham, Alabama–based steel distributor, for example, incorporates customer

assessments of its salespeople to help develop advanced training programs for its veterans.
It has been O’Neal’s experience that its salespeople pay more attention in training when the
customer says there’s a problem than when the problems come from management.14

Company Records. Companies with a degree of computer sophistication may have a great
deal of useful data for analyzing training needs, especially if call reports are available.
Cross-tabulating performance records may also be helpful in identifying which salespeople
need what type of training. Cross-tabulation involves examining performance by certain
sales force characteristics, such as years of experience, geographic area, or area of special-
ization.
Table 8-1 illustrates how a cross-tabulation may be useful in identifying specific training
needs. Three intermediate measures of performance are crossed with two characteristics of
the sales force—years of experience and geographic region. Experience was chosen as a
characteristic based on management concerns that both new and senior salespeople were
thought to be having difficulties. Regional differences were also of interest because managers
had considerable latitude in the training of salespeople and complete responsibility after the
initial six-week training of new salespeople.
The results in Table 8-1 suggest that there may be a problem with both new and senior
salespeople. New salespeople have the lowest average order size and lowest total number of
customers, which may suggest that new salespeople need more training in how to increase
business with existing customers. At the same time, salespeople with more than six years
experience appear to have reduced their efforts in prospecting for new customers. There
also seem to be difficulties with the Southwest region because it has the lowest average
order size and total customers per salesperson.
What’s the next step? Design a training program on prospecting for senior salespeo-
ple? Implement a whole set of training programs for the Southwest region? The answer is
no because we have not yet investigated the needs of the sales force in sufficient depth.
Cross-tabulating experience with regions may reveal that the Southwest region has mostly
new salespeople. There may be competitive reasons for the results. There may be demand
and economic differences between the various regions. In short, the needs analysis should
return to a dialogue with salespeople and sales managers to identify the causes of the
problems. This hypothetical situation points out an important principle when investigat-
ing training needs: Use multiple sources of information and cross-validate the information
whenever possible.
224 CHAPTER 8 SALES TRAINING

Setting Objectives
After assessing the training needs of the sales force, specific sales training objectives should
be established and put in writing. Like all good objectives, training objectives should be
specific enough and measurable so that the extent to which they have been met can be
evaluated following the training program. This will also help prioritize various training
needs, which makes it easier to properly sequence the training. Written objectives are also
helpful in gaining top management’s commitment and willingness to provide budget support
for training. In fact, a lack of management commitment is often cited as one of the major
reasons why sales training fails to produce meaningful results.15 With top management
involved, accountability for quantifiable results tends to become a higher priority.

Setting a Training Budget

The costs of training new salespeople typically include salary, benefits, and sometimes
lodging and meal expenses if the training is conducted out of town. For veteran salespeople,
the costs also include lost sales while the rep is out of the field. These costs will vary by
industry and by company; however, the objectives, location, and number of trainees are
typical factors that have the most immediate budget impact. For example, a program with
the objective of improving relationship strategies for experienced salespeople may require
between two to four days, while a program designed to teach the basics in selling to
inexperienced recruits could last as long as six months. It should come as no surprise that
the more technically oriented industries spend more money and take more time to train
new salespeople. A.G. Edwards, a financial services firm, for example, spends $58,000 per
trainee. The total cost to train its 750 new salespeople in one year came at a total cost of
$43.5 million. A.G. Edwards, however, views this cost as a five-year investment given what
it takes for a new financial consultant to build a successful business.16
Some companies are trying different approaches to hold down their training costs. The
use of technology, such as Webinars, podcasts, and conference calls allow salespeople to
participate in a training program without the travel costs.
FileNet, an e-commerce service provider with 400 salespeople in Costa Mesa, Califor-
nia, saved over $500,000 on travel costs alone when it put its new-product training on-line.
Although the majority of companies (52 percent) in a recent survey indicated that they
currently do not use on-line training, approximately 60 percent of those companies stated
that they would consider using it in the near future.17 Of course the use of technology has
its drawbacks, as we discuss later in the chapter.

DEVELOPING THE TRAINING PROGRAM

After determining the needs of the sales force and setting specific objectives and a budget
for training, a number of decisions critical to the success of the individual training program
must be addressed. These decisions include (1) what topics to cover, (2) where to conduct
the training, (3) what training methods to use, and (4) who should do the training. These
four decisions are interrelated so that one decision will impact the others.

Training Topics
The choice of subjects to be covered in a sales training program depends on the prod-
ucts to be sold, the purpose of the training, and the background of those being trained.
Firms that sell highly technical products, such as medical equipment, typically include
more product-related material in their programs than firms selling less complex products or
services (e.g., radio advertising). The purpose of training may be to provide initial training
DEVELOPING THE TRAINING PROGRAM 225

for new hires, continuing development of veteran salespeople, or training for a special-
ized situation. The most effective training managers also consider the background of those
being trained. For example, the Novartis Group, a manufacturer of pharmaceutical products,
changed its training program to offer different programs based on skill set and performance
level. Results showed that physicians preferred the salespeople who participated in the pro-
gram more than twice as much to those who did not.18 Now let’s take a look at the topics
typically included in training programs.

Product Knowledge. A common misconception is that sales training is designed primarily

to improve the selling skills of sales representatives. Although selling skills are important,
many companies devote a significant amount of time presenting product information. The
amount of time devoted to product knowledge is frequently related to the complexity of the
offering or to the introduction of new products. For example, Merck, a multi-billion-dollar
pharmaceutical company, has a short time to bring a new product to market following
FDA approval. In just one week, Merck’s 3,000 salespeople will attend an off-site training
session where—with the help of physicians and computerized product information—they
learn about the new product and become familiar with the disorder it treats. Six weeks after
product introduction, salespeople are brought together once more to solidify their product
knowledge. For Merck, product understanding is considered essential if sales representatives
are to communicate effectively and address customer needs.
Technology has enabled many salespeople to access detailed product information using
the Internet. With the use of portable devices, such as laptops and PDAs, salespeople can
access specific product information any time, even during sales calls. This type of support
can be a tremendous help to newer salespeople who face a steep learning curve in terms of
customer, selling, and product knowledge.

Selling. New recruits must be familiar with how the sales process works before they
can be effective and productive field representatives. Even recruits with previous selling
experience need this training because selling approaches may differ from one company
to the next. Veteran salespeople will also benefit from training in how to sell in specific
situations and when presenting new products.
Supporting this notion that even experienced salespeople can benefit from learning
new selling skills is research on cognitive selling scripts. A script is the knowledge an
expert, such as an effective salesperson, possesses based on remembered similar experi-
ences. Experts are said to possess two types of knowledge. The first type of knowledge,
referred to as declarative knowledge, permits them to recognize a selling situation requiring
a somewhat unique selling process. The other type of knowledge is called procedural knowl-
edge. This knowledge consists of the process or sequence of behaviors that are necessary to
achieve a successful conclusion in a particular sales situation. Research has determined that
higher-performing salespeople have more elaborate if-then contingencies stored in memory
than lower-performing salespeople. In other words, the amount of selling knowledge a sales-
person has is not as important as how that information is stored and indexed in memory
for retrieval when needed. The implications of this finding for sales training are signifi-
cant. For example, we do not recommend teaching novices a body of knowledge gained
by high performers in a few training sessions (we believe this is doomed to fail); instead
we recommend adopting a long-term approach toward training and retraining that includes
elaborating on prior knowledge by teaching pattern recognition through discrimination tasks
and explanations.19

Improving Teamwork. As sales organizations focus on developing more enterprise rela-

tionships (as discussed in Chapter 4), sales training has also begun to focus on training
226 CHAPTER 8 SALES TRAINING

salespeople as members of cross-functional sales teams. Sales teams are generally com-
posed of a group of specialists, each of whom contributes different skills to deliver a
system-oriented solution to customer problems. In these situations, a salesperson may be
responsible not only for maintaining the customer relationship, but also for motivating and
coordinating the sales team. Working in teams, therefore, requires new competencies from
people who are used to working independently of other employees. Procter & Gamble, for
instance, found that its salespeople needed to be trained in such skills as how to evaluate
other team members, coordinate projects, arrive at mutually agreed-upon objectives, settle
disputes within the team, and provide feedback to team members. Notice that many of these
topics were once the concern of management personnel only.
Customer demands are also requiring salespeople to work more effectively across func-
tional areas within their own firms. The increased interaction across functional areas means
a change in training methods. Many companies are now requiring salespeople to know
how their products are made. Extended stints in the production and operation facilities, for
example, enable salespeople to communicate customer problems more effectively with their
own technical and production people. If managed properly, these types of cross-functional
training programs tend to strengthen a sense of “team” within a firm.

Customer and Market Information. Training time is also devoted to giving recruits cus-
tomer information and the general background on the market for the goods and services
produced by the firm. Sales recruits are typically given facts about the size and location of
present customers, their buying patterns, needs, and technical processes. For example, spe-
cific account-level information such as profit potential can be used to identify prospects who
are ripe for developing a long-term relationship. Training salespeople to manage the account
for long-term profitability rather than the short-term sale requires engaging the customer at
multiple levels of the organization as well as a great deal of commitment, openeness, and
trust.

Company Orientation. Since salespeople are boundary spanners between the company
and its customers, they must be well-versed in the company’s history, organization, and
policies, as well as having an understanding of corporate citizenship and workplace compe-
tencies. As a result, company orientation topics tend to be very broad. Typical organizational
training sessions include policy discussions on returns and warranties, credit arrangements,
production sources, sequencing of orders, and how to expedite an order. Trainees must
know about exclusive merchandise, price guarantees, discounts, and latitude on pricing.
It also helps to understand the reasons behind the policies and how noncompliance will
negatively affect the company. Salespeople will then be better able to explain the policies
to customers who are looking for special deals. Dow Chemical Company’s initial sales
training program, for example, aims to produce a fully balanced seller, not just someone
trained in product knowledge. During its year-long program, trainees work on three related
training projects involving such things as working in Dow’s customer service center taking
customers’ calls and orders or producing an in-depth marketing study involving customers
or new markets.

Technology-Based Selling Skills. Changes in technology and the marketing environment

are driving new sales force automation (SFA) products and, as a result, new sales training
topics. These systems are designed to provide company-wide access to customer information
that previously was the sole possession of the salesperson. As a result, winning sales force
commitment to SFA can be difficult. Unless sales reps are shown how SFA increases pro-
ductivity and how it fits into the overall marketing strategy, they will resist using it. Many
firms are overcoming this resistance by revamping their SFA training to include the “whys,”
“wheres,” and “whos” of the entire business process along with the technical aspects of the
software program.20
DEVELOPING THE TRAINING PROGRAM 227

Other Topics. Other topics where salespeople typically receive training includes time and
territory management and, as we discuss in Chapter 10, how to resolve legal and ethical
issues. In terms of time and territory management, most salespeople are provided a great
deal of latitude in how they manage their time and territory. Training salespeople how to
allocate their time among the selling, service, and administrative responsibilities can signif-
icantly increase their productivity. Some of the more exotic training topics include reading
body language, understanding eye movement, and identifying people’s decision-making
styles. Some research in nonverbal communication has shown a link between salesperson
effectiveness and the ability to read a person’s body language.21

Where to Train
Having determined training topics, a company must still decide where and how training will
be conducted and who will lead the training sessions. Although the decisions are interrelated,
we discuss alternative locations for training salespeople in this section. First, we look at
whether training should be centralized or decentralized.

Centralized Versus Decentralized Training. One of the recurring controversies in sales

management is whether sales training should be centralized or decentralized. Some managers
contend that centralized training leads to greater efficiency, whereas others insist that training
should be done in the field where skills are used.
Centralized training occurs when all the salespeople to be trained are brought to one
central location—a plant, the home office, or a training facility. A major advantage of
centralized training is the quality and consistency of training. Quality is enhanced through the
use of specially trained instructors, custom-designed materials, and audiovisual equipment
such as closed-circuit television systems. Furthermore, communications and coordination
are enhanced when everyone receives the same training. It is also possible to give trainees
exposure to top-level managers and other specialists, which can help boost morale and
provide valuable insights into sales procedures and customers’ needs.
On the negative side, centralized training is very costly and time consuming. Because
training facilities and equipment are expensive, and trainees have to be reimbursed for
travel to the central site and for lodging, managers usually attempt to keep these sessions
fairly short. Some companies are attempting to reduce the cost while preserving the advan-
tages of centralized facilities by broadcasting training sessions, either using the Internet
or videoconferencing from headquarters’ facilities. Cisco Systems developed an internal
on-line learning portal called Field E-Learning Connection. The portal provides salespeople
access to thousands of different training modules without having to lose valuable time in the
field. The system cut training-associated travel by 60 percent.22 We will discuss additional
advantages and disadvantages of Internet-based training in the “Training Methods” section
of this chapter.
Decentralized training of salespeople is usually done in field or regional sales offices,
which moves the learning process closer to the customers and directly involves field sales
management. New recruits are able to observe top salespeople selling to customers similar
to those they will encounter in their own nearby territories. Location of the training at
sales branches also reduces travel and instructional expenses. At Allegiance Healthcare,
for example, regional and branch offices share ongoing sales training responsibilities. New
hires spend time in the region office to understand how the business works, what role that
office plays, and the administrative requirements. The branch level puts together programs
on its marketplace with a major focus on specific products, systems, or services required
for customers within that particular territory.23
Despite these advantages, there are a number of potential problems. Perhaps the most
common one is that sales managers are so busy supervising the existing sales force that
228 CHAPTER 8 SALES TRAINING

they fail to take the time needed to train new recruits. Sales managers whose income is
based on a percentage of their salespeople’s commissions (called commission overrides) are
likely to be most concerned about current income and may give training of new employees
a low priority. As a result, the content and quality of the training process may vary widely
across the branches. Additional limitations associated with using field sales managers are
discussed in the section titled “Who Should Train.”
A common resolution of the centralized versus decentralized training issue is to use
some combination of the two approaches. Xerox, for example, brings new recruits into the
branch offices for a few weeks of familiarization with company procedures and products.
With this background orientation, the novice salespeople are then sent to a central facility for
a short session of intensive training. This program allows those who are not committed to the
company to drop out before the expensive portion of the program begins. After completing
the centralized training, Xerox salespeople go back to the field for more practical experience
and coaching by their sales managers. At the end of six months of sales experience, the
new salespeople return to the central facility for another week of advanced training.

Field Training. Field or on-the-job training (OJT) is the most widely used method of sales
training for new recruits. Small companies especially rely on this method of training new
salespeople because of the high cost of developing alternative training methods when only
a few people need to be trained.
The basic idea of on-the-job-training is that every time salespeople call on customers,
they should learn from the experience. To facilitate and encourage learning, new salespeo-
ple are often paired with successful veterans. Georgia Pacific and Ortho Pharmaceutical’s
Biotech Division, for instance, take this approach to OJT. Another alternative is to have the
immediate supervisor travel with the new salesperson and observe sales calls.24
Although this experience is important and people should be taught to learn from their
experiences, OJT should not be relied on as the sole means of learning. First, experience
is costly; while salespeople are gaining experience, sales are lost and relationships may be
strained. Second, the quality of training is likely to be uneven; some people are simply
better trainers than others. More important, the new salesperson may pick up the bad habits
of the veteran salesperson, resulting in a lack of consistency in how salespeople are going to
market. It was precisely for this reason that Johnson Controls, Inc. established a six-month
training program for new salespeople. Johnson’s management decided that best means of
development is not experience alone, but experience in combination with a planned program.

Training Methods
Companies make use of a variety of methods for sales training. Cost reductions in technology
are making it possible to use alternative media, regardless of the training location. Although
many people are quite familiar with the classroom and workbook methods of learning, the
use of role-plays, CDs, podcasts, audiotapes, and the Internet as instructional media may
not be as familiar.

Role-Playing. Role-playing, typically of simulated sales presentations, is quite common

in sales training. This technique is effective when used to reinforce information presented
in videos and lectures by requiring active participation and practice. Role-playing helps to
determine if the trainee can apply the information. Video cameras are often employed to
capture role-plays on tape so that they can be reviewed for critique and self-observation.
Despite its wide use, role-playing has some pitfalls. The biggest concern is the stress
caused by the videotaping. People may be unable to focus on the subject to be learned when
they are under too much stress. One way to reduce the stress is to conduct a critique imme-
diately following the role-play, emphasizing positive points and encouraging self-analysis:
What did I do right? What will I do differently next time?
DEVELOPING THE TRAINING PROGRAM 229

Another way to reduce stress in role-playing is to use it in a business game situation

in which trainees assume a specified role in a situation. Companies such as Chase Man-
hattan Bank, BMW’s Motorcycle Division, and Johnson & Johnson regularly use games to
encourage the learning of product knowledge and selling skills. These companies recognize
the value of “edutainment” in adult learning. Taking people out of their comfort zones using
fun exercises is an effective technique for teaching important sales skills such as creativity
and adaptability.25

CDs, Podcasts, and Audiotapes. CDs and podcasts are popular training media because of
their portability and storage capabilities. CDs and podcasts are typically used as information
sources for products and market intelligence, but they have also been used for more inter-
active sales training. IBM, for example, developed an interactive self-study system called
Info Window to aid in the redeployment of 11,800 employees in the field as marketing rep-
resentatives and system engineers. Info Window’s onscreen actor is programmed to portray
a customer in a particular industry whose response depends on the sales trainee’s behav-
ior. Trainees can also film themselves as they interact with the actor. Some of the latest
computer-based sales training programs include Nintendo-like graphics. Reuters salespeo-
ple, for example, train with customized computer programs of football players and race-car
drivers in a video-game format to role-play effective and ineffective customer calls.
Audiotapes are also an effective way to present and reinforce selling and product infor-
mation because of the time salespeople spend traveling and waiting. The fact that more than
500 exhibitors of audiocassette training material attended a recent national meeting for the
American Society of Training and Development suggests that there is a large demand for
training tapes. Tape Rental Library (www.trlonline.com), for example, has over 2,000 titles
for sales training, which it offers to clients such as Pfizer Labs, GE, Scott Paper, Johnson
& Johnson, and Gillette. The biggest limitation to audiotapes as a training medium is their
inability to get and hold the listener’s attention for a significant period of time, which is
why audiotapes are frequently used in conjunction with other training media and to reinforce
previous training information.

Internet. As changing economic conditions have forced companies to seek cost-effective

sales training, more and more are turning to on-line solutions. Many companies have moved
a portion of their sales training on-line. IBM, for example, has an “on-demand” learning
initiative where salespeople and others can take training courses, share and learn about best
practices, and even set up their own blogs about their learning experiences.26 By using
Internet- or Intranet-based technology, managers also ensure their salespeople have access
to the necessary information as soon as it’s available without leaving their territories or
customers. It’s that flexibility that’s fueling the growth of Internet training in the United
States.
Of course, no new technology is without its drawbacks. For example, initial startup
costs of e-learning Web sites are high, and distractions at the rep’s location could affect
learning and retention. Also, many companies have discovered that on-line courses are not
as effective as traditional learning environments when teaching advanced skills. This is
because adults are better able to master difficult concepts when they can ask questions and
role-play to reinforce concepts. Experts recommend a good mix of on-line and classroom
training to be 80 percent on-line and 20 percent classroom.27

Who Should Train

The three most popular types of sales trainers are staff specialists, outside specialists, and
line executives. Because each has certain advantages, it is not unusual to find organizations
using all three types. The selection of trainers for individual firms depends on where the
230 CHAPTER 8 SALES TRAINING

sessions are held, the size of the firm, the characteristics of the product line, and the focus
of the training.

Staff Specialists. When centralized sales training is used, companies often have staff spe-
cialists prepare the materials and conduct the classes. Staff trainers must not only be good
teachers but also experts in selecting the proper methods and audiovisual equipment needed
to meet program objectives. If sales training is conducted on a decentralized basis, staff
specialists in the central office usually prepare the program materials, and the instruction is
carried out by line managers.
There are some disadvantages to using staff trainers. One complaint is that despite
their teaching skills, they often lack experience in realistic field-selling situations, making
it difficult for trainees to apply the classroom instruction to realistic customer situations. In
addition, a staff trainer’s salary is simply too expensive for many small firms.

Outside Specialists. The employment of outside specialists to conduct sales training is a

fairly common business practice. Outside consultants may be entirely responsible for the
training programs or may be brought in to conduct specific sessions within a total training
program. More effective sales consultants usually tailor their training programs to meet the
special needs of individual firms and industries. The main attraction of outside trainers is
the variety, inspiration, and excitement they can bring to the training program.
The potential problems with outside specialists are similar to those of staff specialists.
In addition, outside trainers may be unfamiliar with a company’s selling situation (lack of
familiarity with industry jargon, customers, and competitors). For example, a trainer may
discuss price discounting in a presentation when the company is emphasizing value-added
selling to avoid price discounting. Salespeople may disregard the training altogether as a
result or, even worse, may be misled.

Line Executives. Using line executives (usually sales managers and top performing sales-
people) as sales trainers lends credibility to the program because these people have successful
sales backgrounds and trainees are more likely to recognize their knowledge base. They
know how to sell to and they know what skills trainees need in order to perform well in
the field. The scheduling of line executives for sales training sessions also enables these
managers to become better acquainted with the entire sales force. When sales managers
who actually supervise the salespeople do the training, or use the methods themselves, new
recruits are more likely to put the ideas into practice.
Line executives are not always asked to lead sales training for a variety of reasons.
Although line managers know a great deal about selling, they may not be trained in how to
communicate the information to a group of people in a classroom setting. Furthermore, line
executives are usually preoccupied with current sales problems and may not have time to do
a good job of training. Solutions to these problems include offering “release time” so that
they can prepare for their training classes and instructing the managers in better teaching
techniques. Smaller firms, in particular, must deal with these problems because many cannot
afford staff trainers and are forced to use line executives or outside specialists.

EVALUATING SALES TRAINING

As the costs of sales training continues to rise, sales managers must find ways to determine
whether this investment is paying off. One of the most popular training evaluation methods
over the past forty years has been Kirkpatrick’s four-stage framework.28 One reason for the
model’s popularity is its simplicity and practicality. Figure 8-3 illustrates the four levels of
the framework and briefly describes how the model could be used for assessing sales training.
EVALUATING SALES TRAINING 231

Level 1: Reactions Are trainees satisfied with the training? This also provides information
so that the parts they don’t like can be improved.
Level 2: Learning Did the training change attitudes, increase knowledge, or improve the
skills of the trainees? This usually requires testing before and after
training.
Level 3: Behavior Are salespeople using their knowledge and skills on the job? This may
be measured in a variety of ways: asking salespeople, the sales
manager observing salespeople, and questioning customers.
Level 4: Results What effect does the training have on the company? The bottom line
results of training can include increased sales; higher profits; more
new customers; and reduced costs.

F I G U R E 8-3 The Four Levels of Training Evaluation

As shown in Figure 8-3, level 1 measures trainee’s reactions or feelings about various
aspects of a sales training program. Despite the emphasis on showing demonstrable results
from training, most companies are likely to use trainee reactions to evaluate training pro-
grams, as presented in Table 8-2. However, one study found very little correlation between
Level 1 evaluations and how well the people performed in the field. The study actually
found that one trainer, who was rated in the bottom third of all trainers by his students in
Level 1 satisfaction evaluations, was actually one of the most effective in terms of how his
students performed during the first three months after they graduated.29
Training evaluation at the second level assesses the acquisition and retention of declar-
ative knowledge (i.e., know what), procedural knowledge (i.e., know how), and/or attitude
change, depending on the objectives of the training. Measures can include pencil-and-paper
examination instruments along with behavioral evaluations (e.g., role plays, customer evalu-
ations). Behavior change assessments are the third level of evaluating training and measure
the extent to which salespeople modify their job-related behavior as a result of the training.
Sales manager’s appraisal of a trainee’s behavior following the training is often used as
an assessment tool, as is a salesperson’s evaluation of his or her own behavior. Level 4
evaluations measure the extent to which a training program has reached the objectives set
forth by the organization.
Bottom-line measures of performance (e.g., sales and profits) were ranked only fourth in
frequency of use. One survey found that approximately 60 percent of firms do not measure
the value or impact of training on sales performance.30 A potential problem with using
sales as a performance measure is that sales may change as a result of factors outside the
salespeople’s control. One way to overcome this problem is to compare the results of those
who completed a training program with those who did not, but who are in otherwise similar
situations (i.e., develop a field experiment). A.G. Edwards tracked a sample group and
compared the results to salespeople who did not go through the training. The company found
a 205 percent return of investment in the salesperson’s second year. After five years, the
total revenue generated from this sample group reached more than $290 million, providing
an ROI of 667 percent.31

T A B L E 8-2 Sales Training Evaluation Practices

Measure Criteria Type Importance Rank
Trainee feedback Reaction 1
Supervisory appraisal Behavior 2
Self-appraisal Behavior 3
Bottom-line measures Results 4
Customer appraisal Behavior 5
232 CHAPTER 8 SALES TRAINING

Field experiments to control for outside influences on sales are not easily designed or
conducted. People with similar experiences, previous performance, and other characteristics,
for instance, should be assigned to both the control group (salespeople not given training)
and the group of salespeople given training. Results must usually be measured shortly after
training, as well as several months later, to enable comparison between short-term and
long-term effects. Similarly, outcomes should be measured before training to determine the
extent of the change that can be attributed to training. These are just some of the issues that
must be considered.

FOLLOWUP
Regardless of management’s philosophy toward the training issues discussed in this chapter,
one of the biggest mistakes management can make is failure to follow up on training.
One-shot training is a proven formula for failure and a big waste of company money.
No one can train salespeople once a year at the annual sales meeting. According to a
frequently cited study at Xerox, 82 percent of skills learned in a training session are lost
if not reinforced. Training efforts are most successful when training is scheduled at regular
intervals throughout the year. At American Bankers Insurance Group, for instance, the sales
force goes to Miami twice a year for a weeklong training session. Also, salespeople meet
for a full day once every two weeks with their regional managers to review what was taught
in the training sessions. Consistent, ongoing training and reinforcement lead to development
and improvement as part of an organization’s culture. This obviously must start with top
management’s support and participation. American Bankers demonstrates this commitment
when the chairman, vice chairman, or national sales manager holds quarterly meetings with
each salesperson.

Additional Sales Training Issues

Developing Salespeople. Salesperson development involves helping people develop goals,
skills, and habits beyond those necessary for the present job. Many experts feel that develop-
ing personnel is the most important and most difficult responsibility of first- and second-line
sales managers. This process, sometimes referred to as career planning, often involves
retraining salespeople to expand their responsibilities. As companies move toward flatter
organizational structures, career planning for salespeople can become even more difficult
because of fewer advancement opportunities.
Being stuck in a job in which there is little or no opportunity for further personal
development can be very demotivating. Most people are stimulated by new challenges
and the possibility of having an important impact on the performance of the organization.
Salespeople who face a future of no new responsibilities beyond their present territory are
likely to be less motivated and less committed to the organization than those who have
these prospects. Their sales performance may also level off or decline.
What can first- and second-line sales managers do to help salespeople develop their full
capabilities and prevent career stagnation? Here are a few suggestions:
1. Help salespeople gain a realistic understanding of the process and of their chances of
getting promoted. This should begin with the initial socialization of the new salesperson
into the organization and continue with veteran salespeople.
2. Give people opportunities to develop new skills within their present job. For example, a
veteran salesperson with the appropriate skills and desire may be asked to train a new
salesperson or to open a new territory.
3. Be creative in letting veteran salespeople know that they are successful and important to
the company even if they are not in management. Recognition is particularly effective
SUMMARY 233

in this regard. For example, an expensive gift for achieving a particular sales level may
be very motivating when presented as part of a formal ceremony.
4. Be constantly alert for salespeople with the skills and desire for management or other
advanced sales positions. Watching how other salespeople react to the individual in
an informal setting is particularly important. Periodic checking of the person’s career
aspirations is also necessary because these may change, especially as an individual’s
family situation changes.
5. Design a program for developing salespeople for their next assignment either in manage-
ment or in an advanced sales position. Similar to a sales training program, this program
should begin with the tasks to be performed in the next position that can be practiced and
modeled in the current position. For example, a salesperson could be given responsibility
for designing and conducting part of the next district sales meeting.
For a career development system to be effective, a company must reward managers
for developing its employees. In some companies, this is part of the regular evaluation
process of sales managers. Without such rewards, managers often tend to hold on to good
representatives rather than develop them for their next position.

SUMMARY
Initial and refresher training sessions are vital to the success of any field sales organization.
Sales personnel must understand their products, their customers, and the marketing program
of the firm. This chapter has introduced a number of sales force training issues, and so you
can now:
1. Understand the benefits of sales force training. Sales training should be considered
an investment in the sales force. If conducted properly, sales training should pay off in
a number of ways. Some of the more common benefits include: increased productivity,
reduced turnover, improved customer relations, better morale, and improved time and
territory efficiencies.
2. Determine specific training needs for a sales force. A training needs analysis is a pro-
cess for determining where problems and opportunities exist and whether training can best
address the issues. A complete training needs analysis includes a review of management
objectives, surveys and observation of the sales force, customer input, and a review
of company records. Each of these sources of information should be cross-validated
whenever possible.
3. Discuss the topics to include in a training program. The choice of subjects to be
covered in a sales training program depends on the products sold, training purpose,
and personnel background. However, the topics typically covered in training programs
include product knowledge, selling skills, teamwork, customer and market information,
and company orientation, among others. Some recent training developments include sales
force automation and Web-based topics.
4. Describe the advantages of centralized and decentralized training. An advantage of
centralized training is the high quality and consistency of the training. In addition, com-
munications and coordination are enhanced when everyone receives the same training.
It can also boost salesperson morale by giving trainees exposure to top-level managers
and other specialists. Decentralized training, on the other hand, provides a learning envi-
ronment closer to the salesperson’s customer base. Trainees participate in programs that
incorporate customer issues similar to those they will encounter in their own nearby
territories. It also tends to reduce travel and instructional expenses.
5. Understand the use of line, staff, and outside trainers. Training can be conducted
by staff specialists, line managers, or outside consultants. Staff specialists are usually
234 CHAPTER 8 SALES TRAINING

involved with centralized training activities and the preparation of classroom materials.
First-line sales managers are more likely to conduct one-on-one training. This method
allows sales managers to take immediate corrective action to improve the skills of those
working under their supervision. Outside consultants provide a degree of variety, inspi-
ration, and excitement to the training program.
6. Recognize the value of alternative training methods. Company-run training programs
generally are the best way to instill the necessary knowledge; a variety of teaching
methods can be used, including lecturers, case studies, videotapes, and programmed
instruction. Role-playing exercises and one-on-one coaching are also good ways to teach
sales skills. Filming and videotaping of trial presentations help to increase participation
and to polish skills during training sessions.
7. Describe the different methods for evaluating training results. Sales training requires
substantial investment in facilities and materials, and sales managers must continually
justify these expenditures. Training programs should be evaluated on a regular basis
to measure their impact on sales force turnover, morale, product knowledge, and sales
revenues. Knowing the results of training efforts can help managers refine these programs
for maximum efficiency and effectiveness. Remember: A firm must follow up on training
in the field, where sales occur.

KEY TERMS
Centralized training Decentralized training Role-playing
Cognitive selling scripts Declarative knowledge Salesperson development
Commission overrides On-the-job training (OJT) Training needs analysis
Cross-tabulation Procedural knowledge Turnover

DEVELOPING YOUR COMPETENCIES

1. Strategic Action. As the marketing manager, you are very excited about a new product
that R&D has developed that will eventually take your company in a new strategic
direction. You know it will sell because you have tons of market research data to back
it up. You are also painfully aware that the product and its benefits are complex to the
customer, so that it will take significant sales force backing to make it successful. No
matter how often you tell the sales department how great this product is, you know
that their instinct for selling won’t automatically translate into a passion for selling this
product. You decide to present your product to the sales force at the next sales training
meeting. You are nervous because you realize that sales support is absolutely critical
if the product is to succeed. The sales force must put significant time behind it. What
directions would you give the marketing manager in preparing for the training session?
What are the alternative training approaches (e.g., lecture) that you could use in this
training session? What will salespeople want to know about the new product?
2. Team Building. It is estimated that about one-third of the nation’s major firms have
formal mentoring programs, with senior managers providing personal counseling and
career guidance for younger employees. However, a mentoring program is difficult for
salespeople who spend a lot of time on the road. Georgia Pacific has tried to resolve
this problem by using the salesperson’s immediate superior as the mentor for the new
salesperson. The company has also created some literature that offers advice that is sent
directly to the field reps. What do you think of this program? Do you see any problems?
Would you like to see anyone else in the mentoring position? For more information about
Georgia Pacific, see its Web site at www.gp.com.
SHIELD FINANCIAL: “TRAINING WOES” 235

3. Technology. Westvaco uses the computer to augment its sales training program. Sales
managers are given data on costs, profit, volume, and other information and are asked to
make recommendations on business alternatives. The computer responds with estimated
results for sales dollars, profits, and inventories. The simulation is set up as a game, with
managers competing against other managers. List the possible benefits of this unique
program. To learn more about Westvaco, visit its Web site at: www.westvaco.com.
4. Coaching. As the sales manager for a medium-sized industrial firm, you have just fin-
ished reading an article in a business journal that praised the benefits of providing field
sales training for experienced salespeople as a refresher. The author claimed that a sales
manager observing the calls of veteran salespeople spotted and eliminated bad habits
and techniques. When you suggested doing the same thing, your sales force strongly
objected. One salesperson feared it would look bad to have the manager come along on
calls. Another said that after ten years on the job, he didn’t need any further training.
You are still convinced that there would be some benefits to this type of training. Would
you go ahead with the program, despite the objections? If you do, how do you plan to
convince the sales force that there is a need for such a program?
5. Self-Management. As discussed in the chapter, the sales manager plays an integral part
in the training process. However, one aspect of sales training is to take charge of one’s
own self-development process. One popular method is the use of audiocassettes. Using
audiocassettes as a sales training tool has attracted sales trainers for many years because
of the amount of time salespeople spend traveling between accounts. (The history of
recorded sales materials can be traced back to 1959, when Bob Stone and Don Reaser
started The Business Man’s Record Club.) Most companies, however, have been unable
to sustain a regular schedule of tapes to the field beyond a few months or, in some cases,
only three or four basic tapes. The greatest difficulty has been to produce material that
salespeople will find worthwhile and to which they will be willing to listen. Reflect on
what would be necessary for you to listen to a tape, enjoy it, and learn from it. What
would you recommend to someone producing sales training tapes for a field sales force
to ensure that the salespeople will listen to and learn from the tapes?
6. Global Perspective. Computer Associates trains its international sales force using
weekly conference telephone calls. It may have as many as 3,000 reps worldwide on
one conference call. For example, it would not be unusual for one person in France
to dial in and have as many as sixty people listening in the room. One benefit is that
a phone call isn’t as expensive as pulling everyone out of the field and training them
for four days. Do you see any problems with this international training program? What
would you do differently? To find out more about Computer Associates, visit its Web
site: www.cai.com.

FEATURED CASE SHIELD FINANCIAL: “TRAINING WOES”

I
t was the first day of Shield Financial’s Des (one each day) that had been billed as unique and trans-
Moines office three-day sales training meeting. forming. Also attending the meeting were two recently
The company’s twenty-five salespeople talked appointed assistant managers and Doug Bloom, all qui-
excitedly during breakfast about the upcoming events: etly listening to the reps’ banter.
a few rounds of golf, some whitewater rafting, and At 7:45 a.m., the salespeople got up from their
an awards dinner at which the annual incentive con- tables and walked down the resort’s hallway to its
test winners would be announced. They even looked meeting rooms. The reps took their seats, and at 8 a.m.
forward to the three 5-hour intensive training sessions sharp, their instructor, Tom Baker, walked in and began
236 CHAPTER 8 SALES TRAINING

the session. Five hours later the salespeople emerged himself to handle the situation. He said he would have
and reconvened in the café for lunch. They were a resolution by the time he rejoined them for dinner.
soon joined by the two assistant managers who had Bloom didn’t want this meeting to turn out to be a bust;
attended leadership training conducted by the same he also didn’t want to squander the company’s invest-
company. ment in the sales meeting and training sessions. As he
The moment they sat down, the reps’ ranting began: sat in the lobby awaiting the two instructors from the
“This was the worst training I’ve ever attended.” “It training company, he tried to devise a solution.
was tedious.” “I could’ve learned more in my sleep.”
The assistant managers were surprised because their
session was excellent. The reps, however, were so per- Questions
turbed that they didn’t want to sit through the two
remaining sessions. “Ten more hours would be pure 1. What steps should Bloom take to resolve the situ-
torture,” one salesperson insisted. ation? (Canceling the remaining sessions is not an
Bloom suggested to the reps that they focus on option.)
enjoying that afternoon’s activity, rafting, then excused 2. How can Bloom avoid this situation in the future?
CHAPTER

9 LEADERSHIP
Leadership is the art of getting someone to do something you want done because he wants
to do it.

Chapter Consultant:
Dwight Eisenhower

Carol Caprio, Software Business Unit Executive, IBM

LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Explain what is meant by leadership.
Understand how leaders manage change.
Determine the appropriate leadership styles for a particular situation.
Know when and how to coach salespeople.
Discuss what is involved in planning and conducting a sales meeting.
Recognize common people problems.

LEADING THE INDEPENDENT SPIRIT

Pitney Bowes, Inc., a leading mail and document solutions company, recently installed
a multimillion dollar customer relationship management system. Most of the company’s
salespeople have bought into the advantages of the system and have been using it effectively.
However, some top performers haven’t been as eager to change their behaviors and start
using the system. They think it’s a waste of their time. Pitney Bowes’ branch managers have
had to deal with this dilemma. For example, in one branch, the top rep, Sonny Esperanzo,
has never logged into the system. Sonny continues to be a top performer, and his attitude
is “I still bring in the numbers without it, so what’s the problem?” Sonny is popular and
well liked by the rest of the sales team in his branch, but he has not provided the necessary
information to understand his customer base. One of your functions as a sales manager
is to generate sales and market forecasts, and you can’t make accurate predictions about
the market without complete information. The usual procedures have been tried, but Sonny
goes his own way, merrily or otherwise. Your boss has raised the concern about Sonny’s
lack of participation, so now is the time to do something about it—but you don’t want to
smother his high energy and performance. You must make him realize that he is part of a
team.1
You are considering several options. Which is the best choice?

237
238 CHAPTER 9 LEADERSHIP

1. Set an exact time and place to meet with Sonny. At this meeting, tell him that he will
not leave the office without first entering his customer information into the computer
program. Also tell him that you expect to see his customer data in the system from
now on. If he does not abide by these rules, you will not consider him a candidate for
bonuses.
2. Tell other salespeople about the problem and ask them to try to get Sonny to fall into
line with the policy.
3. At the next sales meeting, have a major discussion concerning the need for the informa-
tion that Sonny has been omitting. Don’t mention any names, but be sure that everyone
knows the consequences of not using the software. The guilty should get the hint.
4. Tell Sonny that you need to travel with him for a week in order to better critique his
methods. Have him prepare the itinerary and include details of the customers he plans
to visit in the upcoming trip.

The most important assets of every company walk out the door each day at 5 p.m. Developing
and protecting this highly mobile asset is more demanding for sales managers than for other
managers. Salespeople may not even come into the office in the morning. They’re out in
the marketplace every day, and your best salespeople are subject to all sorts of attractive
temptations from other companies. An offer of more money by a competitor is certainly
one reason salespeople will leave. However, important as money is in ensuring sales force
performance, it alone does not inspire loyalty. In fact, results of a recent survey suggest
that compensation alone is not sufficient for a complete retention strategy. Sales managers
must also consider career-development opportunities and work/life balance issues to keep
their salespeople from leaving.2 This is just one of many reasons why leadership is critical.
Which option do you favor to persuade Sonny Esperanzo to use the software? As we
discuss later in this chapter, some options are better than others. As shown in Figure 9-1, this
chapter is centered around four essential concepts. Each of these are discussed separately;
however, effective managers will use a variety of these skills within a given situation.

s Ma
k ill na
ge
Empo

alS m
Va

n en
so S
lu

t
er Sk
eC

elf
w

-un
ermen
P

r
on

we

de
ill
gr

r
s
Po

sta
ue

nd ge
ing
t
nc

Visi ing han

Us

on C
e

ing
nag
Intuition Effective Ma
Sales Management
Leadership Situa
tional
c hing
Coa Tr
an
g sfo
din
Tra
gs

il rm
e

Bu
ns

at
etin

nsa

ad

ion
io

am
er

t al
ctio
Me

nc Te
s

hi
Fu p
n
es

St
al

hi p y le
Sal

ders
Lea

F I G U R E 9-1 Effective Sales Management Leadership

LEADERSHIP 239

T A B L E 9-1 Leading Versus Managing

Leaders Managers
Innovate Administer
Develop Maintain
Inspire Control
Ask what and why Ask how and when
Long-term view Short-term view
Challenge the status quo Accept the status quo
Do the right things Do things right

LEADERSHIP
Leadership is defined as the ability to influence and inspire the actions of people to accom-
plish worthwhile goals. The terms leadership, management, and supervision are often used
interchangeably, but it is important to note that there are important differences between lead-
ership, management, and supervision. Leaders inspire trust and loyalty, and they understand
how to direct the talents of others toward achieving important objectives. Sales management
and supervision are more concerned with efficiency and “doing things right.” Thus, sales
leadership requires more intuition and foresight than just supervising the day-to-day activ-
ities of the sales force. As illustrated in Table 9-1, effective leaders create and articulate a
vision, establish core values and culture, and inspire others to achieve, grow, and develop. It
is also incumbent upon leaders to create an atmosphere of change to deal with the realities
of the marketplace and provide a realistic vision for the future.3
Research on leadership indicates that salespeople have better attitudes toward their jobs,
greater commitment, less job stress, more attachment to the job, and improved performance
when managers clarify sales roles, demonstrate difficult tasks, and clearly define how sales-
people are rewarded for their efforts.4 In other words, great leaders are able to identify sales
force needs and show reps the benefits of accomplishing individual and corporate objectives.
Leadership and management are not mutually exclusive, but rather, they refer to a
person’s distinctive approach. Two people may approach the same situation differently, one
more like a leader, the other more like a manager. Table 9-1 summarizes the key differences
in terms of the behaviors associated with leading versus managing.

Skills of Effective Leaders

Liz Crute, Regional Vice President for Pitney Bowes, Inc., has been a highly acclaimed
sales manager at her company for over 25 years. She attributes her long-term success to
practicing a few basic leadership principles. “My most important task as a manager is to
get everyone working toward the goals of the firm while at the same time I try to anticipate
the environmental, technological, or other changes that will affect my salespeople. I think
I’ve also been fairly receptive to accepting negative as well as positive feedback from my
salespeople over the years. I’ve found out some surprising things about myself and have
been able to grow as a person and manager from this.” Liz is also the first one to admit
that she needs improvement in some areas. “I have a tendency to take on more work than
I need to. I have to remind myself that I’ve got to let go at times.”5
Research suggests that the best leaders develop five important skills during their careers
(see Table 9-2). As you have may have noticed, Liz’s self-description of her leadership
principles exemplifies many of the leadership skills in the table. While Liz’s experiences,
both successes and failures, were instrumental in her development, she also concedes that
her company, Pitney Bowes, played an important role in her leadership skill development
240 CHAPTER 9 LEADERSHIP

T A B L E 9-2 Leadership Skills

1. Empowerment: A leader’s ability to share power with others by involving them in setting objectives
and planning. This requires spending time with salespeople, particularly top people.
2. Intuition: The ability to anticipate change and take risks. Although experience helps to develop a
sense of intuition, inexperienced sales managers can build a sense of intuition by actively seeking
information from customers, salespeople, sales support personnel, company records, and any other
source that could serve their ultimate purpose.
3. Self-understanding: A willingness to receive and understand both positive and negative feedback
from others, including subordinates. It also means knowing how it feels to lead and motivate
others, especially when there is immense pressure to be more profitable than the previous year.
4. Vision: The ability to conceive what may affect a business in the future and what changes
are needed for it to prosper. A successful vision exists when you can envision where the sales
organization needs to go, communicate that belief throughout the organization, get endorsement
from all levels, and then execute plans to get there.
5. Value congruence: A skill achieved when everyone in the organization is striving for the same
business objectives. Achieving it requires good communication skills, as well as the ability to
convince others that certain ideas are worth implementing. Value congruence allows a leader to
delegate to others the authority to run their own operations.

through its many sales management training programs. Unfortunately, managers in many
other companies often fail to receive such training.

Using Power Effectively

Power is the ability to influence the behavior of others. All sales managers use power, but
effective sales managers know how to use it to get salespeople committed to meeting the
manager’s expectations. Ineffective use of power may lead to a salesperson who merely
complies with a manager’s expectations without much enthusiasm. Compliance can quickly
lead to abandonment of the request at the first signs of difficulty. Misuse of power may
actually lead to resistance by appearing to respond to a manager’s requests while not actually
doing so or even intentionally delaying or sabotaging plans. Thus, power is critical to
leadership because it reveals why subordinates follow leaders. The five sources of power
are legitimate, reward, coercive, referent, and expertise.6 Effective leaders may have to use
a combination of all five types of power at different times.
• Legitimate power is based on the manager’s position in the organization. Salespeople
put extra effort behind products that a sales manager has targeted for special promotion
because they think the manager has a right to expect this effort. In the case of Sonny
Esperanzo, the second option, which asks other salespeople to help solve the problem,
undermines your legitimate power as district sales manager. To some degree, you are
transferring your role as manager to your salespeople, and this may make you appear
weak.
• Reward power relies on a leader’s ability to reward subordinates for outcomes that they
value. For example, salespeople may put extra effort behind a particular product because
the sales manager has offered to pay a bonus for each unit sold over a three-month period.
This power depends on the size of the bonus and the importance of extra compensation
to the salesperson.
• Coercive power leads to compliance due to fear of punishment. Salespeople who believe
that they could be fired will spend extra time prospecting for new customers. However, if
the person is already thinking of quitting, then the power of this threat is minimal. This
leadership style is rapidly losing favor, and the role of today’s manager is to support the
efforts of the team, not to control and direct. The option of setting up a meeting with
Sonny Esperanzo and requiring an itinerary is an example of coercive power. This option
LEADERSHIP 241

is loaded with threats. Keep in mind that withholding bonuses could be illegal, depending
on employment contract terms.
• Referent power is the leader’s influence on others because of friendship with the leader.
Salespeople comply because they feel that friends help friends or because they so admire
the manager that they want to emulate him or her.
• Expertise power is based on the perception that a manager has special knowledge, usually
based on past success. Thus, new salespeople may put extra effort into targeted accounts
because a sales manager has told them that this is the key to future success and because
the manager has a long and distinguished district sales record.
Any of the five power bases can lead to desired behavior by subordinates, but sales-
people tend to be more committed to a manager’s request when they feel a sales manager is
particularly knowledgeable and makes good decisions and suggestions (expert power) and
when they identify closely with the sales manager (referent power). Although rewarding
salespeople for good performances can be an effective use of power, too much reliance on
reward power leads to a mercenary attitude among salespeople rather than a commitment
to the overall vision of the organization. A good example of the misuse of reward power
is how Oracle, a big database software company, paid its sales commissions. Oracle used
a commission structure known as the accelerator: 12 percent commission for a sale made
on the last day of a quarter, just 2 percent the day after. This led to false promises, bully-
ing tactics, and deep discounts by the salespeople that damaged the company’s long-term
position in the marketplace.7 The use of coercive power can be just as damaging. When
coercive power is used, salespeople lack the enthusiasm that accompanies commitment to
a course of action. This lack of commitment is usually critical because sales involves more
than avoiding mistakes.

Managing Change
As you may have noted in the leadership skills section, an important characteristic that
today’s sales leaders possess is their ability to deal with change. The dynamic nature of
today’s competitive environment means that successful sales organizations will have to
continuously change their strategies and tactics. For example, markets change—they grow,
decline, consolidate, mature, and become more competitive; people change—management
decides to increase empowerment or increase control; product lines change—they shrink,
broaden, new products emerge, and old products become obsolete; and customer expectations
change—for different products, new ways of ordering, and new services. Research suggests
that successful organizations will evolve their strategies and tactics with how customers
want to conduct business.8
Managing change essentially implies changing salesperson behaviors, and although
many people thrive on change, others have a low tolerance for the uncertainty and ambiguity
of change. How then does a sales manager succeed in getting all salespeople to implement
a change initiative? One thing is certain: Salespeople with greater trust in the sales manager
will be more accepting of the anticipated changes, especially in the longer run.9 Effective
sales managers today, therefore, not only recognize the need for change but also excel in
building trust by communicating how the changes will affect the sales force and the steps
involved in implementing the changes.
While leading change is a complex process with many possible avenues for success,
research suggests that a successful change management process typically has five phases:
assessment, redesign, measurement, sales support programs, and implementation.10 The pro-
cess is illustrated in Figure 9-2. In the assessment phase of a change management project,
sales managers typically engage in reexamining the customer environment(s) in which
the company operates. Pharmaceutical manufacturer and marketer, the Upjohn Company
242 CHAPTER 9 LEADERSHIP

Assess Customer
Environment

Redesign Sales Force:

Customer orientation
Sales strategy
Selling processes

Measure Change
Success

Develop Sales Support

Programs

F I G U R E 9-2 Sales Force Change Management Process

(a recent acquisition of Pfizer), noticed that the pharmaceutical decision makers were chang-
ing, but the company’s traditional selling process addressed only prescribing doctors. Upjohn
ignored the changes related to managed-care organizations that use different purchase cri-
teria. Based on this assessment, Upjohn’s sales force eventually had to develop new skills
and new strategies to meet the needs of the large and growing managed-care market.
Once the situation is adequately assessed, the redesign phase typically involves changes
in one or all of the following areas: customer orientation, sales strategy, and/or selling pro-
cesses. To redesign a sales staff’s customer orientation, not only do sales managers need to
be knowledgeable of their customers needs and wants, but they must align their sales force’s
selling strategies and tactics with customer buying processes. Many customers, particularly
the larger ones, may have new and stringent requirements for suppliers. These include
a broader range of salesperson skills, such as financial, communications, and consensus
building within and across organizations.
After the customer’s buying process is assessed, the next step is to develop a sales
strategy that defines how the company deploys its sales resources. One way to do this is to
segment the market, which means emphasizing customizing strategic selling approaches to
better fit the buying processes and relationship requirements of targeted customer segments
or even individual accounts. This approach offers excellent opportunities to grow revenues
and increase productivity, since selling efforts are tailored to customer segments with higher
potential.
The final step in sales managers’ redesign efforts includes implementing changes in the
sales processes of the sales force. To accomplish the change initiatives, the sales manager
may need to redesign the tactics used in selling present customers, new customers, or both.
Often the changes in the sales process include a need to redefine the sales job.
Once the design is in place, it is recommended that managers implement some type
of measurement procedure to determine the success of the change initiative. Sales force
change management programs typically measure revenue growth in the strategic areas, such
as new customer acquisition or new product placements, greater sales productivity, improved
customer coverage, or customer retention.
In conjunction with developing an appropriate measurement procedure, managers should
also develop a sales support program to help ensure the long-term success of the change
initiatives. Sales managers can provide a number of supporting programs to energize and
direct continued performance. Examples include advanced training programs, compensation,
rewards and recognition, sales automation, and supervision. Allegiance Healthcare’s change
EFFECTIVE LEADERSHIP STYLES 243

TEAM EXERCISE
“Avoiding a Bidding War”

As the new sales manager for a medium-sized manufacturer, you are quickly finding out why
you got the job so easily. You’ve been in the position for only three weeks, but already your
salespeople are complaining that the competition is able to outbid you (i.e., cut prices) to the
point where they say their current clients are threatening to leave unless the company lowers
its prices as well. You could have a major problem on your hands unless you do something.
How can you avoid waging a price-bidding war for your client’s business?

initiative toward team selling, for example, required its salespeople to enroll in a program
designed to sustain the transition to team selling.
How quickly the changes are implemented will be a function of the sales organization’s
size and complexity. However, one method that has been proven to speed implementation
is a pilot test. Many companies undertake a pilot test of their proposed change program
so they can experiment with aspects of change in one geographic area or with a particular
industry or company type. Upjohn, for example, began its change management program in
one state, Minnesota. To sustain sales force morale and motivation, a manager should align
compensation incentives with the change initiative and continually update the sales force
about the future and the challenges ahead. What would you do as the new sales manager in
the Team Exercise “Avoiding a Bidding War”?

EFFECTIVE LEADERSHIP STYLES

When trying to influence and change the behavior of others, your leadership style often
determines your success. Leadership style is defined as the pattern of behaviors that others
perceive you to use when trying to influence their behavior. Every sales manager has his or
her own leadership style when dealing with a sales force. Research has shown significant
correlations between the type of leadership style employed by first-line field sales managers
and salesperson attitudes, role perceptions, and performance.11 In general, this research
suggests that the transformational leadership style tends to be more strongly related to
salesperson performance than other styles. However, the consistent use of one type of
leadership style in all situations with all types of salespeople is obviously not recommended.
There are aspects of a situation and/or needs of a salesperson that may enhance or nullify
the effects of a leader’s behavior. To this end, we also present the situational leadership
model.

Transformational Leadership
The transformational leadership style motivates salespeople by appealing to higher ideals
and moral values so that they are motivated to exceed performance expectations. Transfor-
mational leaders “transform” people by making them more aware of and accepting of the
goals of the organization. They are able to change a person’s emphasis from focusing on his
or her own self interest to focusing on the performance of the team or organization. They
do this by listening and responding to the needs of each salesperson using two-way com-
munication. In addition, they are able to create a compelling vision for their organization
244 CHAPTER 9 LEADERSHIP

and encourage the sales force to work toward a common goal. Leaders exhibiting this style
have also been called charismatic leaders because they are able to arouse strong emotions
and identification from others.
In contrast to transformational leadership is transactional leadership. A transactional
leader motivates followers by appealing to their self-interest. In other words, they lead by
emphasizing fairness and they tend to rely on rewards and punishment to maintain control.
A good job such as exceeding quota, for example, is celebrated with praise and accolades,
whereas missing quota is cause for reprimand. It is important to note that transactional
leaders tend to focus on short-term day-to-day operations and sales force control as com-
pared with transformational leaders who shape others attitudes and actions by appealing to
higher-order needs. Research suggests that transformational sales leaders possess many of
the personal leadership skills discussed in Table 9-2.12

Situational Leadership
A situational leadership model with four types of leadership styles is shown in Figure 9-3.
These leadership styles are based on two characteristics: directive and supportive behavior.
Directive behavior is the extent to which a leader engages in one-way communication,
spelling out what, where, when, and how to do it. Performance is closely supervised and
controlled by the leader. Directing the sales force to use a canned sales presentation is an
example of how a manager would implement this leadership behavior. Supportive behavior,
on the other hand, is the extent to which a leader engages in two-way communication
involving listening and providing support and encouragement. With supportive behavior, a
sales manager involves the salesperson in the decision process. Participation in quota setting
often involves supportive behavior. It is important to note that the situational leadership
emphasizes that a leader’s style must be flexible to adapt to changing situations and the
maturity level of the salesperson. For example, more mature salespeople might appreciate

High

Supporting Selling
Supportive behavior

Delegating Telling

Low
Low Directive behavior High

F I G U R E 9-3 Four Leadership Styles

IMPORTANT LEADERSHIP FUNCTIONS 245

supportive leadership behaviors and may not need or want directive behaviors. Indeed,
research suggests that more effective managers tend to match their leadership style to the
desired leadership behaviors of their salespeople.13

Four Leadership Styles

The four leadership styles are referred to as telling, selling, supporting, and delegating. Each
style results from a combination of high or low supportive and directive behavior. When the
manager provides low supportive behavior, but high directive behavior, he or she is using
a telling style. In this style of leadership, managers tell a salesperson what, when, how, and
where to do various tasks. Identifying the problem and stating how the salesperson will
accomplish the goal are initiated by the manager. Communication is largely one way. For
example, a sales manager establishes a call frequency pattern for all the customers in a
salesperson’s territory. No deviations from the pattern are permitted.
In selling style, the manager provides high supporting behaviors and also high directive
behaviors. Leaders using this style tend to provide a great deal of direction with their own
ideas, but they also solicit salespeople’s ideas. In this case, the sales manager may ask the
salesperson for a reaction to the call frequency schedule and will consider exceptions to the
general policy that the salesperson feels are justified.
A supportive style is characterized by highly supportive behaviors and low amounts of
directive behaviors. Essentially, a supportive style calls for a shift of day-to-day problem
solving from the sales manager to the salesperson by allowing the salesperson to share in
the decision making. The sales manager’s role is to provide recognition, to listen actively,
and to facilitate problem solving by supporting the salesperson’s efforts to use what they
have learned. For example, with a supportive leadership style, management decides that a
call schedule is required but allows the salesperson to devise a call plan. The sales manager
may provide past call report information and, if necessary, suggest changes in the schedule.
Finally, a manager providing low supportive and low directive behaviors would be
using a delegating style. The focus of the sales manager-salesperson interaction is to reach
agreement on the cause of a problem, but control of how to deal with the problem is left
to the salesperson. This discussion is typically held in the salesperson’s territory. Decision
making is then delegated to the salesperson, who decides how a problem is to be handled.
For example, the sales manager and salesperson may agree that there is a problem with small
orders in the salesperson’s territory. The salesperson may then decide that a revised call
pattern would be the best method to fix the problem. Note that the salesperson will manage
the details in how, when, and what specific tasks are needed to fix the problem. Thus, the
delegating style is appropriate for salespeople who are both competent and motivated to
resolve the problem.
We now turn our attention to three key leadership functions that will affect the suc-
cess of the sales organization: providing one-on-one coaching, developing sales teams, and
conducting effective sales meetings.

IMPORTANT LEADERSHIP FUNCTIONS

Coaching
As discussed in Chapter 1, an important function of first-line sales managers is to develop
the skills of the sales team through coaching. Given the uncertainty associated with a field
sales job, managers are often needed to define and clarify the salesperson’s role. Poor
coaching can seriously affect job attitudes, role perceptions, and performance; in contrast,
good coaching can have a profound effect on these same outcomes.14 Unfortunately, sales
246 CHAPTER 9 LEADERSHIP

mangers seem to be inconsistent when it comes to coaching their salespeople to success.

A recent global study of senior sales executives with strong sales organizations gave their
sales forces an average grade of just C- when rating their capabilities.15 While there may
have been a number of factors that contributed to the poor rating, you can be sure that the
lack of coaching likely played an important role.
Coaching is essentially a sequence of conversations and activities that provides ongo-
ing feedback and encouragement to a salesperson or sales team member with the goal of
improving that person’s performance. Coaching sessions may take place in the office, but
most sales coaching is done in the field during visits by sales managers. It consists of
three basic components: (1) feedback, (2) role-modeling, and (3) trust. Although the three
components are interrelated, we will discuss each in turn.

Feedback. While feedback is provided in all facets of a salesperson’s job, we will focus
on how feedback is used to increase selling effectiveness. To provide effective and use-
ful feedback, it is important to be aware of sales force behaviors that detract from sales
effectiveness. Questions or statements dealing with a salesperson’s planning, attitude, knowl-
edge, and selling skills of a particular customer, or group of customers, can be particularly
effective. Examples used to elicit this information are as follows.

• Planning. Includes setting territory and call objectives, routing of sales calls, and use of
time. “Before we go in, what is your objective for this call? What do you specifically
want to achieve?”
• Attitude. Includes the attitude toward products, specific customers, the company, the
salesperson’s career, company programs, and company policies. “I have the feeling you
didn’t care for that assistant buyer. Your attitude is pretty evident.”
• Knowledge. Includes product-related, customer business and specific industry issues,
competition, territory, company, and policies. “I liked the angle you took on describ-
ing the product benefits, but let me ask you, what other approach could you have taken
with this product?”
• Selling skills. Includes prospecting, selling steps, handling objectives, buying-center
roles, negotiating skills, including helping set customer expectations for investment
returns. “Let’s talk about the timing when you ask for the order.” “Who else do you
know at this account who is in a key buying position?”

The best time for feedback is just prior to and following a sales call. This takes advantage
of the important learning principle of recency, which suggests that feedback should be given
immediately after the behavior. The type of feedback also matters. Research suggests that
positive feedback provides both information and motivation, whereas negative feedback
communicates only information. It is not surprising that positive feedback has a greater
impact on performance and job satisfaction than negative feedback.16 The key to effective
sales coaching, therefore, is not in negative feedback, but in discussions of why the behavior
was not correct, how a better response could have been made, and why this response would
lead to the desired outcome.
When a manager accompanies a salesperson to a sales call, the manager must remember
to let the salesperson control the situation. At times, a manager may be called on to address
a particular issue, but should keep his or her remarks focused on that issue while giving
the salesperson responsibility for the overall call. Otherwise, the salesperson will turn sales
calls over to the manager whenever a tough issue arises. When coaching is the reason for
being together, sales calls should not become a team selling effort. The manager is there
to observe the salesperson’s selling skills. Prior to the call, the manager should make it
clear that the salesperson is making the call and that the manager will not interfere with the
selling process.
IMPORTANT LEADERSHIP FUNCTIONS 247

Another important factor to consider when providing feedback is the maturity level
of the salesperson. With mature, experienced salespeople, it is probably most useful for
managers to use the post–sales call phase of coaching to identify strengths, build on them,
and challenge these salespeople to excel in the areas where they do their best work. Any
correcting may be accomplished prior to the next call, using the methods described earlier.
For less mature salespeople, the post–sales call phase of coaching may be best used to
establish and reinforce self-evaluation of the performance. Questions that may be asked
include: “How do you think it went?” “What went well?” “What could you have done
differently?”

Role-Modeling. The second component of effective coaching is role-modeling. Role-

modeling is achieved when a salesperson perceives a sales manager’s behavior as being
consistent with both the sales manager’s values and the organization’s goals. Although
role-modeling can take many different forms, one study suggests that positive role-modeling
for sales managers includes such behaviors as personally demonstrating proper selling
techniques to salespeople; being on time to meetings and appointments; conducting oneself
in an honest, moral manner; always presenting a professional image through appropriate
dress and grooming; listening to salespeople (so salespeople will listen to customers);
being a team player; and never asking salespeople to do things that the manager would
not do.17 The following quote illustrates the importance of role modeling and its link with
building trust.
[Sales managers] . . . need to be respected. Part of that respect is being a role model. The conduct
of being a “role model” garners respect and enhances a manager’s leadership status. If as a leader
you don’t set a good example, you are never in a position to earn the respect of your team.
Without respect you cannot get the job done.18

Trust. The final component of sales coaching is a salesperson’s trust in, and respect for, a
manager. In order for a sales force to trust a sales coach, they must respect and have confi-
dence in the manager’s integrity, reliability, and competency. Indeed, research suggests that,
without trust, role-modeling has no effect on salesperson job satisfaction or performance.19
Although a recent study suggests that trust in the sales manager does not directly affect
salesperson performance, the same study also reported that a manager who sets challeng-
ing goals and expresses confidence in the salesperson’s ability to meet those goals will
strengthen the impact of manager trust on salesperson performance.20 It appears that setting
challenging goals while at the same time instilling salesperson confidence through coaching
will increase commitment to the organization, which, in turn, will affect job satisfaction
and performance.21 Although more research is needed in this area, the bottom line is that a
salesperson is likely to listen and respond to a sales manager’s coaching attempts, but only
if the manager is respected and trusted.
By now you may have recognized that the last option in the Sonny Esperanzo case is an
example of coaching. Because coaching takes place one-on-one, Sonny is not as likely to be
defensive as in a more social situation. By instructing Sonny in preparing an itinerary and
a call report, you are giving him an important and specific demonstration of the importance
of using the sales automation software. This is a positive approach with a high probability
that the lessons learned will be retained. Coaching is the option with the highest probability
of success.

Team Building
Teamwork in sales organizations has become much more important in recent years because
of changing customer environments and requirements, changing technology, globalization
248 CHAPTER 9 LEADERSHIP

of customers and competitors, as well as an increased emphasis on relationship marketing.

One large wireless communications company, for example, recently instituted a team selling
approach to meet the increased product and market knowledge demands of larger accounts.
Their salespeople became leaders of a team of industry and application specialists designed
to enhance the selling process of specific accounts.22
Despite the fact that teamwork has become more important for effective selling, com-
panies have difficulties maintaining productive sales teams. One study found that a mere
13 percent of selling teams were rated as highly effective.23 The most common reasons cited
for a lack of sales team cooperation include such things as rewards and compensation that
focus on individual performance rather than team efforts. Also information systems often do
not keep team members supplied with pertinent data. Another problem is that organizational
structures foster internal competition rather than cooperation. Finally, the mindset of some
people makes them unwilling to set aside position and power for mutual gains.
The job of the sales manager is to help break down these barriers and reduce destructive
competition among reps. Some experts in team selling suggest empowering the members
of the selling team and implementing a shared leadership process. According to this model,
empowering team members and sharing leadership will increase the collective ability of the
team, which, in turn, increases the team’s effectiveness. To develop these team attributes,
managers should take great care in designing the composition of the team to include people
with the right mix of selling task-related skills and leadership skills. There also has to be
good chemistry among those selected for a team. Obviously, a sales manager would need
a good understanding of the personality and leadership characteristics of the people in the
sales force in order to successfully develop such teams.

Factors Affecting Team Success. The job of getting individual members of a sales orga-
nization to work together to form a functioning and supportive team is made easier when
you have a better understanding of the factors that affect team success. Figure 9-4 provides
a graphic illustration of the five key factors that impact sales team effectiveness.24

Individual team members. Successful teams share information, resources, and

rewards. As a result, individuals working in sales teams require close working relationships
with other team members. When selecting individuals to work in sales teams, managers
should consider the profiles of the individuals and select those who are able to function
effectively within a team. Research also suggests that trust is an important driver of team
success. Successful teams tend to have a high level of trust that every team member is
committed to the success of the team.

Individual Team
Members

Buying Center
Relationships

Intra-Company Sales Team

Relationships Effectiveness

Company
Strategy

Market
Environment

F I G U R E 9-4 Factors Affecting Sales Team Effectiveness

IMPORTANT LEADERSHIP FUNCTIONS 249

The selling team and buying center. Individual salespeople are not knowledgeable
enough or influential enough to implement complex selling programs. Selling teams offer
improved interfacing with individual members of buying organizations across functions and
levels. Essentially, effective selling teams provide a pooling of knowledge across a number
of areas to better meet a particular customer’s needs. A team learning orientation, therefore,
is necessary for understanding and responding to a buying center’s needs.

The selling team and intra-company relationships. Customized solutions often

require team members to work effectively with engineers, R & D, and marketing personnel.
It is also common for sales teams to work with other divisions or business units within a com-
pany to co-create new and different solutions for customers. Effective sales teams know how
to marshal the necessary resources to champion new ideas from conceptualization to reality.

The selling team and company strategy. A sales team’s approach to customers
must be driven by corporate strategy. Corporate strategy provides norms for behavior and
responsiveness to market information and can have important implications for the sales team.
Some emerging research, for example, suggests that a sales team working for a company
employing a “defender” strategy (i.e., protect its customer base from eroding) would perceive
a particular type of market information much differently than a sales team working for a
company with a “prospector” strategy (i.e., aggressively attract new customers).25

The selling team and the market environment. External forces, such as the com-
petitive landscape and the changes in technology, will affect the design and success of sales
teams. Competitive environments, for example, give customers a variety of suppliers to
choose from. As a result, sales teams need to be able to be keenly aware of the benefits
and deficiencies of competitor products as well as their own. When working in turbulent
environments, sales team members need to be able to anticipate change and be able to
respond proactively. Under these conditions, team members who are receptive to change
would likely enhance team effectiveness.

Sales Meetings
Coaching is best suited to individual training and motivational issues. When a sales team
needs information about a new product, for example, it is often better to address the need in
a group setting. A common method for motivating and communicating with the sales team
is the sales meeting. Companies hold sales meetings in part because the sales manager can
be sure that everyone is exposed to the same message. However, keep in mind that meetings
eat into selling time and hurt short-term sales revenues. Meetings perceived as ineffective
tend to have a large negative impact on how an employee feels at the end of the workday as
well as on overall job satisfaction. One study suggested that employees who attend a rash
of bad meetings are stressed, dissatisfied with their jobs, and more predisposed to leave.26
Considering that some companies have found that fully half of all their scheduled meetings
were considered a waste of time by participants, sales managers should always ask, “Do we
need to meet at all? Could this information be effectively communicated through a memo
or by e-mail?” If so, a meeting may not be necessary.
If you need to organize a sales meeting, however, plan to organize around three key
factors: meeting objectives, budgets, and location and timing. Planning a sales meeting
without proper attention to these factors could cause some headaches, as illustrated by a
quote from a frustrated sales manager:
Planning a sales meeting [was] a horror show. You’re hounded for weeks by countless phone calls
and faxes. You battle constant budget headaches. What’s more, you have to coordinate farflung
reps, who dread being taken out of the field. And then, when the meeting starts, a host of potential
disasters await. Is this what [I] became a manager for? 27
250 CHAPTER 9 LEADERSHIP

Let’s see how we can avoid these problems.

Meeting Objectives. Every sales meeting should have a set of meaningful objectives that
are relevant to all salespeople. In other words, don’t meet just because a certain meeting is
a weekly habit. The most common objectives deal with communication, rewards, encour-
agement, and technical training. Examples of specific meeting objectives might include one
or more of the following:
• Present restyled, redesigned, or new products.
• Explain new marketing and advertising programs.
• Train salespeople in advanced selling methods.
• Provide training for new software.
• Recognize contest winners or superior performers.
• Elicit sales force feedback.
A popular objective of sales meetings—eliciting sales force feedback—may come as a
surprise to many readers. Meetings are usually thought of as a way to provide information,
but effective sales managers also consider them a good opportunity to learn about conditions
in the field.
In the case of Sonny Esperanzo, one option was to hold a sales meeting, and in this
situation, the topic of using the software was an issue only with Sonny. It is helpful to
review the importance of the software with the sales team, but it may not be wise to state
the dire results one can expect for not fulfilling the requirements in a sales meeting. People
who already use it are likely to wonder why the manager is being so negative, and veiled
threats could ultimately lower the productivity of the sales team.

Meeting Budgets. The yearly budget for corporate meeting planners is usually between
0.5 and 1 percent of gross annual sales.28 For many companies sales force meeting budgets
run into the millions of dollars. To illustrate how the costs can add up, one company needed
a face-to-face meeting in Dallas for four of its salespeople located in different parts of the
country. The total cost for this one 4-hour meeting was over $8,000.29 To reduce unnecessary
costs, companies are now holding more meetings on-line or are using teleconferencing. It
is important to remember, however, that sales managers need to control expenses without
sacrificing effectiveness.

Locations and Timing. Pulling salespeople away from their territories for meetings means
that some sales opportunities will be lost, but this problem can be minimized by careful
scheduling. Sales meetings are usually held during slack times so that they will not interfere
with normal customer contacts. For sales meetings that require travel of more than a few
days, common sense should be used. Some experts recommend the first quarter of the
calendar year as a good time to meet. Late second- or third-quarter meetings often conflict
with vacation schedules, and late fourth-quarter meetings overlap the holiday season.30
Although a variety of sales meeting locations are used, they are typically classified as local,
regional, or national.
Local sales meetings are usually run by field managers and are held frequently, per-
haps as often as every week, month, or quarter. These meetings are informal and take
place in a conference room at the branch sales office or in a nearby motel. One advan-
tage about holding local, as compared to regional or national, meetings is that they offer a
chance for the salespeople to discuss issues that are unique to that office or branch. How-
ever, one drawback of local sales meetings is that field sales managers, who typically run
the meeting, may not be adequately trained to provide an energizing, thought-provoking
event.
SALES FORCE PERSONNEL ISSUES 251

Regional sales meetings include salespeople from several states and are usually held
quarterly or less often. These meetings are more structured and often feature presentations
by sales executives and training specialists from headquarters. With regional meetings,
personnel from the head office do most of the traveling, which can save time and reduce
expenses for salespeople.
National sales meetings bring the entire sales force together at a central location and
usually occur once a year or less. These meetings require higher travel expenditures and
firms tend to stage more elaborate speeches, presentations, and entertainment at these events.
A typical objective of national meetings is to boost the sales force’s morale and promote
“psychic bonding” among salespeople so that they feel more like a team.

Common Problems.
Interest. The most damning outcome of a sales meeting is when participants find it
boring and a waste of time. A recent survey indicates that 91 percent of executives admit to
daydreaming, and 39 percent say they’ve actually snoozed during meetings.31 With statistics
like these, it’s no wonder why many believe that unproductive meetings are demoralizing
and worse than no meeting at all. Successful sales meetings should make good use of the
time available and be exciting and fast-paced. Providing information about new products
or services through the use of a well-designed theme, for example, is a good way to set
expectations and minimize the lack-of-interest problem.

Participation. Another common complaint about sales meetings is that salespeople

spend most of their time listening and do not get a chance to participate and interact with
management. Encourage audience participation by keeping the meeting groups small so
that each speaker leads a discussion rather than presents a formal talk. Automotive-retailer
services firm, Reynolds & Reynolds in Dayton, Ohio, encourages participation by asking
salespeople to share a new fact or bit of marketing intelligence that pertains to the topics to
be discussed in the following week’s breakout sessions. This motivates the salespeople to do
research during the week, culminating in a fun, information-sharing session that encourages
group participation.32

Followup. Problems can also result from a failure to determine whether salespeople
have actually learned the information provided during the multi-day sales meeting. For
example, the use of exams to test reps in the meeting’s final session could be are used to
determine if a followup session is needed. There should also be reminder letters and checks
by local managers to ensure that the information is being used by salespeople.

SALES FORCE PERSONNEL ISSUES

Sales managers face difficult personnel issues in their development of effective selling teams.
Several of these problem areas are reviewed, and suggestions are made on ways to manage
these situations.

Plateauing
Plateauing occurs when people stop growing as sales professionals. They reach a stage
where they are just holding their own or are underperforming. Perhaps they have even
stopped showing an interest in the job itself. While most salespeople plateau in mid-career
(e.g., in their forties), it is important to remember that plateauing may occur earlier.
252 CHAPTER 9 LEADERSHIP

T A B L E 9-3 Sales Managers’ Rankings of the Causes of Plateauing

Among Salespeople
Overall Mostly Women Commission Only
No clear career path 1 2 4
Not managed adequately 2 4 1
Bored 3 3 5
Burned out 4 1 2
Economic needs met 5 7 3
Discouraged with company 6 5 6
Overlooked for promotion 7 6 8
Lack of ability 8 9 7
Avoiding risk of management job 9 10 9
Reluctance to be transferred 10 8 10

Causes of Plateauing. The primary causes of plateauing among salespeople are shown in
Table 9-3. Notice that the number-one reason for plateauing is the lack of a clear career path
for salespeople. This reinforces our discussion of the benefits of developing a career path for
salespeople who do not want to go into management. It also reinforces the suggestion made
in the recruiting chapter that a realistic picture of the sales position and future opportunities
is presented to all recruits.
Sales managers believe there are some differences among sales forces in terms of
the causes of plateauing. The most important reason for women is burnout (Table 9-3).
Burnout is also an important cause of plateauing among salespeople on commission. Other
common reasons for commission salespeople to plateau is that their economic needs have
been met or that they have not been managed adequately. These results suggest that there
are limitations to compensation plans and that people want more from their jobs once their
basic compensation needs are satisfied.
Signals of the early stages of plateauing should warn managers that this process is
happening. Sales managers say the most important early signal is when salespeople do not
prospect hard enough. Other signals are a lack of follow through in customer servicing and
working fewer hours.

Solutions to Plateauing. Managers need to respect the experience that plateaued sales-
people have and at the same time find ways to get them to try new approaches to serving
customers. It is important to discuss the situation with the salesperson as soon as indicators
suggest that it may be occurring. At the first sign of plateauing, sales managers should look
for ways to enrich that person’s current sales position. For example, plateaued salespeo-
ple could be trained to help coach new salespeople, to help introduce new products, or to
develop key customer accounts. Another alternative is to give these salespeople responsibil-
ity for gathering competitive intelligence. Tough-to-crack new accounts could be reassigned,
together with the award of valuable and unusual prerequisites if the salesperson is successful
(e.g., vacations and bonuses). The number of job-enrichment solutions is limited only by
the sales manager’s imagination.

Termination of Employment
Termination of salespeople should be considered an option of last resort. At some point
in their career, managers will find it necessary to terminate a rep. After this decision has
been made, termination should be performed in a humane manner, with concern both for
preserving human feelings and avoiding lawsuits.
SALES FORCE PERSONNEL ISSUES 253

Court dockets today are crowded with wrongful termination suits charging broken
promises, invasion of privacy, violation of public policy, and failure of good faith. For-
mer employees are suing—and winning—millions of dollars in damages. Awards are high
because a company may have to pay for past and future wages and lost benefits, as well
as mental and emotional suffering. In this environment, one misstep by a small company
could drive it out of business.
There is no way to eliminate the chance of a lawsuit, but several steps should be
followed prior to terminating a salesperson. The first step is to establish a paper trail.
The trail should begin with employee manuals that spell out specific company policies and
procedures. Performance reviews should occur on a regular basis, be documented in writing,
and include both positive and negative elements. The written reviews should be accompanied
by a candid discussion between the manager and the salesperson in unambiguous language.
Legal aspects of termination are important, but humanitarian issues are of major concern.
One suggestion for softening the blow is to offer an attractive benefit package to terminated
employees. This may include an outplacement service to help the person focus on the future
and a sizable severance pay, which may range from one to four weeks of pay for each year
of employment.
Firing sessions should be brief because neither side gains from a lengthy discus-
sion. Some recommend that the firing session should take place at the beginning of the
week—never on a Friday. This allows people to get an immediate start on their future
rather than spending the weekend reflecting on the past. Others suggest that a Friday termi-
nation provides the weekend to allow the salesperson to recover somewhat. Never terminate
anyone over the phone, and always do it in a way that preserves the person’s dignity.

Sexual Harassment
Women occupy about 24 percent of all sales positions (Table 9-4). In some industries, such
as educational services, the majority of the salespeople are women. Thus, managers need
to be aware of the potential for sexual harassment. The Equal Employment Opportunity
Commission defines sexual harassment as:

Unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct
of a sexual nature constitute sexual harassment when (1) submission to such conduct is made
either explicitly or implicitly a term or condition of an individual’s employment; (2) submission
to, or rejection of, such conduct by an individual is used as the basis for employment decisions
affecting such individual; or (3) such conduct has the purpose or effect of substantially interfering
with an individual’s work performance or creating an intimidating, hostile or offensive working
environment.

Workplace sexual harassment is a form of discrimination and is prohibited by Title VII

of the 1964 Civil Rights Act. Although sexual harassment is against the law and higher
penalties are being awarded, salespeople still may encounter it. Salespeople are particularly
vulnerable to what is known as third-party harassment, which is harassment by someone
outside the boundaries of the firm, such as a customer, vendor, or service person. A typical
situation could involve a male buyer at a key account asking a female salesperson for sexual
favors in exchange for an order. In this case, the salesperson may want the order to help
make her quota and fear the contract will be given to a competitor if she refuses. She may
also believe that if she complains to her boss, she will be seen as lacking the selling skills
needed to resolve the harassment problem. Another worry is that efforts to reform the buyer
could sour relations between the two firms. Unfortunately, many managers are unaware that
not only is third-party harassment prohibited, but their own firm could be held liable for
such behavior.33
254 CHAPTER 9 LEADERSHIP

T A B L E 9-4 Women in Sales: Percentages by Industry

Industry Percent of Women in Sales Force
Banking 24.7
Business services 30.3
Chemicals 9.1
Communications 34.7
Educational services 50.4
Electronics 19.6
Food products 28.5
Health services 45.1
Insurance 27.4
Miscellaneous manufacturing 17.6
Office equipment 24.1
Printing/publishing 38.9
Retail 20.0
Rubber/plastics 17.7
Transportation equipment 23.9
Wholesale (consumer) 19.5
Average 24.3

As a sales manager, what should you do to help salespeople deal with harassment?
An important first step is to ensure that the formal policies on harassment include proce-
dures on how to deal with third-party harassment. The policies should include the kind of
behavior that constitutes sexual harassment, the procedures a victim should follow, and the
consequences of offensive behavior.34 It is important to note that many salespeople may
not report an incident because they are embarrassed and may feel that they are taking a
risk by going to the boss. Signs to watch for include asking to drop a particular account,
requesting a transfer within the company, or asking for general advice on how to handle
such situations. As a manager, you should not dismiss or minimize any problems brought
to your attention. According to the law, if managers have knowledge of an alleged incident,
they must investigate and resolve the matter, or liability could fall on them. Once salesper-
son identifies a customer as a harasser, however, the sales manager should take corrective
actions such as requesting the customer stop the inappropriate behaviors, reassigning the
salesperson to a new customer or territory, or closing the account altogether.
Other steps to reduce the chances of sexual harassment situations include creating a
culture of professionalism within your own firm. Several specific suggestions to give to
your salespeople might include:
Conduct your self professionally.
Dress appropriately.
Be cautious in drinking at business functions.
Don’t listen to sob stories.
Avoid being alone in one-to-one situations when possible.
Use independent transportation.
In sum, sales managers have in important role in preventing sexual harassment. An
important first step is that the manager understands these policies and is proactive in creating
and sustaining a culture that does not tolerate any inappropriate behaviors.

Alcohol and Chemical Abuse

There is no evidence that alcohol and chemical abuse are more prevalent among salespeo-
ple than among people in other occupations. However, alcohol and chemical abuse is a
SUMMARY 255

national concern, and it is probably no less prevalent among salespeople. Estimates suggest
that nearly 18 million people in the United States—1 in every 13 adults—abuse alcohol or
are alcoholic.35 Salespeople spend a lot of time on the road, which is conducive to escape
behaviors, including alcohol and drug abuse. In a recent study of legal cases where sales-
person’s misuse of alcohol resulted in either workers’ compensation or company liability,
the authors noted two areas of concern for sales managers: salesperson overnight travel
and use of a company car.36 This study also indicated that a significant number of cases
in these two areas were settled in favor of the salesperson, and many with large punitive
damages.
Most sales managers realize that salespeople will drink socially with some of their
customers as part of the personal relationship-building process. Although this is generally
considered an acceptable activity, managers know that salespeople are exposed to the poten-
tial of alcohol abuse. It is often difficult to detect when a salesperson is a social drinker
or has a problem. Alcohol problems are generally detected through personal observation or
information from fellow salespeople. Although companies can fire a person for using illegal
drugs, very few firms have a company or a division-wide policy for dealing with alcohol
abuse. The most common reaction of sales managers is to engage in informal counseling
with the abuser. Another is to refer the salesperson to an alcohol abuse program and to
terminate, either after a warning or immediately.
In most cases, the responsibility for determining alcohol and chemical abuse (including
the abuse of legal drugs) rests with the sales manager. Where there is no formal company
policy, a sales manager is advised to develop one and ensure that all salespeople understand
exactly what the policy is. You should not ignore or tolerate the signs of abuse among your
salespeople. It is also advisable to resist the temptation to engage in informal counseling
with the problem drinker or chemical abuser. Alcohol and chemical abuse is a complicated
psychological and physical problem that requires the intervention of trained professionals.
Finally, sales managers must lead by example. They should ensure that they are sending
the right signal by carefully watching their own alcohol consumption, both on and off
the job.

SUMMARY
Leadership is essential to maintaining a high-performing sales force. A sales manager’s
leadership responsibility is multifaceted and affects every aspect of a salesperson’s job.
This chapter has introduced you to a number of topics and issues facing sales leaders. You
should now be able to do the following:
1. Explain what is meant by leadership. Leadership is defined as the ability to influence
the behavior of other people. Research suggests that there are five skills that the best
leaders develop during their careers: empowerment, intuition, self-understanding, vision,
and value congruence. Leaders also rely on five types of power to exert influence:
legitimate, reward, coercive, referent, and expert. The most effective use of power results
in salespeople who are committed to the manager’s goals. Although combination of
power types may be appropriate at certain times, salespeople tend to be more satisfied
with supervision when they feel a sales manager is particularly knowledgeable and makes
good decisions and suggestions (expert power), and when they identify closely with the
sales manager (referent power).
2. Understand how leaders manage change. Effective sales force change management
programs tend to use a five-step process: assessment, redesign, measurement, sales sup-
port programs, and implementation. Assessment is the examination of the customer
environment in which the company operates. Redesign change initiatives are made in
256 CHAPTER 9 LEADERSHIP

three areas: (a) customer orientation, (b) sales strategy, and (c) selling processes. Mea-
surement involves measuring indicators of successful change. Sales support programs
energize and direct performance for the long term. Finally, the implementation process
will be function of the size and complexity of the organization.
3. Determine the appropriate leadership style for a particular situation. Based on the
combination of two behavior characteristics (directive and supportive), we discuss four
leadership styles: telling, selling, supporting, and delegating. In telling style (low sup-
portive/high directive), managers tell a salesperson what, when, how, and where to do
various tasks. In selling style (high supportive/high directive), leaders provide a great
deal of guidance with their own ideas, but salespeople’s ideas are solicited. A support-
ive style (high supportive/low directive) calls for a shift of day-to-day problem solving
from the sales manager to the salesperson. A delegating style (low supportive/low direc-
tive) has the sales manager discussing problems in the territory with the salesperson. An
important concept of the situational leadership model is that a leader’s style should be
flexible in order to adapt to changing situations.
4. Know when and how to coach salespeople. Coaching consists of three components:
(1) positive feedback, (2) role-modeling, and (3) trust. The best time for coaching is
before and after actual sales calls. Immediate comments on the salesperson’s behavior can
be effective in improving the selling and territory management skills of the salespeople.
Managers must be careful, however, to always emphasize the things salespeople do well
and to praise them for their accomplishments.
5. Discuss what is involved in planning and conducting a sales meeting. High perfor-
mance depends on cooperation between salespeople and others within the company. One
of the responsibilities of a sales manager is to develop a team effort emphasizing mutual
support and respect. In order to develop effective teams, sales managers must understand
how groups function. One of the most commonly used methods for influencing the sales
team is through sales meetings. Planning effective sales meetings is based on three key
factors: meeting objectives, budgets, and location and timing.
6. Recognize common people problems. In today’s environment, sales managers are likely
to encounter a number of personnel issues that can reduce the effectiveness of selling
teams. Chief among these issues are plateaued salespeople, management development
problems, termination practices, sexual harassment, and alcohol and chemical abuse.
Managers must develop policies to handle them when and if they arise.

KEY TERMS
Coaching Local sales meetings Selling style
Coercive power National sales meetings Sexual harassment
Change management process Plateauing Situational leadership
Delegating style Power Supportive behavior
Directive behavior Referent power Supportive style
Expertise power Regional sales meetings Telling style
Leadership Reward power Transactional leadership
Leadership style Role-modeling Transformational leadership
Legitimate power Sales meeting

DEVELOPING YOUR COMPETENCIES

1. Strategic Action. Effective leaders make sure that they inspire vision and instill confi-
dence about the organization’s ability to achieve that vision. Many corporate annual
reports include a vision or mission statement. Look at the annual reports of three
DEVELOPING YOUR COMPETENCIES 257

companies you would like to work for upon graduation. Based on the vision statement
and any other information contained in the annual report, what type of leadership style
does the CEO of the company seem to have? Would you want to work for this person?
Why, or why not?
2. Technology. Two years ago, reps at AMF Bowling Products had good reason to shudder
at the very mention of sales force automation (SFA). Only half the sales force updated
the Lotus Notes-based system religiously, and as time went on usage fell. Reps couldn’t
take their laptops into bowling centers and enter customer data without looking like spies
to the alley owners with whom they were trying to establish trusting relationships. So
instead, they’d scribble notes on paper. But after schlepping through four to six bowling
centers, the last thing reps wanted to do when they got to their hotel at night was fire
up their laptop and spend up to an hour logging their sales calls into one database and
entering data on what kind of equipment each center had into another database. Because
it took as much as two hours to replicate their notes, most reps gave up in frustration. In
what ways would a SFA system help AMF Bowling Products? If you were the national
sales manager for AMF, and you felt that a centralized customer database was vital to
your continued growth, what would you do?
3. Coaching. Julie has the talent and experience to greatly improve sales in her territory. A
veteran fifteen-year salesperson with the company, Julie has been a top performer in the
past but just gets by now. Her husband is a doctor and their children are on their own,
so Julie’s financial needs are fully met. Julie’s sales volume is third in the district of five
people, so it’s not that she doesn’t sell, it’s just that her sales volume has not increased
much in the past three years, and you believe there is opportunity for greater sales out
of her territory. Your company has recently downsized and budgets are tight. It’s time to
do something about Julie. How would you address this situation without losing a strong
salesperson?
4. Team Building. As companies recognize that sales involves the ability to work in teams,
more and more companies are seeking salespeople with demonstrated leadership capa-
bilities. Choose an industry of interest to you and explore the job announcements. Are
companies looking for salespeople who can demonstrate their effectiveness as leaders?
Does leadership seem to be more important for some companies than others? Several
Web sites provide extensive listings of job openings, including job listings from classified
newspaper ads, which can be found at:
www.monster.com
jobs posted by hundreds of companies at:
www.jobfind.com
and the job seekers Web site of the National Association of Colleges and Employers at:
www.jobweb.org
5. Global Perspective. The Global Leadership and Organizational Behavior Effectiveness
Research Program (GLOBE) is a comprehensive worldwide study of leadership. The
GLOBE project seeks to address several interesting questions about the nature of lead-
ership in organizations throughout the world. One key question under investigation is
whether some leader behaviors are considered effective by managers worldwide. While
preliminary research results suggest some leadership patterns are universally considered
positive or universally considered negative, there are important cultural-based differences
with some leadership behaviors. Japanese leaders, for example, tend to be more effective
using a supportive style. Assume that you are working for a company that has recently
begun selling in the Japanese market. You have been asked to travel to Japan and work
with their sales force. Up to now you have been successful using the telling leadership
style with U.S. salespeople. What types of behavior changes would you need to make to
be effective in dealing with the Japanese salespeople?
258 CHAPTER 9 LEADERSHIP

6. Self-Management. Consider the following situation described by an executive with the

Aurora-Baxter Corporation, a company that makes construction materials:
A couple of years ago, following a scandal in the awarding of highway contracts, the
state legislature enacted some very stiff laws forbidding state purchasing officers from
accepting any gifts—even free lunches. This can be a little awkward in certain respects.
When our marketing guys are in the middle of negotiations with them, it’s natural to go
out with the buyers for drinks and a nice meal. Everybody knows that each person there
is supposed to pay for his or her own meal. Our guys are told that they have to make
that clear. So at some point one of them will say, “Okay, everybody, chip in. You know
the rule.” Maybe there are five of them and three of us and say the bill is $300. When
the meal’s over, they’ve put in $2 each and we pick up the rest of the tab.
If you were the sales manager in charge of this situation, what would you do?

SHIELD FINANCIAL: “CONFIDENTIAL

FEATURED CASE DOCUMENTS”

D
oug Bloom recently hired Mark Martin as a AllSafe logo on them. Curiosity getting the best of him,
sales rep to replace Bill Johnson, who’d just Bloom took a peek. The papers were confidential All-
resigned. Martin was a top rep at AllSafe, Safe sales information: pricing, marketing strategies,
the company’s biggest competitor. With Martin’s per- forecasts, and more. Bloom assumed that Martin used
formance, AllSafe’s midwestern region grew about 35 this information to formulate his current tactics with
percent annually over the past three years; Shield’s Shield, to Shield’s benefit.
midwestern region has grown only about 12 percent Bloom was torn. On the one hand, sales are way up,
annually during that same time. and he was never meant to see those documents. On
Bloom thought that hiring Martin was a tremendous the other hand, using a competitor’s confidential docu-
coup. He’s well known in the industry, has an invalu- ments has both ethical and legal ramifications. What’s
more, if Bloom confronted Martin, would Martin leave
able contact list, and easily ingratiated himself with his
and take Shield’s confidential information to the next
team at Shield. Best of all, within his first three months,
competitor? Bloom was unsure how to proceed.
Shield’s midwestern region sales jumped 25 percent.
Now Bloom was wondering if indeed he made the
Question
right choice. Earlier today, when Bloom left a pro-
posal on Martin’s desk (Martin was out on a sales call), 1. What should Bloom do? Should he forget what he
Bloom noticed some partially hidden papers with the saw? Confront Martin? Is there another solution?
 CHAPTER

10 ETHICAL LEADERSHIP
Act as if what you do makes a difference. It does.

Chapter Consultant:
William James

Georges Michaud, Director of Environment/Health Safety & Ethics, Northern Telecom

LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Explain why ethics are important.
Explain the moral bases for business ethics.
Understand how to make decisions that involve ethical problems.
Recognize the issues of common sales ethics.
Discuss how to build a sales ethics program.

WHY ETHICS ARE IMPORTANT

In the post–WorldCom, post–Enron, and post–Tyco era, ethics has become one of the hottest
topics in the business world. Companies have instituted more rigorous ethics policies and
set up global ethics offices. Business schools have entire courses dedicated to the topic.
Despite the increased emphasis on playing by the rules, news stories continue to feature
more and more ethical scandals by corporations and their executives. Many of these scandals
are the result of unethical and often illegal actions of the top executives; however, there are
a number of examples where the unwise actions of even one salesperson or sales manager
can bring a corporation to its knees.
Ethical dilemmas are particularly common in selling because salespeople often have
to make decisions in the field in response to customers’ demands and competitive offers.
How a salesperson deals with these dilemmas reflects not only a person’s character, but
also the company’s culture and leadership. Indeed, sales manager decisions and actions
quite often reveal and shape the moral character of the sales team. And sometimes these
managerial decisions will raise difficult and deeply personal questions. In these situations,
sales managers find themselves wondering: Do I have a different set of values at work
as compared to home? How much do I have to sacrifice of myself to get ahead? Am I a
different person at work? Answers to questions like these are often matters of right versus
right, not right versus wrong.1 In other words, a manager must choose between two ways of
resolving a difficult issue where each alternative is the right thing to do, but it is impossible
to do both. Managers and the business community typically rely on a code of moral behavior
259
260 CHAPTER 10 ETHICAL LEADERSHIP

called business ethics to guide their behaviors; however, there are some ethical situations
that can test a manager’s personal values.
Take for example, the situation that Bo Smith, regional sales manager of a medical
equipment and supplies company, finds himself in. Stacy, one of Bo’s branch managers,
wants to fire Kathy, a salesperson who was hired last year by Bo, because she has been
underperforming lately relative to her peers in the firm. Stacy, a single woman in her late
twenties, was recently promoted to manager because of her success as a salesperson. She
typically works longer hours than most other managers and has a serious, down-to-business
personality. Stacy wants Bo to allow her to fire Kathy because she feels that Kathy has not
fully developed her territory. Kathy is a devoted mother with full custody of her 5-year-old
daughter and no child support or other assistance from her ex-husband. Stacy believes that
Kathy’s responsibilities at home have been keeping her from fully realizing the territory’s
revenue potential for the branch. Since most of the other salespeople in the firm are in their
early twenties and unmarried, the long hours had not raised work-family issues in the past.
What do you think Bo should do?
On the one hand, Bo could allow Stacy to fire Kathy because everyone else was working
longer hours with no letup in sight, and she has not shown signs that she would be able to
handle the competitive pressures the company is now facing. At the same time, however, Bo
has serious reservations about firing Kathy. The company executives said they believed in
creating a “family-friendly” organization, and Bo now has an opportunity to do something
tangible to support this culture. Above all, Bo felt that it was simply wrong to fire someone,
especially a single parent, who was working diligently at her job.
Bo’s dilemma illustrates the idea that sales managers’ decisions are sometimes not
choices between right and wrong, but between right and right. For a manager who struggles
with these types of decisions, the stakes are very high. In this case, Bo’s decision will likely
reveal his basic values and, at the same time, provide a strong signal to the other employees.
In one sense, Bo’s decision could be considered a “defining moment” in his management
career.
Similarly, salespeople may find themselves in a “defining moment” when the lure of an
easy commission tests their ethical resolve. And there are plenty of examples of how bad
ethical decisions by the sales force have resulted in significant penalties to the company.
For example, Prudential Insurance Company of America had to take a $2.6 billion charge
against earnings to pay policyholders damages after the company allowed its salespeople to
use deceptive sales practices that encouraged customers to trade in old life insurance policies
for new ones.2 Salespeople told clients that the new policies were no more expensive than
policies they replaced when in fact the new policies cost more and could not be paid for with
future dividends. In the meltdown of the housing industry in 2007, many of the problems
were attributed to salespeople in the housing and banking industries who sold houses and
loans to unqualified customers. Salespeople either failed to adequately qualify customers or
look the other way when credit issues popped up on customers’ credit history. Customers
in these inherently risky loans, dubbed “subprime mortgages” couldn’t afford the payments
when the interest rates in these adjustable rate mortgages moved higher. This, along with
some additional market factors, resulted in widespread loan defaults and a surplus of empty
houses for sale.3
In addition to these specific examples, academic research also provides evidence that
the sales force is highly influenced by a company’s ethical climate. Indeed, the effects
of company’s ethical climate have been documented across a variety of outcomes. For
example, a company’s ethical climate can influence a salesperson’s customer orientation,
commitment to quality, and organizational commitment.4 These studies suggest that not
only can an ethical climate enhance the customer experience through better salesperson
interactions, but it can potentially reduce turnover through enhanced commitment to the
organization. Consistent with this rationale, other studies suggest that a positive ethical
PRINCIPLES OF ETHICAL DECISION MAKING 261

climate can increase salesperson trust in the sales manager, reduce a salesperson’s role
ambiguity, and increase job satisfaction—all of which are important in keeping your best
salespeople from leaving.5 One study even found that happier salespeople are more likely
to act more ethically than others.6
The consistent theme across all of these studies is the competitive advantage gained by
creating and maintaining high ethical standards with your sales force. Thus, sales managers
must not only train reps in how to recognize and respond to an ethical situation, but also
maintain a positive moral culture. This chapter focuses on the ethical problems faced by
sales managers and salespeople and provides a set of guidelines to improve one’s ethical
decision-making skills. We begin by discussing some important ethical perspectives relevant
to framing sales manager decision making.

PRINCIPLES OF ETHICAL DECISION MAKING

Recall in the opening vignette that Bo was faced with a difficult decision: to allow or not
allow Stacy to replace Kathy. If Bo allows Stacy to fire Kathy, he will be making a personal
commitment to a particular set of values. This decision would likely support the interests
of the company’s shareholders and customers, as well as define fairness as expecting the
same effort from each salesperson. In other words, Bo would align his moral compass with
the shareholder view so as to earn the highest profits he can for the company’s owners. But
if he does not allow Stacy to fire Kathy, he will accept the stakeholder view by possibly
reducing company profits to protect employee welfare. This decision would send a very
different signal to the other salespeople about the basic values of the company.
At first glance, the shareholder view appears to provide the most practical decision.
This approach, however, may not help Bo resolve all the issues at hand. For example, a
replacement who had the same sales skills as Kathy, but worked longer hours, would likely
add to profits. But how much of this gain would be offset by the added costs of search-
ing for and training a replacement in addition to the severance pay Kathy receives? Any
grumbling from other salespeople about Kathy’s lack of work ethic would likely stop, thus
temporarily improving morale and productivity. But by how much? And how costly would
the continuation of the company’s high-intensity, “churn-and-burn” personnel practices be
in the long run? Also, what are the costs of limiting the future talent pool by discouraging
talented people like Kathy from seeking jobs with such a company? As we can see, invoking
the grand principle of maximizing profits adds little to the practical issues Bo would face
as he tried to make his decision.
Typically, there are no laws or court decisions to guide people in specific situations,
so actions must be taken in the “twilight zone” between the clearly right and the clearly
wrong. Obviously, many ethical problems are due to the poor decisions made by individual
managers and salespeople. Even the best salesperson can go wrong if forced to operate
under policies that promote misdeeds.

Role Morality
The moral philosophies held by sales managers are important to maintaining an ethical
sales force because managers are the ethics teachers of their organizations. They select field
salespeople, provide ethical training, and enforce the moral codes of the firm. Their actions
send moral signals, while at the same time, their omissions send signals—almost everything
does. In describing the moral philosophies of individuals, scholars have labeled two patterns
of moral reasoning as relativism and idealism. A relativistic manager tends to reject universal
moral rules and makes decisions on the basis of personal values and the ramifications of
each situation. Such managers place a high value on a personal perspective and will be less
262 CHAPTER 10 ETHICAL LEADERSHIP

inclined from making a harsh judgment on a questionable situation until they understand
the situational information that may have led to the behavior. Idealistic managers, on the
other hand, accept moral codes and believe that positive outcomes for all can be achieved
by morally correct actions. These managers will quickly perceive questionable behaviors as
violations of ethical standards and will label such behavior as unethical.
How then do the moral philosophies of relativism and idealism affect sales manager
decision making? One study found that these differences would result in significantly dif-
ferent hiring tendencies. A highly idealistic manager would be much less likely to hire an
ethically questionable sales candidate as compared to a relativistic manager.7 Another study
reported that idealistic sales managers were more sensitive to moral problems in unethical
sales situations than relativistic managers. It also showed that relativism declines with age
and that idealism increases with age. Female idealism scores were also significantly higher
than those for males. Interestingly, the sales managers in this study were not significantly
higher on relativism or lower on idealism than other marketing personnel. This finding calls
into question the popular myth that sales personnel have lower ethical standards than those
in other business occupations.8 Together these studies suggest that basic moral philosophies,
such as relativism and idealism, may influence how sales managers build and maintain an
ethical sales force. Two other moral philosophies having implications for sales personnel
are Machiavellianism and conventional morality.

Machiavellianism
Niccolò Machiavelli, secretary of state in the Florentine Republic in the sixteenth century,
is best known for his observations on human behavior and the workings of power. Many
consider him to have been basically a realist—a person who focused on what is rather than on
what ought to be. Machiavelli’s political doctrine denied the relevancy of morality in public
life and regarded expediency as the guiding principle. He was prepared to manipulate people
and bend the laws of business to achieve his own goals. The opportunism that characterized
Machiavelli’s philosophy is reflected in the following quotation:
Any person who decides in every situation to act as a good man is bound to be destroyed in the
company of so many men who are not good. Wherefore, if a Prince desires to stay in power, he
must learn how to be not as good as the occasion requires.9

Applying Machiavellianism to Bo’s dilemma discussed in the opening vignette would

lead him in a completely different direction than what has been presented thus far. Machi-
avelli’s advice to Bo would focus on how he could advance his own career with the decision
to fire or not fire Kathy, or at the very least, keep Stacy from taking power from him if she
went over his head to higher executives. Thus, Machiavelli’s question to managers facing
such dilemmas is this: Are you playing to win?
While dictionaries define Machiavellianism as the principles and methods of crafti-
ness, duplicity, and deceit, Machiavelli himself would only employ such practices for
self-preservation. Unfortunately, some sales executives still employ such practices to achieve
personal or corporate goals. It should come as no surprise that a common finding in man-
agement studies that include salespeople shows that those with Machiavellian tendencies
are less ethical than others. These results suggest that sales managers should think twice
about hiring people who score high on Machiavellian surveys and should teach their current
salespeople how Machiavellian tendencies could influence ethical decisions in the field.

Conventional Morality
Another ethical standard that can guide the actions of executives is known as conventional
morality or situation ethics. This philosophy is reflected in the familiar phrase “When in
MAKING DECISIONS ON ETHICAL PROBLEMS 263

Rome, do as the Romans do.” The emphasis shifts from the individual to what society
thinks about the ethical issue; that is, the standard of morality becomes what is acceptable
to others at a particular time and place. Thus, social approval is the ultimate test of right
and wrong. With conventional morality, relationships with others are more important than
end results.
The conventional morality approach has no absolute ethical standards to guide the
actions of executives. Morality is based on social convention and group consensus. If Bo
used this philosophy to guide his decision, the decision to fire Kathy would be based on a
consensus of opinions of others within the company. Notice that with this approach Bo’s
own reluctance to fire Kathy would not be as important to his decision. As we can see,
the problem with this approach is that the majority might conflict with either your personal
moral standards, as in the case with Bo, or with company policy. For example, salespeople
and sales managers sometimes justify cheating on expense accounts with the argument that
“everybody does it” or “it’s a way to reward salespeople with tax-free dollars.” However,
these may not be personally acceptable reasons for you to violate organizational policy.
Another problem with conventional morality is that it is difficult for managers to
adapt to changing contexts or cultures. Ten dollars given to a headwaiter is a tip, but $10
given to a customs official to get a perishable product moving is a bribe. Although both
transactions represent payment for extra services rendered, one is socially acceptable and
the other is not—in the United States at least. Often, in fact, what is moral, ethical, or
common in one country is unacceptable—or even illegal—in another. For example, the
hiring of relatives is called nepotism in the United States; in South America, it is viewed
as an honorable family duty.

MAKING DECISIONS ON ETHICAL PROBLEMS

As you could probably surmise by now, ethics are concerned with the effect of actions on
the individual, the firm, the business community, and society as a whole. A hierarchical
diagram showing the order in which ethical decisions evolve is given in Figure 10-1. Notice
that the ethical values and standards of the business firm are derived from the general values

General Values and Norms of Society

Definition of Goals and Ethical Standards

of Business Corporations

Relationship between Corporation Values and

Values of Manager

Managerial Decisions

F I G U R E 10-1 Making Decisions on Ethical Problems

264 CHAPTER 10 ETHICAL LEADERSHIP

and norms of society, and that business decisions represent a synthesis of the moral and
ethical principles embraced by the various entities. Conflict is common because the values
of the firm, as interpreted by its executives, may not match the values held by the individual.
The difficult choice for managers in solving problems is whether they should adhere to their
own moral standards, rely on company policy, or do what is expedient to maximize the
short-run profits of the firm.
When faced with ethical problems, executives too frequently choose what is expedient
rather than what is morally correct. Almost half of the 316 sales managers who participated
in an ethics survey reported that they have heard their salespeople lie about promised
delivery times to secure a deal.10 This tendency to sell out personal ethical standards for
a chance at corporate glory means that organizations need to foster a business climate that
reinforces ethical behavior and to establish ombudsmen who train and provide salespeople
with guidance on ethical dilemmas. A good starting point is to develop an ethical checklist
that includes some basic steps to making ethical decisions.

Ethical Checklist
Managers and salespeople often need practical guidelines when making difficult moral deci-
sions. Some companies suggest using a simple checklist when confronted with an ethical
dilemma. One such checklist, used by managers at General Dynamics, is as follows:
1. Recognize the dilemma.
2. Get the facts.
3. List your options.
• Are they legal?
• Are they right?
• Are they beneficial?
4. Make your decision.
Applying this checklist to a salesperson performing below expectations will help explain
how it works.

The Case of the Drug-Using Salesperson

Recognizing the Dilemma. Suppose sales manager Smith is concerned about Jones, who
used to be the star member of the sales force, Jones’s sales volume is slipping. At first, Smith
ignores the problem. However, when customers start calling to complain about service, she
can no longer put off deciding how to deal with the problem.

Assembling the Facts. The next step in the decision process is to assemble all the relevant
facts. Smith could start by asking questions of the other members of the sales force and of
customers who can be trusted to tell the truth. Suppose these inquiries reveal that Jones’s
family life is stable but that a possible drug problem is interfering with normal sales-call
patterns.
The sales manager could summarize the problem in the following manner:
1. Jones had an excellent sales record in the past, and the firm is having trouble finding
good replacements for salespeople who leave.
2. Jones’s apparent drug use is preventing him, a potentially good salesperson, from per-
forming up to standard.
3. Jones’s apparent drug use is hurting company sales and profits, and the situation must
be corrected.
Any solution should deal with all the facts. If some of the pertinent information is
ignored, the sales manager is unlikely to find the best way to resolve the problem.
COMMON SALES ETHICS ISSUES 265

Making an Ethical Decision. Alternative plans that deal with all aspects of the problem
include the following:
1. Smith could have a talk with Jones and indicate her concerns about sales in Jones’s
territory. The two could agree on an acceptable quota, and Jones could prepare a plan to
achieve the new goals. Smith could explain that she does not believe in telling people
how to lead their personal lives, but she does not allow personal problems to detract
from job performance.
2. Smith could call Jones in and state that she is unhappy with Jones’s poor sales and
has heard rumors that Jones has a drug problem. Smith could give Jones an ultimatum
that unless he submits to a drug test and resolves the problem if the test is positive, his
employment will be terminated. Smith would agree to set a reasonable sales quota and
express confidence in Jones’s ability to meet the goal.
3. Smith could tell Jones that she is concerned with the dual problems of poor sales and
possible drug use. Jones could be offered a three-month furlough at half pay to find a
way to overcome his problem and be told that a reinstatement or termination decision
would be made at the end of the furlough. Smith could suggest that Jones start seeing
the company psychologist, explaining that the firm would like to keep Jones because of
his impressive record of past successes. Temporary salespeople would be hired to cover
Jones’s territory during the furlough.
4. Smith could call Jones in and express her displeasure with Jones’s poor sales and his
possible drug problem. Jones could then be offered a choice of taking a drug test and
going to a drug rehabilitation center for a month at company expense or of being ter-
minated. Temporary salespeople would be hired to cover Jones’s territory during his
absence.
The first of these solutions is a step in the right direction, but it may not be sufficient.
Smith alludes to the drug problem but stops short of offering any help. The second plan
faces the sales and drug problems squarely. However, it is not clear that Jones would be able
to handle the pressure of the “reform or get fired” threat made by the sales manager. The
third plan takes some of the pressure off Jones and offers help for the drug problem. But
Jones may be unable or unwilling to stop using drugs, and this plan may simply postpone
the inevitable decision to dismiss him.
The last solution to the possible drug problem is attractive because it offers advantages
for all participants. The sales manager gains because Jones is removed from the territory
and customers are handled by experienced reps. In addition, company sales volume in the
territory should recover with the added attention. Furthermore, Jones is forced to confront
his possible drug problem in a professional environment where chances for recovery are
enhanced. The main risk with this approach is that Jones may refuse the treatment and his
potential contributions to the firm will be lost forever. As you can see, there is no easy
solution. What types of solutions would you have in the ethical dilemma shown in Team
Exercise: “Customer Gifts Versus Company Policy”?

COMMON SALES ETHICS ISSUES

Sales managers must make decisions in a wide variety of situations that have ethical dimen-
sions. These include relations with superiors, salespeople, customers, competitors, dealers,
and issues such as sexual harassment. As discussed earlier, there are no well-defined guide-
lines for moral conduct in each of the situations because what is right so often depends on
the particular circumstances. Our objective is to raise some questions about business ethics
and to point out potential problem areas.
266 CHAPTER 10 ETHICAL LEADERSHIP

TEAM EXERCISE
“Customer Gifts versus Company Policy”

George Freitag, a salesperson at Steel International, is a professional at relationship building.

His customers are the grateful recipients of cards for every occasion, tickets to sporting and
entertainment events, even trinkets from Freitag’s road trips. Any time he sees “the perfect gift”
for one of his customers—whether it is a book on their favorite subject or some nifty gadget
that’s made just for their hobby—Freitag buys and sends it. Freitag’s manager, Jesse Webster,
enjoys seeing the pleasure Freitag and his customers get from the gifts—especially since Freitag
always makes his quota and the prices of the gifts are always low enough to squeeze into his
Travel and Expense (T&E) budget. Unfortunately, Steel’s new CEO has recently introduced
a strict “No Gifts” policy—right before the holiday season. Webster has learned through the
grapevine that Freitag plans to send holiday gifts to his customers anyway and work them
into his T&E budget as other expenses, such as “breakfast meetings.” Webster is in a tough
situation. He wants to keep Freitag and his customers happy, but he knows that he should
follow the CEO’s policy.
1. What should Webster do now?
• Should he pretend that he didn’t hear the rumor and let Freitag send his gifts?
• Should he discuss the situation with the CEO?
• Should he simply tell Freitag, “Sorry, but this is now the policy”?
• Which option is best, or is there another, better choice?
2. If you were the sales manager, what would you do about the following:
• Handling the rumor that Freitag plans to disregard the new company policy.
• Keeping Freitag motivated despite the new policy.
• Teaching Freitag alternative methods of building customer loyalty.
3. Is there a high probability of Freitag’s losing customers because of the new policy?
4. What are the possible reactions from Freitag’s customers?
5. Given the precedent that Freitag has set with his customers by supplying them with a
continuous flow of gifts, what is going to happen when Freitag stops giving gifts and his
competition continues?

Hiring and Firing

Various federal and state laws prohibit discrimination in hiring practices. Thus, firms that
hire only white male Christians between the ages of 25 and 30 are breaking the law rather
than operating unethically. An ethical problem, in contrast, usually requires considerable
judgment as to the proper course of action—for example, in hiring candidates who are
relatives of officers of the firm. Suppose a sales manager must choose between a man and
a woman for a field representative position. Both candidates are well trained, but the man
has somewhat more experience. Assume further that the woman is the daughter of a vice
president of the company. If the decision is based strictly on qualifications, the man would
get the position. However, the firm is under pressure from the federal government to hire
women, so maybe she should get the position even though she has somewhat lower qualifi-
cations. Although nothing has been said, the sales manager knows there could be personal
advantages in hiring the vice president’s daughter. Some would contend that hiring the
woman instead of the man would be reverse discrimination and unethical. In this example,
the sales manager must make a moral choice between what is best for the firm and what
might enhance his or her own position in the firm.
COMMON SALES ETHICS ISSUES 267

Another sticky ethical question relates to hiring salespeople from competitors. The main
advantages are that these people are trained and are likely to bring along some customers
from their former employer. However, securing salespeople from competitors can increase
selling costs and may lead to lawsuits if trade secrets are involved. Despite these risks,
raiding competitors is common in the insurance, real estate, and stock brokerage fields.
These firms operate on the premise that it is easier to hire successful agents than it is to
train them. To prevent such practices, some firms have unwritten agreements that local
competitors will not hire salespeople from each other. Although this arrangement helps
to control selling costs, it often precludes salespeople from improving their positions by
moving to another firm in the local area.
With so many firms concerned about salesperson productivity, which typically leads to a
need to reduce selling costs, some companies are tempted to eliminate the lowest producing
salespeople. However, there have been numerous lawsuits by salespeople over wrongful
termination. One way to protect yourself from these lawsuits is to have salesperson’s duties
and responsibilities defined in job description, which is a detailed definition of the specific
role of an employee. It serves as an important document that specifies matters such as
role performance, hours on the job, and goal attainment requirements. If an employee’s
performance fails to meet the conditions of a job description, there would be grounds
for dismissal. When an accurate and complete job description is available, employees are
also in a better position to resolve ethical problems when they occur. In looking back at
the opening vignette, if Kathy’s job description did not indicate that grounds for dismissal
include maximizing a territory’s revenue potential or working nights and weekends, then Bo
could be partly to blame for his dilemma. Bo needs to hold more candid discussions with
upper management about the resolve to uphold the company’s “family-friendly” policies
when faced with the possibility of sacrificing revenues and profits.
There are also situations where firms fire older salespeople who are paid high wages
and replace them with younger people who earn less. This approach is clearly illegal if it
is part of a general plan to discriminate against older employees. However, the courts have
ruled that it is legal to fire older employees if the decision is based solely on the need to
reduce costs and/or improve productivity.

House Accounts
A touchy problem for sales managers is how to handle large and important customers. These
larger accounts often require special attention that exceeds the time and skills available from
the salesperson assigned to the territory. In some companies, these accounts are labeled house
accounts and are taken over by some manager in the company. Generally, no commissions
are paid to the district salespeople for these accounts. Should these accounts be left with
the district salesperson or shifted to headquarters as house accounts? This is not an easy
decision because the accounts often generate high commission income. The designation of
a customer as a house account is usually defended on the grounds that it results in better
service. However, the district salesperson that developed the account is likely to feel a
proprietary interest because of the historical relationship with the client. Thus, a transfer to
house account status is sure to be viewed as unfair by the salesperson losing the account.
House accounts are clearly one area where firms need a specific and well-publicized policy
in order to avoid misunderstandings and resentment.

Expense Accounts
Most ethical abuse in a sales organization takes place with expense accounts. Salespeople are
expected to spend money contacting customers and are then reimbursed for their expenses.
Those who abuse the reimbursement policy often claim higher expenditures than the amounts
268 CHAPTER 10 ETHICAL LEADERSHIP

spent, keep the difference, and then don’t report it to the Internal Revenue Service. In one
survey, 58 percent of the managers surveyed reported catching a salesperson falsifying an
expense report.11
Sales managers must decide how tight controls on expense accounts should be. For
example, if all salespeople who pad their expense accounts were fired, there would be few
people left in the sales organization. Tight control on expense accounts could result in
salespeople not traveling to contact out-of-the-way customers. However, liberal repayment
for expenses invites investigations by the IRS and results in selling expense ratios that are
higher than they should be.
A good solution to this problem is to monitor the actual expenses of some reliable
salespeople for a month each year and then use these figures to set reimbursement amounts
for all field reps. This approach greatly reduces the costs of processing expense accounts
and keeps expense payments in line with actual experiences.

Gifts for Buyers

U.S. business has a tradition of giving small gifts for buyers to express appreciation for past
and future business. Salespeople typically give novelties and samples as well as seasonal
gifts (e.g., gift-wrapped bottles of liquor at Christmas). The problem is that the gift giving
may start out with a pair of hockey tickets and end up as a portable television set for the
customer’s den. So how can a gift be distinguished from a bribe?
A recent survey of sales executives revealed that 64 percent of those surveyed felt that
a bribe was considered to be a personal gift to a buyer over $100.12 In the same survey,
however, 89 percent of the sales executives had witnessed colleagues offering potential
clients personal gifts valued at more than $100 in exchange for their business. Apparently,
sales executives understand the cutoff point between a gift and a bribe, but bending the rules
in specific situations appears to be a fairly widespread practice. One way to differentiate a
gift from a bribe is when the item is unexpected (gift) rather than as part of an agreed-upon
payment for business (bribe).
In today’s moral and ethical climate, the practice of giving gifts to customers is more
scrutinized than ever. Some firms have dealt with this by enforcing policies prohibiting
buyers from accepting any gifts. Wal-Mart, for example, has always forbidden buyers from
accepting even a can of Coke from a supplier. Although this policy seems to work for
Wal-Mart, many companies are not as strict and allow an “appropriate” gift within specific
dollar guidelines. The Internal Revenue Service ruling that only $25 can be deducted each
year for company business gifts to any one person is one such limitation that many compa-
nies adhere to. Other firms use a general policy that prohibits accepting any gifts, meals, or
favors that might compromise integrity. In the absence of explicit rules, it becomes incum-
bent on the salesperson to judge what is a reasonable gift and what others could interpret
as a bribe. We recommend using some basic guidelines such as (1) Follow your company’s
policy on gift giving; (2) keep the gift value low to avoid the appearance of undue influence;
(3) never give a gift prior to closing the deal; and (4) be prepared to walk away from the
deal if the customer pushes for something excessive.

Bribes
As discussed above, the use of bribes to obtain business is not uncommon, so you must
know what to do when you feel pressured to engage in this practice. Bribery is fairly
easy to spot in its most blatant forms. If a customer says that an order will be placed if a
$20,000 commission is paid to a third party, then the salesperson can be sure that someone
is being paid off. In a recent federal court case, the president and top marketing executive of
United Gunite Corporation have pleaded guilty to offering bribes to city officials throughout
COMMON SALES ETHICS ISSUES 269

TEAM EXERCISE
“Special Support”

Assume you have taken over the territory of Henry Perkins, who has retired after thirty years
with your firm. Henry was well liked by everyone and earned $60,000 in commissions on
printing sales in his last year. You are having dinner with one of the best customers in the
territory, Mary Stevens. Mary bought $100,000 in printing services from your company in the
past year, and this business earned Henry $6,000 in commissions. You have been emphasizing
to Mary how you plan to continue to provide the same high-quality service that Henry supplied.
Mary responds that she has recently talked to several other quality printers who also offer good
service, and she wonders if you intend to continue Henry’s special support activities. You say
that you are not sure what special support Henry has been providing. Mary indicates that Henry
paid $2,000 for a “medical” trip to Jamaica each winter to help relieve her arthritis. How would
you respond in this situation?

New Jersey for contract work worth millions of dollars. According to the executives, city
officials expected “gifts” in exchange for their influence in getting lucrative contracts. These
gifts ranged from furniture, designer suits, trips to Rio, and, in one case, a custom-designed
waterfall for a backyard pool.13 These types of bribes are not only unethical, but also illegal.
Unfortunately, much of the bribery and extortion in business dealings is disguised to make
it even more difficult for the businessperson to choose right from wrong. Take a look at the
Team Exercise “Special Support” and think how you might respond to Mary’s request for
assistance in her “medical” expenses.
Foreign payoffs are so common that the U.S. Congress passed the Foreign Corrupt
Practices Act in 1977, making it a criminal offense to offer a payment to a foreign gov-
ernment official to obtain or retain foreign business. However, other industrialized nations
have been slow to follow. France, Italy, Belgium, and the Netherlands have yet to pass
laws prohibiting bribery and the deduction of bribes as a business expense for tax purposes,
which has resulted in billions of dollars of lost international contracts.
Because of the difficulties caused by the Foreign Corrupt Practices Act in bidding on
overseas contracts, the law has been amended so that now U.S. companies break the law
only if they knowingly make an illegal payment. Also, “grease payments” are now permitted
to facilitate a routine matter such as getting a visa or a permit. In addition, it is proper to
make payments allowed under the written laws of a foreign country. Although these changes
have helped, U.S. firms can’t engage in many of the activities their local competitors carry
out every day.

Entertainment
Providing entertainment for customers and potential customers is standard practice in U.S.
business, but it can lead to ethical problems. The issue is often “How much is too much?”
Most would agree that taking a customer to lunch is fair, reasonable, and expected. Few
would argue against occasionally taking a client and spouse to dinner and a nightclub. But
what about the use of a company car or a weekend on the company yacht? On big orders,
it is not unusual to fly personnel from the customer’s plant to the supplier’s headquarters
in order to include plant tours and introductions to corporate executives as part of the sales
presentation. Should the expenses of spouses taken on such trips be covered? Is it ethical to
270 CHAPTER 10 ETHICAL LEADERSHIP

offer customers free use of the company hunting lodge in Canada? What legitimately and
ethically constitutes business “entertainment”?
We recommend that the entertainment should be a complementary part of a salesperson’s
relationship strategy, not the sole selling strategy for one particular order. In other words, an
entertainment event should be used as a tool to develop a long-term business relationship.
In planning an event, we also recommend that you consider the particular customer’s tastes
as well as the size of the account. It is important to keep the level of entertainment in line
with the size of the account.

GOVERNMENT REGULATION
When business fails to operate in an ethical manner, there is usually a public outcry for
more government regulation. Thus, one of the basic roles of government is to set mini-
mum standards of business morality and then to enforce the rules. The judicial branch of
government settles disputes over the interpretation of the regulations, and Congress writes
new rules as they are needed. Some of the first government regulations in the United States
affecting business were designed to protect the public from noncompetitive activities and
ensure businesses the ability to compete in an open marketplace. While it is beyond the
scope of this book to cover all legal issues that may affect salespeople, the next section
discusses some of the antitrust laws that may affect sales executives.

Consumer Protection
A number of federal laws have also been passed to set ethical standards for transactions
between manufacturers and the consumer. The Clayton Antitrust Act, for example, pro-
hibits price discrimination, certain exclusive dealing arrangements, and mergers that may
substantially reduce competition or create a monopoly. This Act has a number of implica-
tions for sales executives. As but one example of how the Clayton Act might work, suppose
a purchasing agent, in collusion with a favored supplier, develops a set of restrictive spec-
ifications for the purchase of all the janitorial supplies needed by a particular government
agency. The specifications essentially exclude all but the current supplier. As a result, the
agency only receives a single bid (from the favored supplier). The primary reason many
competitors did not bid is that the bid specifications were so restrictive as to discourage
participation. The supplier who wrote the specifications submits an apparent low bid for
most of the products, and of course meets all specifications. This subversion of the bidding
process is an unreasonable restraint of trade.
The Magnuson-Moss Warranty Act makes it illegal for salespeople to coerce customers
into purchasing replacement components from the salesperson’s firm at higher prices than a
third party could provide by threatening the buyer that such action would void the product’s
warranty. To illustrate how this law might work, suppose you overheard a computer system
manufacturer’s sales representative tell a customer that if the customer uses third party
memory in the system manufacturer’s computer system (which could be purchased at much
lower prices), then the system manufacturer’s warranty would be voided. This act essentially
requires full disclosure of warranty terms and makes it illegal to use warranties as tie-ins
to price gouging.
More recently, the Federal Sentencing Commission for Organizations established a
law that holds both the employee and the employee’s company responsible for compliance
with federal regulations. This means that the government can hold a company responsible
for misdeeds of its employees if its standards of behaviors are not established, commu-
nicated, and monitored. In addition, companies must allow employees to report criminal
activity, punish those who violate the standards, and take proactive steps in preventing
BUILDING A SALES ETHICS PROGRAM 271

further criminal activity. This law essentially places responsibility on sales managers for
training salespeople on their legal responsibilities.
Deceptive packaging has been attacked with the Fair Packaging and Labeling Act,
which calls for standard package sizes and disclosure of the manufacturer’s or distributor’s
name. Attempts by loan companies and retailers to mislead consumers on interest rates have
led to the enactment of the Consumer Credit Protection Act. Truth-in-lending laws require
full disclosure of annual interest rates and other charges on loans and credit sales.

Why Are Regulations Needed?

Government often gets involved in business ethics when the problem is too big for individual
firms to handle. For example, automobile exhaust is a major cause of air pollution, but it
is difficult for an individual firm to solve the problem. If one company feels it is morally
correct to install air pollution equipment on its cars, its costs will be higher than those of the
competition. Thus, the cars of the ethically lazy firm will be cheaper and more powerful, and
they will literally run off with the market. In this situation, government regulation allows
the well-intentioned business to be the good citizen it wants to be.
Although many arguments have been advanced for a minimum of government regulation
of business, there are also other problems with regulation. Businesspeople generally dislike
government controls because they rob them of the flexibility needed to respond to changing
conditions. Government rules established to solve problems in one decade are often obsolete
by the next decade. For instance, the federal government got into the regulation of natural
gas prices because gas is often shipped through interstate pipelines. As might be expected,
the government tended to set low gas prices for maximum political gain. However, the
drillers were more rational, and they slowed their search for new gas. As a result, the
supply of natural gas declined until the price controls were removed.
We believe there should be a balance between too little government (“yield burning” in
muni-bond underwriting) and too much regulation (as occurred in the natural gas industry)
where business was strangled by endless rules and red tape.

BUILDING A SALES ETHICS PROGRAM

The moral climate of a business reflects the words and actions of its top executives. If
management tolerates unethical behavior in the sales force, then there is little a member of
the organization can do about it. Superiors set the moral climate and provide the constraints
within which business decisions are made. Thus, the best way for a manager to build a
strong sales ethics program is to get the backing of the board chairperson and the president
of the company (Table 10-1). When this support is not available, there are certain to be
ethical violations.

Code of Ethics
Once a sales manager gains the support of top management, the next step is to prepare
a written sales ethics policy statement that indicates to the sales force that the company
believes in playing fair with customers and competitors. Research has shown that salespeople
employed in organizations with codes of ethics perceived their work environments to have
more positive ethical values than did other sales professionals.14 Another survey indicated
that field reps want written policies that help them perform their jobs ethically.15 To be
effective, however, the policies need to be monitored on a regular basis to make sure that
they are germane to the current selling arena. The advantage of a written ethics policy is
that it allows the firm to be explicit about what activities are permissible and what actions
272 CHAPTER 10 ETHICAL LEADERSHIP

T A B L E 10-1 Eight Ways to Keep Your Sales Force Honest

1. Get support from top management showing that they expect you to follow the spirit and letter of
the law.
2. Develop and distribute a sales ethics policy.
3. Establish the proper moral climate. If the bosses follow the rules, then the troops are apt to do
likewise.
4. Assign realistic sales goals. People who try to meet an unfair quota are more likely to rationalize
their way to a kickback scheme.
5. Set up controls when needed. Watch people who live beyond their income.
6. Suggest that salespeople call for help when they face unethical demands.
7. Get together with your competition if payoffs are an industry problem.
8. Blow the whistle if necessary.

violate company standards. This can be useful when customers, suppliers, or your boss ask
you to participate in some unethical activities. If your company has a code of ethics, you
can reply, “I’m sorry, but company policy forbids that,” and graciously end a conversation
about a shady deal. The vast majority of firms that were involved in foreign payoff scandals
had no written policies on commercial bribery.
An example of what a written code of ethics should look like is provided by Gen-
eral Motors. GM’s policy is a twelve-page document complete with instructional scenarios
featuring fictional characters.16 One scenario has a purchasing employee visiting the home
office of a possible supplier where he was offered a ticket to a professional football game
and a chance to mingle with top executives. This opportunity should be turned down. In
another scenario, an investment banking firm that helped with an acquisition for GM invites
several GM employees to New York for a dinner and the gift of a mantel clock. In this
case, the dinner and the clock should be refused. GM’s policy provides some wiggle room
for employees outside the United States. Workers in certain countries may accept meals,
gifts, or outings to comply with local business practices and to avoid being placed in a
competitive disadvantage. Also, GM employees can continue providing gifts and meals to
their customers, but only within limits. The most expensive restaurant in town is no longer
appropriate. GM’s policy requires GM employees to avoid violating the customer’s gift
policy.
Sales managers should also be prepared to enforce company policies on bribery. This
means it pays to keep tabs on salespeople who appear to live beyond their income. It also
means setting reasonable sales goals so that salespeople will not be tempted to cheat to
reach an unfair quota. Salespeople should be encouraged to ask for assistance when they
encounter unethical situations.
If the salesperson has observed unethical behavior and has exhausted all the internal
channels for dissent, then he or she should resort to whistle-blowing. Whistle-blowing is a
last-resort action where an employee informs the public about an employer’s or supervisor’s
immoral or illegal behavior. One test of whistle-blowing is that the evidence should be strong
enough to convince the average person that a violation is taking place. Second, the observed
ethical or legal violation should be serious enough to require immediate attention. Third,
the act of telling the public must have some chance for success. Whistle-blowing is not
taken lightly by employers, and employees will likely suffer some repercussion if they “go
public” with a moral problem.
Why are whistle-blowers treated so badly for simply following high personal moral
standards? The problem seems to be that by speaking up, they violate the role morality
that demands that employees be loyal and keep their mouths shut. Management can be
embarrassed by whistle-blowing, so they often try to get rid of people they feel can’t
be trusted. To help encourage whistle-blowers to come forward, federal laws have been
modified to pay rewards of 15 to 25 percent of any recovery, plus attorneys’ fees. As a
SUMMARY 273

result of this change, whistle-blowers received an average of $1 million in recent cases. In

one case, a whistle-blower won $77 million for exposing to federal prosecutors a scheme
to bribe doctors to prescribe their company’s drugs over the competition.17
Whistle-blowing displays the classic conflict between the high ethical standards of
individuals and the often lower morality found in the business world. The ultimate answer
may occur when more firms set up formal internal mechanisms so that employees with
moral problems to report are not ignored or punished.

Ethics Training
Our discussion has shown that field salespeople are involved in a variety of competitive
situations that may tempt reps to engage in unethical behavior to reach company or personal
goals. Unfortunately, many companies are not adequately addressing how to deal with
ethical issues. In fact, one study reported that 42 percent of respondents felt that their
companies either ignored ethical conduct to meet business objectives, or even worse, that
their companies encouraged unethical practices.18 This suggests that more attention to ethics
training is needed to help salespeople function in today’s business environment.
You should remember that simply publishing a sales ethics code does not guarantee
that field sales representatives will follow it. Companies should offer classes to make sure
employees know what to do in morally ambiguous situations. At one training session a
salesperson asked, “When I check in at a motel, I get a coupon for a free drink; can I use
it?” The correct answer was that it would be acceptable to use the coupon, but it would be
wrong to accept $50 to stay there in the first place. The point here is that effective ethical
training should include role-playing using realistic moral dilemmas that salespeople may
encounter in the field. By walking through the steps to resolve such issues, managers will
help salespeople develop their own moral reasoning capabilities. This type of training, along
with a clearly written ethics policy, should provide a strong foundation for ethical decision
making.
Research has also confirmed that younger sales managers are less idealistic and more
relativistic in their ethical decision making.19 These findings suggest the importance of
adjusting training program content to meet the needs of different age groups. New hires and
younger managers, for example, should be given material that emphasizes the importance of
company ethical norms and values, as well as examples of specific behaviors to avoid. For
example, Honeywell recently replaced its vague employee policy manual with a detailed
handbook. Some of the unacceptable practices spelled out in the handbook include catcalls
and sexual jokes.
In addition to general sales ethics training, many companies have also provided training
to prevent sexual harassment. This type of training can be used to find solutions to sim-
ulated moral dilemmas. By working through a number of scenarios, salespeople can learn
how to recognize problems, assemble facts, consider alternatives, and make decisions. For
example, what should women do when a male customer makes a pass and puts his hand
on a saleswoman’s knee? In this case she should firmly remove his hand and say, “Let’s
pretend this didn’t happen.” Men are also offered advice on how to avoid crude jokes and
other forms of intimidation when dealing with women buyers. The idea behind ethics and
sexual-harassment training is to make sure employees are equipped to handle real-world
issues they are likely to encounter when calling on customers.

SUMMARY
Sales ethics provides a moral framework to guide salespeople in their daily contacts with
customers. Ethical dilemmas are common in selling because salespeople often have to make
274 CHAPTER 10 ETHICAL LEADERSHIP

decisions in the field in response to customers’ demands and competitive offers. This chapter
has attempted to equip you with the following skills:
1. Explain why ethics are important. Salespeople often look to the sales manager for
cues about the company’s ethical stance to help guide their behaviors. When managers
exhibit a low standard of moral behavior, the sales force will often exhibit these types of
behaviors in front of their customers. As demonstrated in a number of recent salesperson
scandals, such behaviors can do irreparable harm to a company.
2. Explain the moral bases for business ethics. Sales ethics forms a code of moral conduct
that guides sales managers and salespeople in their everyday activities. Ethical decisions
can be based on different moral rules, including the stakeholder and shareholder views,
idealism, relativism, the self-interest of Machiavellianism, or conventional morality.
3. Understand how to make decisions that involve ethical problems. Managers who
score high on idealism tend to make the most ethical decisions. Perhaps the best way to
solve ethical problems is the pragmatic approach, which involves an objective analysis
of relevant facts and leads to more rational decisions.
4. Recognize the issues of common sales ethics. Areas in which the sales manager is likely
to confront difficult ethical situations involve hiring, house accounts, whistle-blowing,
expense accounts, requests for payoffs, and customer gifts and entertainment.
5. Discuss how to build a sales ethics program. Building a good company sales ethics
program would include the following: getting support from top management, developing
and distributing a sales ethics policy, establishing a proper moral climate, assigning
realistic sales goals, setting up controls when needed, suggesting that salespeople call
for help when faced with unethical demands, and blowing the whistle when necessary.

KEY TERMS
Bribes Federal Sentencing Commission for Magnuson-Moss Warranty Act
Business ethics Organizations Relativism
Clayton Antitrust Act Foreign Corrupt Practices Act Role morality
Code of ethics Gifts for buyers Shareholder view
Consumer Credit Protection Act Government regulation Situation ethics
Conventional morality House accounts Stakeholder view
Deceptive sales practices Idealism Whistle-blowing
Ethics policy statement Job description
Fair Packaging and Labeling Act Machiavellianism

DEVELOPING YOUR COMPETENCIES

1. Strategic Action. A report prepared by insurance regulators from thirty states revealed
that management at Prudential Insurance Company of America knew of sales abuses by
agents and in many cases failed to adequately investigate and impose effective disci-
pline. The report cited cases where agents with “significant complaint histories” were
promoted to sales and general managers, with supervisory and training responsibility
over agents. Prudential’s negligence in its accountability for its agents was particularly
noticeable with regard to “churning.” This is a practice whereby agents withhold infor-
mation or use deceptive sales pitches to persuade customers to use the built-up cash value
of older policies to finance new, more expensive ones. As a result of Prudential’s lack
of control over its sales force, the company was forced to pay hundreds of millions of
dollars in fines and restitution to its customers. In addition, a new chairman had to clean
house and fire hundreds of agents and sales managers. The insurance regulator’s report
DEVELOPING YOUR COMPETENCIES 275

suggests that Prudential was following an unwritten strategy of allowing its agents to
engage in activities that helped the company at the expense of its customers. Why did
Prudential permit and even encourage its agents to employ unethical sales practices?
What actions should Prudential take to prevent its agents from using these practices in
the future?
2. Self-Management. A stockbroker pleaded guilty to conspiracy charges in San Diego for
accepting $500,000 in bribes to promote the sale of certain stocks. The bribes amounted
to 15 percent of the value of stock sold to clients and were paid in cash. In this case,
the stocks were recommended to customers regardless of whether they fit the client’s
investment needs. How should firms structure their self-management programs so that
employees will be better able to resist bribes when they are offered? Can employees be
trained to refuse payments for unethical conduct?
3. Technology. The Internet has proved to be extremely helpful to field salespeople who
use e-mail to communicate with customers and their corporate colleagues. Also, Web sites
on the Internet allow customers to check product availability and place routine reorders.
Although the Internet is a technological marvel, some employees use it to further their
own unethical activities. At one company, an employee set up a fake Web site and posted
false information on the firm. The Web site was so professional that many outsiders used
the false information in buying and selling the company’s stock. It appeared that the fake
Web site was set up to help the employee make money for his own brokerage account
by selling when false rumors drove up the price of company stock. At another firm,
an employee sent out phony e-mail messages concerning alleged racial discrimination
to enhance the chances for a bigger settlement from the firm. What should companies
do to make sure that technological innovations are used ethically and not for personal
gain?
4. Global Perspective. A United Technologies employee has charged that the company’s
Sikorsky division offered two Saudi princes a “bonus” of 3 to 5 percent of a $130 mil-
lion portion of a $6 billion potential Blackhawk helicopter order. Payments to foreign
intermediaries to gain orders are illegal under the U.S. Foreign Corrupt Practices Act.
The employee is seeking $100 million in damages from United Technologies. Under the
U.S. False Claims Act, whistle-blowers are also entitled to 25 percent of any money the
government recovers from defendants in cases of fraud. What seems to be the employee’s
motive in this case, and why are such “commissions” so common in foreign sales agree-
ments? How should the company handle these demands for special favors?
5. Team Building. A stockbroker at Merrill Lynch & Company’s office in Cape Coral,
Florida, complained to the company that a branch manager was soliciting business and
making trades before his license had been transferred to the firm. Later, a replacement
branch manager asked the broker to oversee things while the new manager was on
vacation. The manager had made no arrangements to distribute holiday paychecks, so
the broker opened a letter addressed to the manager to get some information on employee
pay levels. He then matched this information against the checks and handed them out.
For this, the broker was fired and told to pack his things and leave. As soon as the
broker left the office, the manager divided up the broker’s $82 million of accounts
among himself and other brokers in the office. The manager and the brokers stayed late
at the office so they could immediately call all the customers to say their broker was no
longer with the firm and urging them to stay with Merrill Lynch. The largest portion of
the broker’s accounts went to the manager, who would now receive commissions on all
trades made for these accounts. The unethical practice of firing successful stockbrokers
so managers can increase the assets under their own control is more widespread than
the industry acknowledges. What can brokerage firms do to encourage more teamwork
at their branch offices? Should successful brokers be dismissed for minor offenses so
branch managers can make more money?
276 CHAPTER 10 ETHICAL LEADERSHIP

SHIELD FINANCIAL: “OVERHEARD TRADE

FEATURED CASE SECRETS”

K
en Rowland, a salesperson for Shield Finan- The next morning in his Des Moines office, Row-
cial in Des Moines, was leaning comfortably land wrote a memo outlining all of the key points of the
back in his airplane seat. He was returning competition’s pricing strategy. He sent the memo via
from an industry conference. His head was full of new e-mail to all of Shield’s sales managers and regional
sales strategies, so instead of napping, he pulled out managers, the vice president of sales, and the company
his laptop and started jotting notes to himself. A short president. Bloom, Rowland’s manager, was dumb-
while later there was a break from the hum of the air- struck when he read the e-mail. He was shocked that
plane. “I think it’s time for a price cut,” the man in Rowland would send the e-mail without first consult-
front of him said to his seatmate. Rowland paused; he ing him on the appropriate action. Rowland’s decision
listened for what would come next. to e-mail sensitive information without checking with
As it turns out, the two men seated in front of him first could have any number of repercussions.
Rowland were the vice president of sales and the presi-
dent of Shield’s largest competitor, AllSafe. They were
flying from the conference to a customer meeting in Questions
Rowland’s territory. They spent an hour discussing an
upcoming pricing strategy, with Rowland feverishly 1. What are the ethical issues involved in this case?
taking notes the entire time. Rowland couldn’t believe 2. What are the possible actions Bloom could take?
his luck. Not only did he make a significant number 3. What are the possible reactions from the field (i.e.,
of contacts at the show, he now had at his fingertips customers) to Rowland’s information?
the competition’s entire pricing strategy for the second 4. What is an “ideal” course of action given all of the
quarter of the year. This is too good to be true, he issues involved?
thought.
 CHAPTER

11 MOTIVATING
SALESPEOPLE
It’s not who you think you are that holds you back, it’s who you think you are not.
Author Unknown

Chapter Consultants:
Liz Crute, Vice President, Pitney Bowes Credit Corporation
Michael Mahar, Team Leader, IBM Global Services

LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Define motivation and explain sales managers’ concerns with motivation.
Tell how and why individual needs may differ.
Describe a basic model of the motivation process.
Discuss the different types of quotas and the administrative issues involved in using
quotas.
Describe how to design incentive and recognition programs and their limitations.

THE DRIVE TO EXCEL

Robby Armstrong began his career at Eaton Corporation, a leading diversified industrial
manufacturer, immediately after graduating from the Industrial Distribution program at the
University of Alabama at Birmingham (UAB). After finishing Eaton’s training program,
Robby worked in a variety of positions, including inside and outside sales positions as well
as industry manager. After a few years in his respective assignments, Robby was promoted
to Area Manager in the Birmingham Alabama, district.
As an Area Manager, Robby’s primary responsibility is to make sure his team achieves
quota. A big source of motivation for Robby is knowing that the success or failure of his
group can have a big impact on the entire division within Eaton. Robby’s personal goal,
however, isn’t to make quota, it’s to exceed it. Says Robby, “Some people may shoot for
100 percent of quota, but I’m always striving to exceed it. I use my quota as a target for
minimum accomplishment; anything below that is unacceptable.”
Although metrics and incentives can provide short-term motivation, sustained success
in a corporate environment often comes down to personal motivation and lots of hard work.
According to Robby, “You need a desire to work harder and smarter than your competitors
277
278 CHAPTER 11 MOTIVATING SALESPEOPLE

Motivational tools

Self-
What is How do What are the Quotas
Management
Motivation? individuals different theories
differ? of motivation?
Incentive Recognition
Programs Programs

F I G U R E 11-1 Sales Force Motivation Model

each day. There are a lot of companies that are satisfied with being good; at Eaton we are
striving to be great.”
What does Robby Armstrong feel it takes to be a high performer? “The highest
performers—the people who really succeed—have tremendous discipline and tenacious
follow through. People can always find a reason not to follow through with a customer and
go home early. But, doing the little things and going the extra mile for someone is what has
made me successful. I try to live by the principle of not promising what you can’t deliver,
but always delivering what you promise.”1
Robby provides us with several important points about sales force motivation.
First, he illustrates the importance of having the opportunity to succeed. Eaton provides
industry-leading products and services to enable its sales force to compete and win in the
marketplace. Second, Robby has the ability to succeed. However, he is quick to attribute
some of his success to his education at UAB and Eaton’s excellent sales training programs.
Finally, the vignette demonstrates that Robby has the motivation to succeed. It’s likely
that Robby’s career path would have been entirely different if he were not self-motivated
to focus on the critical success factors. The challenge for sales managers, therefore, is to
provide the opportunity for success, ensure each salesperson has the ability to succeed, and
channel a person’s efforts to be consistent with the overall strategic role of the sales force
within the firm.
This chapter is concerned with motivation and will follow the topical outline shown
in Figure 11-1. First, we define motivation and discuss why sales managers are concerned
with sales force motivation. Next, we discuss individual needs and how people’s needs
differ. This is followed by a model of motivation that identifies the factors that enhance
salesperson satisfaction. Finally, we explain how to develop effective quota, incentive, and
recognition programs. Although these programs are widely used to motivate salespeople,
their limitations are also discussed.

WHAT IS MOTIVATION?
Sales force motivation is a hot topic with sales managers. If the product or service is right
and sales force selection, organization, and training are right, then motivation becomes
the critical determinant of success. The unique and often demanding nature of the sales
profession can have a profound effect on a person’s motivation level. Field salespeople are
continually going from the exhilaration of making a sale to the disappointment of being
turned down. Salespeople frequently must talk with strangers who are not always ready or
willing to buy what they have to sell; others must routinely spend long hours on the road
away from their families and friends. Faced with these conditions, it is understandable that
salespeople may need extra support to do an effective job.
A second reason why motivation is critical is that most salespeople are not under
direct supervision in the physical presence of their manager. Veteran salespeople often meet
WHAT IS MOTIVATION? 279

with their immediate sales managers fewer than six times a year. In the absence of direct
supervision, self-motivation is critical.
Third, motivation affects not only what activities salespeople perform but also their
enthusiasm and the quality of their work. A salesperson’s conviction that a product or service
is best for the customer will have a profound influence on a customer’s purchasing decision.
Customers are unlikely to purchase if they feel the salesperson is not really motivated to
help them.
Motivation has been studied for decades and is typically defined as an individual’s will-
ingness to exert effort to achieve the organization’s goals while satisfying individual needs.
Inherent in this definition are three components: effort, individual needs, and organizational
goals. We have discussed typical sales force related organizational goals—sales volume,
market share, profits, customer retention, and so on—and will return to these goals when
describing quotas later in this chapter. Let’s focus for a moment on effort and individual
needs.

Effort
More than thirty years ago in a classic article on motivation, Frederick Herzberg noted that
a KITP, which he coyly explained stood for “kick in the pants,” may produce compliance,
but it never produces motivation.2 When describing someone as being motivated, sales
managers are talking about three characteristics of effort:
1. The drive to initiate action on a task. For example, a common concern among sales
managers is to get salespeople to call on targeted prospects. Typically, high-performing
salespeople, such as Robby Armstrong, concentrate their efforts on high-potential
prospects.
2. The quality of effort on a task. It’s not enough to get people to call on prospects; they
must also be motivated to put forth the effort to prospect properly and call on qualified
prospects. High-performing salespeople tend to use pre-call planning for more efficient
prospecting.
3. The persistence to expend effort over a period of time sufficient to meet or exceed
objectives. It is not enough to make the effort some of the time; high performers show up
to win every time. Robby Armstrong’s discussion of what it takes to be a high performer
is an excellent example of this drive.
Notice that all three of these dimensions of effort originate within the person. No one
can motivate a salesperson to do anything, but a good sales manager can help salespeople
to motivate themselves. How then does a manager help a salesperson internalize the drive,
quality of effort, and persistence necessary to succeed in selling? In addressing this question,
it is important to remember that people have different strengths, weaknesses, and career
goals, which affect how they respond to a particular motivation attempt. Thus, understanding
salesperson needs before developing motivational programs is an important first step. In the
next section, we summarize some classic motivation theories that focus on differences in
individual needs. We then explore a typical salesperson’s career stage and suggest ways to
develop a career-stage perspective in developing a motivational program.

Individual Needs
In sales, the future of the business—and possibly even the sales manager’s job—depends on
managers’ ability to understand the psychology of their salespeople. A good sales manager
knows what his or her salespeople want—what drives them. If a sales manager feels that
the need for status, control, respect, and routine are most important, a number of actions
can be taken to motivate a sales force, as shown in Figure 11-2.
280 CHAPTER 11 MOTIVATING SALESPEOPLE

Sales Force Needs Company Actions to Fill Needs

Status Change title from “salesperson” to “area manager.”
Buy salespeople more luxurious cars to drive.
Control Allow salespeople to help plan sales quotas and sequences of calls.
Respect Invite salespeople to gatherings of top executives.
Put pictures of top salespeople in company ads and newsletters.
Routine Assign each salesperson a core of loyal customers that are called on
regularly.
Accomplishment Set reasonable goals for the number of calls and sales.
Stimulation Run short-term sales contests.
Schedule sales meetings in exotic locations.
Honesty Deliver promptly all rewards and benefits promised.

F I G U R E 11-2 Sales Force Needs and Ways to Fill Them

A number of formal theories have been developed to understand differences in individ-

ual needs. Some of the classic theories include Maslow’s hierarchy of needs, Alderfer’s ERG
theory, Herzberg’s motivation-hygiene theory, and McClelland’s theory of learned needs.
Because you have undoubtedly reviewed these theories in earlier courses, we assume you’re
familiar with them. Nonetheless, we’ve summarized them briefly in Figure 11-3.
These classic motivation theories are concerned with unique individual needs. Although
each individual is unique, motivational and personality profiles of salespeople’s wants and
patterns of behavior have been identified. After interviewing more than half a million
salespeople, the Gallup Management Consulting Group’s research has revealed that high

Theory Author Description

Hierarchy of needs Abraham Maslow Physiological, safety, belonging, esteem, and
self-actualization needs are ranked in a hierarchy
from lowest to highest. An individual moves up
the hierarchy as a need is substantially realized.
ERG theory Clayton P. Alderfer Hierarchically classifies needs as existence,
relatedness, and growth needs. Like Maslow,
suggests that people will focus on higher needs as
lower needs are satisfied but, unlike Maslow,
suggests that people will focus on lower needs if
their higher needs are not satisfied.
Motivation-hygiene Frederick Herzberg Argues that intrinsic job factors (e.g., challenging
work, achievement) motivate, whereas extrinsic
factors (e.g., pay) only placate employees.
Theory of learned needs David McClelland Proposes that there are three major professional
needs: achievement, affiliation, and power. A high
need for achievement and affiliation has been
related to higher sales force performance. A high
need for power has been related to higher sales
manager performance.
Equity theory J. Stacy Adams Proposes that people will evaluate their treatment
in comparison to that of “relevant others” and that
motivation will suffer if treatment is perceived to
be inequitable.

F I G U R E 11-3 Summary of Classic Motivation Theories

WHAT IS MOTIVATION? 281

The Competitor This type not only wants to win, but derives satisfaction from beating
specific rivals—another company or even colleagues. They tend to
verbalize what they are going to do, and then do it.
The Ego-Driven They are not interested in beating specific opponents; they just want to
win. They like to be considered experts but are prone to feeling slighted,
change jobs frequently, and take things too personally.
The Achiever This type is almost completely self-motivated. They usually set high goals,
and as soon as they hit one goal, they move the bar higher. They like
accomplishment, regardless of who receives the credit.
The Service-Oriented Their strengths lie in building and cultivating relationships.

F I G U R E 11-4 Sales Force Needs and Ways to Fill Them

performers tend to exhibit one of four personality types, each with different drives: the com-
petitor, the ego-driven, the achiever, and the service-oriented.3 (See Figure 11-4.) Although
no one is purely one type of personality, you might think about how you would motivate
each type of person and identify the potential pitfalls associated with each type of person.

Career Stages
Experienced sales managers have long understood that motivation varies according to the
age and experience of the salesperson. Career stages provide a framework to understand
how individual salespeople differ and how their approach to work is likely to change over
time.
Jolson was the first to note that salespeople’s performance resembled the four stages of
the classic S-shaped curve of the product life cycle.4 Later research suggested that, during
their careers, salespeople go through four stages during which they focus on certain career
concerns, developmental tasks, personal challenges, and psychosocial needs.5 These stages
are summarized in Figure 11-5.

Exploration Stage. Early in one’s career, during the exploration stage, the overall con-
cern is finding the right occupation—“What do I want to do for the rest of my life?” The
stress associated with resolving this tough issue sometimes results in lower performance,
especially among those unable to resolve this concern at an early age. The challenge facing
management is to help people successfully address this concern. Recruiters should begin
by giving realistic job and career opportunity descriptions during job interviews. Managers
should also spend time with new people, providing feedback, reinforcing their accomplish-
ments, and pointing out the long-term benefits associated with working for the organization.
Finally, it is recommended to offer exploration stage salespeople a compensation package
that includes more salary than commission. Research suggests that salespeople compensated
with greater levels of salary display higher job satisfaction and lower turnover intentions
than their counterparts who are paid under programs using more incentives.6

Establishment Stage. Most people eventually change their focus from searching for the
“best” occupation to committing themselves to getting ahead in their current jobs. People at
the establishment stage of their careers are usually willing to put in long hours to improve
their performance. For many people, settling down will occur sometime during the late
twenties to early thirties.
One management concern is that the highest performers during this stage are most likely
to change jobs. This is especially true if the rewards for high performance are not provided
by their current organizations. In fact, research suggests that salespeople in the establishment
282 CHAPTER 11 MOTIVATING SALESPEOPLE

Exploration Establishment Maintenance Disengagement

Career Concerns Finding an appropriate Successfully Holding on to what has Completing one’s
occupational field. establishing a career been achieved; career.
in a certain reassessing career,
occupation. with possible
redirection.
Motivational Needs Learning the skills Using skills to produce Developing broader Establishing a stronger
Job Related required to do job results. view of work and self-identity outside
well. organization. of work.
Becoming a Adjusting to working Maintaining a high Maintaining an
contributing member with greater performance level. acceptable
of an organization. autonomy. performance level.
Personal Challenges Establishing a good Producing superior Maintaining motivation, Acceptance of career
initial professional results on the job in though possible accomplishments.
self-concept. order to be rewards have
promoted. changed.
Facing concerns about
aging.
Psychological Support. Achievement. Reduced Detachment from the
Needs Peer acceptance. Esteem. competitiveness. organization and
Challenging position. Autonomy. Security. organizational life.
Competition. Helping younger
colleagues.

F I G U R E 11-5 Career Stage Characteristics

stage displayed higher levels of job satisfaction and lower turnover rates when compensated
with incentive-based as compared to salary-based programs.7 In sales, a frequently used sign
of getting ahead is promotion to sales management. Unfortunately, the downsizing of many
organizations and the elimination of management layers to lower costs and get closer to the
customer have reduced these opportunities. Also, some salespeople just don’t have the skills
to succeed as a manager. A manager’s challenge in this case is to broaden salespeople’s
definition of success as something other than promotion to sales management.
Some companies have responded by developing a “sales career path” for salespeople
who do not want to pursue a management position. A typical sales career path might
progress from sales rep to senior sales rep to executive rep to major accounts rep. This path
leads to retaining senior people with higher base pay, healthier commissions, and a solid
growth-oriented career path. In essence, a sales manager needs to be able to continually
motivate and challenge high-performing salespeople as they progress through the sales
career path.

Maintenance Stage. At some point, usually in their late thirties or early forties, people
begin to reflect on their past accomplishments and reassess the career choices they have
made. For many people, this reflection coincides with the broader reassessment associated
with the midlife crisis. Being turned down for promotion and realizing that future promotion
opportunities are unlikely may trigger this reflective reaction in others. How people react
to this reassessment of their careers is referred to as the maintenance stage.
People often have very different reactions when reflecting on their careers. Some people
decide to switch occupations or organizations, whereas others choose to stay where they
are. Similar to the stay-or-leave decision in the establishment stage, some people decide
that sales is the best occupation for them, while others choose to stay in sales out of fear
A MODEL OF MOTIVATION 283

of change or because of other obligations, especially to their families. Still others choose to
take a new direction, often pursuing a dream that had been set aside earlier in life.
Maintenance-stage people no longer desire or value promotion to management as much
as during establishment. These people are most likely to be the backbone of the sales
force and tend to have the highest sales volume. For most people, this stage will last a
long time, typically fifteen to twenty years. A recent survey of 300 sales managers rated
maintenance-stage salespeople higher than their establishment stage counterparts on almost
every front, including ability to meet sales goals, knowledge of product, commitment to
serving clients, and creativity in solving problems.8 For those who start slowing down,
however, the challenge for management is to maintain the high motivation and performance
levels by encouraging these people to use their knowledge in new ways. This also means
introducing significant rewards for meeting new challenges and mastering them.

Disengagement Stage. Everyone inevitably withdraws from his or her job and career. The
disengagement stage involves giving greater priority to issues other than work and career.
For people facing imminent retirement, this transition period helps them to cope with the
feeling of loss of focus and to face the fact they will no longer be making a contribution,
which has been an important part of their careers.
For others, disengagement may occur as a gradual process, early in life, long before
retirement. Some of these people are in their forties and early fifties and will remain on the
job for some time to come. On-the-job reactions of these salespeople are quite dramatic. They
tend not to be as involved in and challenged by their work and are dissatisfied with many
aspects of the job. The sales performance of these people suffers and is often significantly
lower than that of people in the maintenance stage.
Attempts to motivate these people to achieve greater performance are often frustrating.
Increased pay usually does not lead to sustained effort, and these people place less impor-
tance on management recognition than people in other career stages. Although they feel that
it is important to meet sales quotas, they are not usually interested in opening new accounts.
In short, their approach is one of achieving the minimum necessary to keep management
off their backs.
Perhaps the best way for management to overcome this problem is to try to dissuade
people from adopting this attitude when retirement is not imminent. When retirement is
imminent, however, managers are left with fewer options. One approach is to get the sales-
person to visualize his or her legacy to the firm. The lasting memory of a lower-producing
salesperson might be enough to motivate the salesperson to finish strong. If results are not
forthcoming, more drastic measures may be necessary, including termination.

A MODEL OF MOTIVATION
Sustained, productive effort requires more than offering the best rewards. Studies have
shown that the amount of effort an individual will put into an activity depends on the
interplay among three factors shown in Figure 11-6: (1) the relationship between effort and
performance (expectancy), (2) the relationship between performance and rewards (instru-
mentality), and (3) the importance of receiving more of a certain reward (valence). This
process model of motivation is referred to as expectancy theory.9

Effort-Performance Relationship
Expectancy refers to the salesperson’s belief that greater effort will lead to greater perfor-
mance. The more certain an individual is of this effort-performance relationship, the more
effort will likely be expended.
284 CHAPTER 11 MOTIVATING SALESPEOPLE

Valence
Importance of receiving
more of certain rewards

Effort Performance Rewards

Expectancy Instrumentality
Likelihood that Likelihood that
increased effort will lead greater performance will
to greater performance lead to more rewards

F I G U R E 11-6 Model of Motivation

Three aspects of this model are significant to sales management. First, a salesper-
son’s willingness to work hard starts with a belief that the greater the effort, the greater
the performance outcome. Managers have an important responsibility in reinforcing the
notion that salesperson performance is directly related to one’s effort level. Robby Arm-
strong, for example, sounded very confident in the focused effort it takes to become
successful.
Second, management should be concerned with the accuracy of salespeople’s
role perception. Expending greater effort on the wrong activities will not lead to
better performance, and may lead to the conclusion that performance is not related to
effort. Some refer to this as “working smarter.” If a salesperson consistently uses an
inappropriate selling strategy, for instance, sales call objectives are unlikely to be met. The
individual may become frustrated, believing that no amount of effort will lead to better
performance. This shows the interrelationship that exists among effective sales training,
coaching, and motivation. No amount of incentive or cajoling will produce the desired
level of performance in the absence of a certain level of skill and confidence in that
skill.10
Finally, salespeople have a tendency to make attributions about why a certain perfor-
mance outcome occurred. Attribution theory suggests that people are motivated to gen-
erate reasons for why an event occurred, especially when the outcome is unexpected
(such as an underdog beating a heavy favorite), when the event generates suspicion, or
when one fails to achieve something (such as not meeting quota). According to attri-
bution theory, the type of attributions we generate will influence how we respond to
the situation. For example, a salesperson may attribute failure to the sales strategy that
was used, in which case a search for another sales approach may be undertaken in an
effort to make the sale. The theory suggests that salespeople who attribute failure to meet
sales quota to their own lack of effort are likely to make adjustments and increase their
efforts to make quota in the future. Alternatively, people may attribute failure to factors
external to themselves, such as the company, the product available to sell, or the com-
petition. Salespeople who attribute failure to meet quota to circumstances perceived to be
beyond their control are unlikely to make these adjustments and will probably decrease
their efforts to meet quota in the near future.11 This reinforces the need for managers
to be in the field with the sales force to determine why salespeople believe they per-
formed as they did. It also suggests that sales managers play an important role in coaching
and training salespeople to generate performance-related attributions that positively affect
expectancies.
A MODEL OF MOTIVATION 285

Performance-Reward Relationship
The second element of the motivation process is the belief that a higher level of performance
will lead to greater personal rewards. This element is referred to as instrumentality. When
people are certain that their performance will be personally rewarding, their motivation
will be higher. This is one of the reasons for the success of commission compensation
plans. Salespeople know how much they will be paid for each sale and understand that
their incomes will increase as a result of higher sales. This may also explain why limiting
the number of winners in a sales contest may not motivate the average salesperson, whose
expected performance level is not likely to be high enough to win.
For the past several years, the “pay-for-performance” sales compensation concept has
been migrating to other parts of the organization. Marketing, accounting, human resources,
virtually all departments, can enjoy additional compensation. Motivating this change in
compensation practice, in addition to generating greater performance, is an organization’s
effort to foster an increased customer and sales orientation among all functional areas.

Importance of Rewards
How much salespeople desire a particular reward will also influence their motivation to
perform and is referred to as reward valence. Here we can see the connection between
the previous need-based theories of motivation and expectancy theory. Both Maslow’s and
Herzberg’s models suggest that there are limits to how much of any reward people will
desire. Although many experts believe that salespeople place a high value on pay, this may
not reflect a salesperson’s day-to-day priorities. Some salespeople may feel that spending an
afternoon with the family outweighs the possible financial loss. Wall Data, Inc., for example,
has rewarded high performers by donating money to the salesperson’s choice of charity or
by starting a scholarship in the salesperson’s hometown.12 The managers at Wall Data have
found that high performing salespeople value the community recognition from this program
as a result of their sales efforts.
People don’t simply look at their own rewards; they also make comparisons with other
people’s rewards. According to equity theory, people make inputs (e.g., effort, experience,
territories) versus outcomes comparisons with relevant others to determine relative equity.
One reaction to an inequitable situation (e.g., Bob puts in less effort but makes more money)
is to reduce inputs. In this case, motivation would decrease. Inexperienced sales managers
are especially vulnerable to equity problems. In an effort to help one person, they may make
exceptions or provide extra help. Other salespeople may see this as unfair unless they are
also provided extra help in making the sale. This may eventually result in the sales manager
doing the job of the salesperson and lead to lower overall performance.
Our model of motivation provides a framework for managers to understand the internal
process by which people are motivated to put forth extra effort. Obviously, helping to
motivate salespeople involves more than knowing what they want and need. A breakdown
in any of the three dimensions of the motivation process will decrease overall motivation.
Therefore, all three aspects of the process must be considered when trying to motivate
someone to perform at the desired level. Try applying these concepts to the issues raised in
the Team Exercise titled “Expectancy Theory.”
How can sales managers put these theories to work? The remainder of this chapter
looks at several tools available to sales managers to help salespeople put forth greater effort.
Quotas, incentives, and recognition programs have been used successfully in a wide variety
of organizations to motivate salespeople. We begin our discussion with self-management,
which is embraced by many companies as a response to the freedoms salespeople have from
traditional levels of supervisory control and monitoring.
286 CHAPTER 11 MOTIVATING SALESPEOPLE

TEAM EXERCISE
“Expectancy Theory”

Assume you are a senior and only have one final exam remaining, and it’s worth 100 points.
You have done pretty well on the previous tests, but you know you could have aced them if
you had studied more.
Suppose you have 360 points accumulated in the class and you need 450 points to get an
“A” for your final grade.
Also suppose that if you get an “A” for the course, your total GPA increases so that you
are eligible to get an interview with a prestigious firm.
How motivated would you be in this scenario to study hard for the final? How could
you change this scenario so that your motivation to study would fall? What component of
expectancy theory did you change (valence, expectancies, or instrumentalities)?

SELF-MANAGEMENT
Salespeople typically work independently of direct supervision from their sales managers.
In the wake of reengineering and reorganizing, which have eliminated layers of middle
management, salespeople in many industries have learned to become even more self-reliant.
Sales managers, however, play an important role in self-management by recognizing that
people derive considerable rewards in the form of feeling good about themselves and their
work. This is referred to as intrinsic motivation and is defined as the motivation to engage
in an activity for its own sake. Sales managers should do everything possible to reinforce
intrinsic motivation when communicating one-on-one with salespeople.13 One approach used
to encourage intrinsic motivation is behavioral self-management (BSM), which consists of
a series of steps involving monitoring, goal setting, rehearsal, rewards, and self-contracting.
A summary of the techniques used in BSM is presented in Figure 11-7.
To better understand how BSM can be used in sales management, consider a situation in
which you are attempting to increase the number of calls made each week on new accounts.
Self-monitoring in this situation may mean recording the number of calls made on new
customers over a four-week period. Having established the current level of effort, a goal
is set for the number of new account calls that should be made each week. Stimulus cues
may include such things as a small note placed on the dashboard of the car that says “Have
You Met Someone New Today?” Alternatively, it may be a special notebook for recording
the number of new-customer calls made each week. Consequence management may include
stopping at a nicer place than usual for lunch when the weekly objective is met or skipping
lunch if the objective is not met by a certain day of the week. Opening presentations with
new accounts may be rehearsed in the car while driving to an account and scheduled for
the same time each day. Finally, a contract specifying the criteria for rewarding success and
punishing failure should be written and witnessed.
A sales manager can get involved in the BSM process by helping salespeople set
challenging, yet achievable, goals and ensuring that they are consistent with the firm’s
strategic objectives. The manager can also be helpful in rehearsing desired behaviors through
one-on-one coaching and can help reinforce rewards through recognition of successes and
encouragement. Again, we can see the importance of having sales managers in the field and
knowing what is going on in the territory so that they can encourage and facilitate the use
of BSM.
QUOTAS 287

Technique Method Tools

Self-monitoring Observe and record behavior. Can use diaries, counters, tally sheets,
charts.
Goal setting Establish behavior change Should be specific and with a short time
objectives. horizon.
Stimulus control Modify antecedents to behavior. May involve introducing or removing
cues.
Consequence Modify antecedents to behavior. May involve reinforcement, punishment,
management or extinction.
Rehearsal Conduct systematic practice of May be overt or visualized.
desired behavior.
Self-contracting Specify the relationship between May involve public commitment.
behaviors and their
consequences.

F I G U R E 11-7 Self-Management Techniques

An important step in BSM is self-set goals. Traditionally, however, management sets

goals for salespeople in the form of quotas, which are discussed next.

QUOTAS
Quotas are quantitative goals assigned to individual salespeople for a specified period of
time. They are one of the most widely used tools in sales management—approximately
85 percent of U.S. companies use some type of quota system for their salespeople.14 A sales
volume of $150,000 in October is an example of a quantifiable goal for a specific period of
time. This is the standard against which performance in October will be compared. Although
quotas are often based on sales volume or gross margin, they should not be confused with
sales forecasts or sales potential. A sales forecast is an estimate of what a firm expects to
sell during a time period using a particular marketing plan. Sales quotas may be set equal
to, above, or below the sales forecast. Sales potential, on the other hand, is the maximum
demand that a firm can possibly obtain. Potentials are useful for strategic planning and
long-range forecasting. Sales quotas are related to sales forecasts and potential, but are used
for entirely different purposes.
As illustrated in Figure 11-8, there are five reasons for establishing quotas for sales-
people:
1. To help management motivate salespeople. Achievement-oriented people want specific
and challenging goals, with regular feedback on their performance.
2. To direct salespeople where to put their efforts. When companies assign quotas for
each product in their total line of products, they are trying to communicate to their sales
force which products should be given priority. Often firms will adjust the sales quota
according to product profitability or strategic intent. However, too many goals will con-
fuse people and will scatter sales force effort. Limiting the number of quota categories
to three or four is recommended. GE Fanuc, a manufacturer of factory automation prod-
ucts, installed a new Web-based quota system that offers its salespeople the ability to
track their quota sales numbers for specific product, as well as customer buying patterns
of these products in real time.15 The idea behind this system is to enhance salesperson
expectancies and instrumentalities.
288 CHAPTER 11 MOTIVATING SALESPEOPLE

Measure
Accomplishment

Focus Manager Direct Salesperson

Attention Efforts

Quotas

Provide
Standard for Motivate
Evaluation Salespeople

F I G U R E 11-8 Impact of Sales Force Quotas

3. To focus management attention. Quotas lend themselves to management by exception,

that is, focusing management’s attention on the performance of people who are excep-
tionally above or below quota. Time can be spent with people whose performance is poor
in order to determine if the salesperson is at fault or whether the poor results are due
to factors outside the salesperson’s control. At the same time, management may wish to
spend time with high performers to identify critical success factors that could be used to
improve the performance of other salespeople.
4. To measure salesperson accomplishment. Salespeople perceive quota as a barometer
for success or failure. Higher-performing salespeople, such as Robby Armstrong, perceive
quota as a minimum acceptable standard.
5. To provide a standard for evaluation. While quota is the benchmark for success or
failure, managers are able to analyze the specific salesperson activities that led to a
particular outcome. The activities and behaviors that led to quota attainment should be
encouraged and continued. Reasons for not meeting quota can be analyzed and used to
develop more successful approaches.

Types of Quotas
Three widely used types of quotas are sales volume, profits, and activity. Figure 11-9 shows
the popularity of each type of quota among large and small firms. Sales volume quotas are
the most widely used by both large and small companies. Profit-based quotas are used by
about 20 percent of all firms, whereas fewer than 10 percent of firms use activity quotas.

Sales Volume Quotas. Sales volume quotas are specific volume targets established for
each territory, and possibly for each product line, for a specific period of time (usually
a month, quarter, or year). The sales volume quota may be stated in a variety of ways,
including dollar volume, unit volume, or a point system. A dollar volume quota is preferred
when there is a large number of similarly priced items to sell (e.g., drugs to wholesalers),
when prices reflect management’s selling priorities (e.g., higher-priced products are more
important than less expensive items), and when prices are relatively stable. With unit volume
quotas, sales objectives are stated in terms of the number of units of each product to be
sold. Unit quotas are more popular in businesses that sell a limited number of high-cost
items (e.g., automobiles) and when price changes frequently. By stating quota in units, the
effects of inflation are eliminated from the system. With a point quota system, the quota is
stated as a certain number of points to be earned for selling each product. The point system
provides greater management flexibility because points are assigned to the sale of each type
QUOTAS 289

Sales volume 78%

quotas 72%

Profit-based 20%
quotas Large firms’
22%
Sales > 500M
Small firms’
Activity 2% Sales < 500M
quotas 6%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

F I G U R E 11-9 Use of the Various Types of Quotas

of product. If management wishes to emphasize a new product, for example, it may simply
increase the number of points awarded to the sale of the product.

Profit-Based Quotas. Profit-based quotas are similar to sales quotas but focus on profits
generated instead of just sales volume. Profit quotas are usually not based on bottom-line
profits but on gross margin (net sales minus cost of goods sold) or contribution margin (gross
margin minus direct selling expenses). As such, they attempt to focus the salesperson’s
attention on profits as opposed to volume. As one sales manager put it, “There’s shipping
product, and there’s shipping product at the right time to the right customer at the right
cost, which is a far bigger idea.”
Profit-based quotas are most likely to be used when salespeople make decisions that dra-
matically affect the profits of the company. For example, salespeople may choose which of
many products to recommend, or they may have some flexibility in setting prices. Profit con-
tributions often vary considerably among different products. Unless salespeople are aware
of these profit differences and know that they will be held accountable for profits, there is
no incentive to sell the more profitable products.

Activity Quotas. Too much emphasis on volume or profit quotas may lead to neglect of
important nonselling activities and to lower long-run performance. This problem may be
resolved by introducing activity quotas. Activity quotas set targets on specific activities that
will help meet a firm’s sales and profit objectives.
Activity quotas recognize the investment nature of selling; that is, salespeople must often
perform activities that have the potential to produce significant sales volume sometime in
the future. Firms that use activity quotas, such as Prudential Insurance, believe that success
can be achieved by anyone who completes the recommended number of daily or weekly
activities. Some typical activity quotas include the following:
• Number of calls per day
• Display racks installed
• Calls on new accounts
• Dealer sales meetings held
• Proposals submitted
• Equipment test sites
• Product demonstrations
• Point-of-purchase displays
290 CHAPTER 11 MOTIVATING SALESPEOPLE

One important advantage of activity quotas is that they are based on behaviors that are largely
under the salesperson’s control. As a result, a salesperson can be held more accountable for
the results and will be more motivated to achieve these quotas.
A serious disadvantage of activity quotas is that the information necessary to track
activities is obtained from a salesperson’s call reports. Not only does this require the sales-
people to do more paperwork (usually on their own time), but there is also an opportunity for
misrepresentation. As a result, activity reports may become an exercise in creative writing.
Another drawback of activity quotas is that an overemphasis on quotas, such as number of
calls per day, may result in salespeople giving management what it wants in calls per day,
but sales performance may suffer. Large potentially profitable accounts on the fringe of a
territory, for instance, may not be called on because of the travel time required.

When Are Quotas Effective?

A good place to start in answering this question is with goal theory. Goal theory examines
the relationship between goal setting and subsequent performance.16 This theory proposes
that difficult goals, if accepted, will lead to higher performance than moderate or easy
goals or no goals, such as “Do your best.” This means that management must know what
constitutes a difficult goal for a particular salesperson versus one that is easy or impossible.
Underscoring the motivational influence of difficult goals is the experience of an electronic
equipment manufacturer that had set challenging quotas on its data printer line. Although it
took twice as long to sell a data printer compared to the other product lines, the data printer
line was considered important to the future of the company. Some salespeople objected to
the high quotas, however, so the company relaxed the quotas in six districts to see what the
impact would be. A comparison of these six districts with comparable high-quota districts
revealed that the high-quota districts outsold those with lower quotas. This led the company
to conclude that many salespeople are “quota achieves” and that their motivation decreases
if they are given quotas that are too easy to reach.17
Since goals appear to motivate sales performance, it is important to understand how
salespeople internalize these goals. Recent research results indicate that salespeople inter-
nalize performance goals for two basic reasons: First, higher performing salespeople have
a need to demonstrate competence and gain favorable judgments from others; and second,
they work to avoid negative evaluations (i.e., fear of failure). The study found that working
to demonstrate competence and gain favorable judgments leads to higher performance while
working to avoid negative evaluations leads to lower performance.18 Thus, for goal setting
to be effective, management must play a much greater role than simply setting specific
goals. Management must also be concerned with the following:
1. Providing feedback. Feedback, or knowledge of results, is necessary for goals to
improve performance. As discussed in the previous chapter, sales manager feedback
is a very powerful force in shaping salespeople’s performance. Experts suggest that
management should give salespeople frequent feedback on their level of sales relative
to the quota.19
2. Gaining goal commitment. Salespeople must consider the goal to be their own. This
is what is meant by goal commitment—that is, a person’s determination to attain a goal.
Recall how Robby Armstrong described his quota: “I use my quota as a yardstick for
minimum accomplishment; anything below that is unacceptable.” Robby has obviously
committed himself to meet this objective. There are a number of ways to gain this com-
mitment. One way is through salesperson participation in goal setting. Another approach
is to build team spirit and relate individual goals to the greater good of the team. The
effectiveness of these approaches will depend on the manager’s leadership style, the
organization’s culture, and the individual salesperson’s tendencies.
QUOTAS 291

3. Building self-confidence. How people feel about their ability to perform certain behav-
iors successfully is very important to high performance. Salespeople who are confident
in their sales ability typically set higher performance goals and perform better than those
who are less confident.20 This finding points out the considerable benefits of feedback
and training, given that one’s self-confidence can be enhanced through repeated success,
or modeling oneself after successful performers.21
Our discussion suggests that it takes more than setting quotas to achieve maximum moti-
vation and performance. Motivation is dependent on the total management system, and,
therefore, several issues about quotas remain. The next section examines how to set equi-
table and fair quotas, how to evaluate performance when multiple quotas are considered,
and the relationship between quotas and compensation.

Administering Quotas
Quotas are usually based on one or more of the following: past sales, forecasted sales,
sales potential, and individual and salesperson territory adjustments. A “rough” method of
determining a sales quota is simply to take sales in a territory for the past year (or an
average of several years) and add a percentage based on the company’s sales forecast. For
example, if sales in territory B are currently $600,000 and the firm wants an 8 percent
increase in company sales next year, the new quota will be $648,000. On the surface, this
method appears to be equitable and fair. The problem is that past mistakes are likely to
be perpetuated. If, in the past, for example, a salesperson has done a poor job covering
territory B, then a quota based strictly on past performance will not reflect the true potential
that exists in the area. The other problem is that historical sales figures may predate a recent
industry slump, a loss of a major account, or they might fail to account for the product’s
being at a more mature stage in its life cycle, where the opportunities are different. To be
realistic, quotas should reflect regional or local conditions.
A better approach is to compute sales potential in each territory and to consider this
figure when setting quotas. (Procedures for estimating sales potentials are described in
Estimating Potentials and Forecasting Sales in the Sales Management Resource section.)
Suppose the Buying Power Index22 shows that territory B has 5 percent of the total U.S.
potential. If the firm plans to sell $17 million in total volume in the next year, then the
quota for territory B will be 0.05 × $17 million, or $850,000. Note that the potential-based
quota requires the salesperson to realize a sales increase of $250,000 for the year.
Basing quotas strictly on sales potential may not always be workable because it ignores
past sales and assumes that all territories are the same with respect to the other factors that
will determine the actual sales volume achieved. These include environmental factors (e.g.,
competition, size of customers), organizational factors (e.g., advertising support, proximity
to warehouse and manufacturing facilities), and salesperson factors (e.g., experience, ability).
Ignoring these factors may render the quota useless as a performance evaluation tool and for
motivating salespeople. Thus, a quota of $850,000 may discourage rather than stimulate a
salesperson when current sales in the territory are only $600,000. The best method, therefore,
for setting quotas is to consider all three factors: past and forecasted sales, sales potential, and
individual territory and salesperson characteristics. Setting quotas, therefore, often requires
considerable judgment on management’s part. Some sales consultants recommend setting
goals realistically so that at least 70 percent of the people achieve the goal.23 It is easy
to see why quotas are a potential bone of contention and why salesperson input can be
beneficial. What would you do to resolve the sales force concerns raised in Team Exercise
titled “Sales and the Web”?
Another administrative concern of sales managers is how to evaluate performance when
salespeople must meet several quotas. For example, Table 11-1 shows sales volume and
292 CHAPTER 11 MOTIVATING SALESPEOPLE

T A B L E 11-1 Evaluating Quota Performance in Territory B

Percentage of
Quota Factor Three-Month Quota Actual Quota Attained
Total sales volume $83,000 $84,660 102%
Unit sales of Model 75 6 5 82
Point-of-purchase displays 25 17 68
Average calls per day 5 7 140
Percent store distribution 0.75 0.70 93
Average: 97.2%

activity quotas together with actual results for the salesperson in territory B. Note that
although the overall sales goal was achieved, the salesperson was below quota on three of
the five factors. Furthermore, only about two-thirds of the allotted displays were achieved.
The average quota achievement of 97 percent, however, appears to be good. It would be
especially beneficial if all other salespeople in the company reached only 70 to 90 percent
of their quotas. What should be this person’s overall performance rating?
Although average quota achievement is a convenient summary figure, one potential
problem is that “average performance” places equal weight on each element used to arrive
at the average. In the example in Table 11-1, for instance, as much value is placed on
point-of-purchase displays as on total sales dollar results. Some managers assign different
weights to the various quota factors to handle this problem. Quota achievement is weighted
by the importance of each quota factor, and the weighted ratings are added together to
form an overall performance index. Care should be taken, however, not to create an overly
complicated system.
Another important question is how high management should set the bar. Aiming high
is laudable, but setting unattainable goals is a sure way to puncture a sales force’s morale.
Should a quota be set so that all people will likely exceed it, the top half, or only the few
best salespeople? There is no clear-cut answer to this question, and practices vary from one
company to the next. If bonuses for exceeding the quota are treated as a normal part of the
salespeople’s income, then achievable quotas should be set. Conversely, some companies try

TEAM EXERCISE
“Sales and the Web”

Your company recently began offering its products and services via its Web site. Since the
site features only those products and services that do not require interaction with a sales
representative, all communication and documentation are done electronically. After just a few
months, more than 100 customers have used the Web site to make purchases.
Although the customers are happy with the site, your reps are not. Reps earn commission
on orders from current customers processed via the Web, but orders from new customers have
no commission. Reps feel that this cheats them out of commissions and sets up the Web site
as competition to their efforts. Your company’s CEO feels that the Web is like another rep:
The accounts that the site “sells” belong to it.
As a branch sales manager, you are caught in the middle of this situation. Your reps are
spending so much time complaining to you (and to each other) about the Web that productivity
and morale are suffering. The reps want commissions on sales made via the Web, period. A
few have hinted at leaving if the situation persists. Can a compromise be reached? How should
the Web-based order entry system be positioned to the sales force?
INCENTIVE PROGRAMS 293

to challenge their people to greater performance by setting quotas at higher than expected
levels and attach substantial and exceptional financial rewards to beating the quota. In
this case, financial rewards for quota achievement may be treated as a way to retain top
performers. The level at which a quota is set will depend on the role of quota achievement
within the overall financial and nonfinancial rewards system of the organization.

When Not to Use Quotas

In certain circumstances, it is probably not advisable to use individual quotas. For example,
when a significant portion of sales depends on cooperation between salespeople in different
territories, individual quotas may either be unfeasible or discourage cooperation. This is
likely to occur when third-party referrals involve prospects in other territories. The refer-
ral may not be passed along, especially if quota achievement is evaluated on a relative
basis—that is, if bonus quota achievement is evaluated relative to how each salesperson
performed.
Another situation not conductive to quotas is when sales are infrequent with a long
selling cycle but the dollar value is very high. In this case, no sales may be recorded in a
period, followed by extremely high sales volume in a subsequent period. Short-term quota
performance is relatively meaningless in such a situation.

INCENTIVE PROGRAMS
Incentive programs are short-term promotional events intended to inspire salespeople to
a greater-than-usual performance level and provide them with rewards. Incentives are a
proven motivational device with widespread acceptance. It is estimated that two-thirds of
all consumer goods companies and more than half of all industrial goods companies have
sponsored incentive programs. Incentive budgets can range in size from under $5,000 to
more than $1 million. In total, U.S. firms will spend more than $23 billion annually on
sales incentive programs.24 The large budgets and widespread acceptance of sales incentive
programs may be explained by referring back to our model of motivation. Greater rewards
will usually lead to greater motivation if the rewards are valued by the salesperson. Our
model also explains why incentive programs are usually tied to special customer promotion
efforts, a special low price, or premium offer, because these should help salespeople under-
stand that their extra efforts will lead to higher performance. Recall that these estimates of
success are critical to one’s decision to put forth greater effort.

Goals
Incentives are not a giveaway. A generally accepted performance standard is to produce $4
for each $1 put into them. The objectives of a sales incentive program may also include
more than just producing overall increases in sales volume. Programs have goals such as
finding new customers or boosting the sales of special items, counteracting seasonal slumps
in sales, and introducing new items to customers. Other companies have used incentive
programs to obtain a better balance across product lines or encourage dealers to build more
in-store displays.
In addition to specific quantitative goals, incentive programs may be used to enhance
qualitative goals such as team building. Basing rewards on department or team results is
especially helpful in this regard.
294 CHAPTER 11 MOTIVATING SALESPEOPLE

Prizes
The success or failure of an incentive program often depends on the attractiveness of the
awards offered to the participants. There are no firm rules for selecting prizes, except that
different prizes should be chosen for each contest and participants should find the prizes
attractive. The most frequent award is cash because it offers the greatest flexibility in how
to use the prize. On the other hand, travel and merchandise awards can be shown and
promoted to the sales force, which may add some glamour and excitement to the contest.
Furthermore, merchandise can be purchased at wholesale prices, giving the awards a higher
value than they actually cost the company to buy. However, merchandise prizes can lose
their attractiveness if they duplicate things salespeople already own. One solution is to have
the salespeople accumulate points that can be used to choose items from a catalog.

Administration Issues
Although incentive programs have the potential to be very powerful motivators, they must
be properly planned and executed. One of the keys to successful sales incentive programs is
choosing a good theme for the contest. The theme is a unifying statement that ties together
the business objective of the contest, the prizes, and the individual. Ideally, the theme will
be simple, easy to execute, and something about which the participants can get excited.
Common sales contest themes include sports (Super Bowl, World Series), travel locations,
treasure hunts, gambling, and detective and mystery themes. These themes are used as
reminders during the contest and may also be used to display current standings among the
contestants.
A successful program should encourage the average salesperson to expend extra effort
because superior salespeople produce regardless of the contest, and people at the bottom are
less likely to respond to any stimulus. We recommend setting the qualifications and rewards
at a level that will motivate the middle 60 percent of the sales force. With this objective in
mind, it is often advisable to have many prizes, instead of having one or two grand prizes
that are likely to be won by the superstars. A good guideline is that half of the salespeople
eligible for sales contests should win some sort of prize.
The incentive program should be highly promoted. Promotion informs salespeople of
the incentive program and reminds them of the prizes to be won. A good way to build initial
interest is to begin with a kickoff sales meeting in which the sales force can see the prizes
and learn the details of the contest. This meeting should be followed by mailings, articles in
the company newspaper, and trade advertising to maintain the attention and interest of the
field reps. Because sales contests are short lived, it is essential to issue frequent progress
reports to let participants know where they stand and what they must do to qualify for an
award.

RECOGNITION PROGRAMS
Without a doubt, recognition and prizes push people closer to their potential than envelopes
stuffed with money. Indeed, some studies suggest that noncash recognition programs can be
more motivating to salespeople than cash prizes.25 This is why almost all sales managers
have some sort of recognition program. A recognition program is similar to incentives in
that an individual or group of salespeople receives an award for exceptional performance.
However, recognition programs differ from incentive programs in several important ways.
Although some monetary award may be involved, the primary award is recognition by
management for exceptional performance. There are also timing differences. Where incentive
programs are usually short in duration, a recognition program can be based on performance
RECOGNITION PROGRAMS 295

over a year or longer. In addition, recognition programs usually focus on overall performance
rather than the sale of targeted products.
Pitney Bowes, a leading supplier of mailing equipment and office automation, has one
of the most professional and successful sales forces in the world. One key to its success is
the company’s many recognition programs. These programs are based on two principles:
(1) generate enthusiasm and motivation for as many salespeople as possible and (2) get
useful feedback from the sales force to improve performance opportunities even more.
Three of Pitney Bowes’ programs illustrate these principles:
• Pace-Maker Conference. This week-long conference is an all-expenses-paid trip to an
exotic location for the senior salespeople and their spouses or partners who are in the
top 10 percent of sales in the company for the past year. In addition to the recognition
award ceremonies and other activities, the salespeople are provided a forum with senior
managers, including the CEO, to learn more about the company’s strategic plans, express
problems or concerns, and ask questions.
• Top Honors Conference. This conference is designed to recognize the top new sales-
people in the company. While top rookie salespeople are given a vacation trip, the most
valued aspect of the trip is the recognition from Pitney Bowes’ top executives.
• Walter Wheeler Award. This award is given to any person in the company, including
salespeople, who has had an extraordinary accomplishment, or exhibited a strong sense
of the company’s vision over the past year. One person from each country where Pitney
Bowes is located can be nominated for this award. Each nominee, including the overall
winner, is recognized by top executives and invited to a lavish vacation.26
To be successful, recognition programs must become part of the company’s culture; that is,
they should be long-standing, anticipated, and have lasting value. As you can see, recognition
programs focus on one of the three characteristics of effort discussed earlier—the drive to
persistently put forth exceptional effort. Successful recognition programs also appeal to
the highest of Maslow’s needs, self-actualization, which, you may recall, is never fully
satisfied.
Why does recognition motivate salespeople? Part of the reason is that most people
strive for recognition by management and peers, and most people cannot get enough
recognition. For high performance to lead to positive job attitudes and subsequent high
performance, individuals should have a positive emotional reaction to their performance.27
A well-administered recognition program can help foster a strong, positive reaction to high
performance.

Ethical Situations
Despite their widespread use, ethical problems may arise with quota systems, contests, and
rewards to motivate people on the job. Some people have questioned whether managers
should administer rewards in ways that promote desirable behaviors from the organization’s
point of view and not worry too much about the individual’s freedom to choose which
behaviors to engage in to satisfy his or her own desires. When does a manager have too
much power to manipulate people into doing what they would not otherwise do? There
is also the issue of whether promising rewards detracts from the job. Does promising a
reward for doing a job they already enjoy doing lead salespeople to view the reward as the
motivation for performing the task, thus undermining their enjoyment of the job?
Poorly run or poorly conceived quotas and contests have high potential for fostering
unethical behaviors by salespeople. When salespeople know that a contest is imminent,
for example, they may withhold orders prior to the contest in order to have greater volume
during the contest. During a contest, “soft” orders, which will be totally or partially returned
by the customer, may be submitted. If quotas are set on activities, such as calls per day,
296 CHAPTER 11 MOTIVATING SALESPEOPLE

salespeople may be tempted to falsify call reports to avoid problems with an overzealous
manager or to meet end-of-year objectives for which they are rewarded. If salespeople are
rewarded for exceeding the quota, they may withhold additional orders during the reporting
period in order to make their job easier during the next period. Some people have been
known to start their own companies during the time they have available after meeting the
quota. If a quota or contest is not designed or administered properly, people may easily
justify unethical behavior. A good question to consider is how you would design a program
in order to prevent or discourage each of these behaviors.

SUMMARY
Role perceptions, skill levels, aptitude, and motivation all affect a salesperson’s on-the-job
performance. Salespeople need basic selling skills, but they also must be motivated to put
forth the effort needed to achieve their objectives. Given the demanding environment in
which salespeople operate, an effective motivator is often the only difference between a
salesperson’s success or failure. Sales managers who are able to motivate will be rewarded
with a sales force that expresses little dissatisfaction and exerts high levels of effort. In order
to be effective, however, managers must first understand the many factors that constitute
motivation:

1. Define motivation and explain sales managers’ concerns with motivation. Motivation
is an individual’s willingness to exert effort to achieve the organization’s goals while
satisfying individual needs. Sales managers should understand that people have different
needs and that these needs change over a salesperson’s career. The four basic career
stages a salesperson experiences are: exploration, establishment maintenance, and disen-
gagement. Each of these stages has different career concerns, motivational needs, personal
challenges, and psychosocial needs.
2. Tell how and why individual needs may differ. Sales managers are concerned with
motivation because of the demanding environment in which salespeople operate. Also,
the lack of direct, day-to-day supervision requires a focus on self-motivation. In addition,
motivation is directly related to salesperson success.
3. Describe a basic model of the motivation process. Expectancy is the salesperson’s
belief that greater effort will lead to greater performance. Expectancy theory is based on
three interrelated factors: (1) the relationship between effort and performance (expectan-
cies), (2) the relationship between performance and rewards (instrumentalities), and (3)
the importance of receiving more of a certain reward (valences). Salespeople estimate
the chances that their actions will lead to specific goals and that goal achievement will
lead to rewards, and they assess the desirability of the rewards offered for achieving
those goals. If the objectives seem reasonable and the rewards sufficiently attractive,
then salespeople will be motivated.
4. Discuss the different types of quotas and the administrative issues involved in using
quotas. Quotas are widely used motivational devices that not only provide goals and
direct salesperson efforts, but also set standards for evaluation of individual performance.
The common types of quotas are sales volume (which includes dollar volume, unit
volume, and point quota systems), profit-based, and activity quotas. Management plays
an important role in both setting quotas and ensuring that salespeople accept the goals.
Quotas are usually set on one or more of the following: past sales, forecasted sales, sales
potential, and individual and salesperson territory adjustments. For salespeople to accept
the goals as their own, management should provide frequent feedback, have salespeople
committed to the goal, and build salesperson self-confidence.
DEVELOPING YOUR COMPETENCIES 297

5. Describe how to design incentive and recognition programs and their limi-
tations. Incentive programs are short-run promotional events that can stimulate
salespeople to reach their quotas through the offer of prizes such as merchandise, cash,
or trips. Recognition awards, such as “Salesperson of the Month” titles, trophies, and
certificates, are also effective motivational devices.

KEY TERMS
Activity quota Goal commitment Point quota system
Attribution theory Goal theory Profit-based quota
Behavioral self-management (BSM) Hierarchy of needs Quota
Disengagement stage Incentive program Recognition program
Dollar volume quota Instrumentality Reward valence
Equity theory Intrinsic motivation Sales volume quota
Establishment stage Maintenance stage Unit volume quota
Expectancy theory Motivation
Exploration stage Motivation-hygiene theory

DEVELOPING YOUR COMPETENCIES

1. Strategic Action. Quotas at DSC Technologies are based on the average of sales over
the past 2 years plus a 20 percent increase. The reason for the high increase in sales
quota is that DSC manufactures and sells telephone switches in the communications
industry, where new technologies are frequently introduced and industry growth over the
past decade has averaged just over 20 percent a year. Bonuses are paid on the following
schedule:

Bonus Percent Percent of Quota

5 100–105
7 106–110
10 111–120

No additional bonus is given for windfall sales over 20 percent of the quota. What
are the advantages and disadvantages of this approach? What is likely to happen? How
would you change the method?
2. Team Building. Select another member of your class and use the expectancy theory
of motivation to analyze this course. To what extent does the design of the course
influence your expectancy, instrumentality, and valence perceptions? Discuss with each
other how various elements of the course affect your perceptions of the three components
of motivation.
3. Global Perspective. IBM’s incentive programs are designed to include its worldwide
sales force. A recent program dubbed “You Sell, You Sail” was one of the largest sales
incentive contests ever run by a U.S. company. It included 7,000 participants. IBM
believed it could communicate program goals, rules, and results directly to the 7,000
participants in 140 countries around the world using e-mail. However, making the contest
meaningful and competitive was another challenge. What factors would you need to
consider in order to have a meaningful competition for all 7,000 salespeople?
4. Coaching. You are a sales manager for an industrial manufacturer. The performance of
one of your salespeople, James Weber, has slipped and he has achieved only 75 percent
of his quota for the past six months. The average sales quota achievement in your
298 CHAPTER 11 MOTIVATING SALESPEOPLE

district was 90 percent. Weber has worked for your firm for six years and has a bach-
elor’s degree in business administration. Jim’s territory is above average in potential
but requires considerable travel. At the recent company picnic, Weber seemed depressed
and spent his time drinking rather than interacting with the other salespeople. Weber
is divorced, and his ex-wife lives in another city with their three children. You have
decided that it is time to call in Weber for a conference. Develop a script for a meeting
with Weber that will motivate him to work up to his potential. Be prepared to play
the role of the sales manager or Weber in a meeting to be acted out in front of the
class.
5. Self-Management. The following series of questions is designed to assess the needs
that are important to you. There are no right or wrong answers. The best response to
any item is simply the one that best reflects your feelings—either as you have experi-
enced them or as you anticipate that you would experience them—in a work situation.
Respond to the 20 statements by indicating the degree to which each is true for you. Use
the following key and circle the number that best indicates how true and accurate the
statement is.

1 = Not true and accurate.

2 = Slightly true and accurate.
3 = Partly true and accurate.
4 = Mostly true and accurate.
5 = Completely true.

1. I believe that the real rewards for working are good pay,
working conditions, and the like. 1 2 3 4 5
2. The most important thing to me in evaluating a job is
whether it gives me job security and employee benefts. 1 2 3 4 5
3. I would not want a job in which I had no coworkers to talk
to and share work stories with. 1 2 3 4 5
4. I want a job that allows rapid advancement based on my own
achievements. 1 2 3 4 5
5. Searching for what will make me happy is most important in
my life. 1 2 3 4 5
6. Working conditions (office space, equipment, and basic
physical necessities) are important to me. 1 2 3 4 5
7. I would not want a job if the equipment was poor or I was
without adequate protection against layoffs. 1 2 3 4 5
8. Whether the people I was going to work with were
compatible would affect my decision about whether to take a
promotion. 1 2 3 4 5
9. A job should offer tangible rewards and recognition for a
person’s performance. 1 2 3 4 5
10. I want a job that is challenging and stimulating and has
meaningful activities. 1 2 3 4 5
11. If I took a job in which there were strong pressures to rush
and little time for lunch, coffee breaks, and the like, my
motivation would suffer. 1 2 3 4 5
12. My motivation would suffer if my fellow employees were
cold or held grudges toward me. 1 2 3 4 5
13. Being a valued member of the team and enjoying the social
aspects of work are important to me. 1 2 3 4 5
SHIELD FINANCIAL: “MOTIVATION AND ROLE CONFLICT” 299

14. I’m likely to work hardest in a situation that offers tangible

rewards and recognition for performance. 1 2 3 4 5
15. Going as far as I can, using my skills and capabilities, and
exploring new ideas are what really drive me. 1 2 3 4 5
16. An important factor for me is that my job pays well enough
to satisfy the needs of my family and me. 1 2 3 4 5
17. Fringe benefits, such as hospitalization insurance, retirement
plans, and dental programs, are important to me. 1 2 3 4 5
18. I would likely work hardest in a job where a group of
employees discuss and plan their work as a team. 1 2 3 4 5
19. My accomplishments give me an important sense of
self-respect. 1 2 3 4 5
20. I would work the hardest in a job where I could see the
returns of my work from the standpoint of personal interest
and growth. 1 2 3 4 5

Scoring directions: In the following table, insert the number you circled for each of the
20 statements. Then add each column to get your summary scores.

1. 2. 3. 4. 5.
6. 7. 8. 9. 10.
11. 12. 13. 14. 15.
16. 17. 18. 19. 20.
Totals:
Motives: Basic Safety Social Self-Esteem Self-
Creature and or Actualization
Comfort Security Affiliation

Interpretation: For each of the five motives, there is a minimum of 4 and a maximum
of 20 points. Scores of 18 or more are quite high and suggest that the motives measured
by that scale are very important to you. Scores from 13 to 17 suggest that the motives
measured are moderately important to you. Scores from 9 to 12 suggest that the motives
are not especially important to you. Scores below 9 are quite low and suggest that the
motives measured are not at all important to you.

SHIELD FINANCIAL: “MOTIVATION

FEATURED CASE AND ROLE CONFLICT”

J
onathan MacMillan has worked as a rep for working only 40- to 50-hour weeks. The result is, of
Shield Financial in Des Moines for almost three course, fewer sales.
years. His first year he made 110 percent of Doug Bloom is worried. Shield is in the process
quota, generating $750,000 in revenues. In year 2, he of introducing the new First-Plus account program and
hit 120 percent of quota, a hefty $1.25 million. To do has ambitious growth plans. Bloom also had hoped to
this, he worked 14-hour days during the week prospect- make MacMillan a member of the management team.
ing and meeting with customers, plus whatever week- But when talking casually with him about goals and
end time was necessary to complete reports and write future plans, Bloom discovered that MacMillan is not
proposals. Keeping this pace, MacMillan was on tar- interested in becoming a manager because at Shield
get to reach this year’s quota as well—that is, until he the big money is in sales. Even working fewer hours,
became a first-time father two months ago. He’s now MacMillan is earning a fat paycheck.
300 CHAPTER 11 MOTIVATING SALESPEOPLE

Bloom is at a loss. He wants to get back the fiery, 3. Is MacMillan now a slacker? MacMillan is now
hard-charging MacMillan he was told of, but he’s not only willing to work 50 hours a week and is not
sure how. interested in changing. Is he going to be deadweight
from now on? Is he worth the sales manager’s time
Questions and effort if he will never work more than 55 hours
per week? Should he be reprimanded?
1. How can Bloom remotivate MacMillan? 4. Why is Bloom so worried about MacMillan’s lack
2. How should a manager deal with family role con- of interest in management? Is this important?
flict? How can Bloom make MacMillan more effi-
cient?
 CHAPTER

12 COMPENSATING
SALESPEOPLE
I’ve always been worried about people who are willing to work for nothing. Sometimes
that’s all you get from them, nothing.
Sam Ervin

Chapter Consultants:
Randy Cimorelli, President/COO, Massey-Fair Industrial, Inc.
Robert C. Conti Vice President, The Alexander Group, Inc.

LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Explain the need to balance wages against company resources.
Describe the various compensation methods.
Set pay levels.
Assemble a compensation plan.

COMPENSATION OBJECTIVES
Compensation is one of the most important tools for motivating and retaining field sales-
people. However, sales force compensation is a cost that can quickly spiral out of control
if the compensation plan is designed improperly. Thus, to maintain profitability, managers
must design compensation plans that encourage salespeople to work efficiently, which is
not easy to do. In fact, salesperson compensation has long been an issue marked by trial
and error and many managers struggle to discover just the right formula or approach.1 The
key to a successful plan is to keep the goals as simple as possible. And resist the temptation
to harness the compensation system to fix everything wrong with the company. Part of the
problem, however, is a tendency to micromanage salesperson compensation in an attempt
to drive specific behaviors and product sales. According to David Luke, a principal at sales
consultancy Integrative Sales Concepts, in Irvine, California, “If you see a system that says
you make ten bucks if you make quota, $10.50 if you make quota and have a happy cus-
tomer, and $10.75 if you do it all on the first Tuesday of the month and file your expense
report on time, that’s a system with too many goals at once. Often what you have there
are sales managers not doing the management work they ought to be doing, and they’re
farming it out by connecting the tasks to the sales reps via the compensation system.”2
301
302 CHAPTER 12 COMPENSATING SALESPEOPLE

A good starting point to develop the optimal pay plan is to understand the company’s
strategic goals and how the sales force can support those goals. Although the most important
goal of senior-level managers is to increase sales and revenues, there are many short- and
long-term sales force tactics at a manager’s disposal. For example, do you want reps to sell
more premium items in certain product lines? Increase long-term customer relationships?
Or increase salesperson motivation? After at least ten years of paying its salespeople the
same way, E-Z-GO, a manufacturer of golf carts in Augusta, Georgia, changed its compen-
sation plan. Instead of using the number of units sold to determine salesperson commission,
E-Z-GO started using profit margins. E-Z-GO realized that customers were making purchas-
ing decisions based solely on cost and prices had either decreased or remained flat over the
past five years. The change forced salespeople who were unwilling or unable to maintain
a price premium to take a pay cut. Not surprisingly, E-Z-GO’s salespeople were less than
thrilled with the change. However, their fears never materialized; the sales force earned
considerably more under the new plan and the company’s profitability skid was reversed.3
This example highlights the important balancing act between aligning compensation
objectives with overall firm strategy and offering a competitive pay package. It also demon-
strates the importance of balancing the natural desire of salespeople to earn more money
with the firm’s need to control expenses. This means that you have the difficult task of
designing compensation programs that motivate salespeople to reach company goals and
satisfy customers without bankrupting the firm. And because 20 to 30 percent of all sales
reps are unhappy with their compensation plans at any one time, you may be constantly
challenged to come up with a better program.
A useful tool to begin translating company objectives and, the desired sales job into
an appropriate compensation plan is to consider a Customer-Product Matrix. As shown in
Figure 12-1, the Customer-Product Matrix divides sales opportunities into combinations of
new and current customers and products. In general, sales positions that focus primarily on
New Business Development (upper right-hand quadrant) and Convergence Selling (upper
left-hand quadrant) require a greater proportion of incentive (e.g., commissions and bonus)
in the compensation plan than those sales jobs in the lower left-hand quadrant (Account
Management). Sales jobs consisting primarily of Account Management involve a greater
account servicing component and are therefore better suited to a salary form of compensa-
tion. Leverage selling jobs should have a combination of salary and incentive. The relative
percentage of incentive should be based on the amount of creativity and skill needed to add
new products. As you can probably tell from this framework, it is imperative that sale force
compensation plans are consistent with corporate strategy because they communicate what
is important. How would you handle the issues raised in the Team Exercise titled “Changing
Sales Compensation Plans”?

Convergence New Business

New
Selling Development

Customers

Account Leverage
Current
Management Selling

Current New
Products

F I G U R E 12-1 The Customer-Product Matrix

COMPENSATION METHODS 303

TEAM EXERCISE
“Changing Sales Compensation Plans”

As the new vice president of sales for Widget Corporation, you have spent two weeks reviewing
the company’s current compensation plan. After deciding that the plan no longer matched the
company’s new objectives and attitude, you revamped it. Salespeople’s commission would no
longer be based solely on revenue generation. Now that the company was trying to be more
customer-driven and give better service, 70 percent of the commission would be based on a
sales quota, and 30 percent would be based on the quality of service given to current customers
(which would be judged by repeat business and surveys). However, sales quotas for bringing
in new business were increased to reflect the coming year’s projected increase in business.
Three months after implementing the new compensation plan you noticed that sales were
falling and that morale was low. When you met with your salespeople to discuss the problem,
you found that they felt cheated: How could they meet their quota—necessary to keep their
job—and still give the kind of service needed to make the same money they made on their
previous plan? You are now thinking: Was the new compensation plan fair or not? Why did
the salespeople think it was unfair? How could you redesign the compensation plan so that the
sales force will enthusiastically accept it?

COMPENSATION METHODS
Building an effective sales force compensation program boils down to finding the right
combination of salary and incentive pay. As shown in Table 12-1, there are three basic
methods of compensation plans, straight salary, straight commission, or a combination of
fixed pay and incentive. By far the most common compensation plan combines a base
salary with some type of incentives. One advantage of the combination plan is that the
incentive portion can be used to influence specific salesperson behaviors, such as focusing
on a particular segment of customers or product line. A useful guideline for any company
thinking of exerting some behavioral control using incentives is to make sure that the
incentive component is between 15 and 30 percent of total compensation.4 However, as we
discuss next, there are advantages and disadvantages to each compensation method.

Straight Salary
Although a familiar form of compensation for most nonselling personnel, straight salary
involves paying a fixed amount each pay period. Straight salary programs were used by

T A B L E 12-1 Use of Compensation Plans

Percentage of Companies Using
Straight salary 18
Straight commission 19
Combination plans (63%)
Salary plus bonus 24
Salary plus commission 20
Salary plus bonus plus commission 18
Commission plus bonus 1
Total 100%
304 CHAPTER 12 COMPENSATING SALESPEOPLE

approximately 18 percent of the firms reported in Table 12-1. A national compensation

survey showed that the average salary plan paid midlevel salespeople is 30 percent less per
year than salespeople on salary plus incentive programs.5 This does not necessarily imply
that salary plans are inherently lower paying compensation plans but that the sales activities
associated with most straight salary plans tend to be lower paying.

Advantages. The major benefits of salary are more control over wage levels and salesper-
son activities. Salaried employees can be directed to sell particular products, call on certain
customers, and perform a variety of account servicing and other nonselling activities. Salary
is also helpful when a salesperson is responsible for covering an entire territory as opposed
to a specific account list. In these situations, a manager can require a salesperson to call on
all the accounts, not just the “best” accounts in a given region. This is an important issue in
jobs where “blanket” coverage is expected, such as that of a manufacturer’s rep. Because a
salesperson’s income is not tied to the sales volume of specific customers, it is easier for the
sales manager to divide territories and reassign salespeople to new areas. Also, since salary
plan wages are a fixed cost to the firm, the proportion of wage expense tends to decrease as
sales increase. These plans are also fairly straightforward and tend to be easier to explain
to new employees.
Salary plans provide salespeople with security and a steady, predictable monthly income.
Trainees, in particular, tend to favor this payment plan because they run the risk of hav-
ing low incomes if they start out on a commission plan.6 Salary programs are also often
preferred by customers, since they know salespeople are there to help rather than to load
them with inventory. However, emerging research is starting to demonstrate boundary con-
ditions to this general notion. One study, for example, found that customer suspicion about
salesperson motives is triggered when the customer knows the salesperson is personally ben-
efiting from the sale. However, the negative effects of suspicion on salesperson perceptions
depends on the amount of persuasion used in the sales message. The results of two separate
experiments showed that customers actually preferred commission-based salespeople over
salaried-based salespeople when the salesperson used more balanced (i.e., less persuasive)
sales presentations. Conversely, customers preferred salespeople paid on salary (i.e., no sus-
picion triggered) as compared to commission when the salesperson used more persuasive
sales messages.7

Limitations. The most frequently heard criticism is that salaries do not provide strong
incentives for extra effort. Even though salary adjustments are made to reward perfor-
mance, these adjustments are usually annual and lack the more immediate reinforcement
of alternative plans. As a result, some salespeople may not exert the extra effort to meet
the needs of the company. Some experts argue that those who are allowed to “share the
wealth” bring the most “help” to the buyer, which is why “account management” still needs
to reward growth and discourage flat sales growth. Another problem is that salaried sales-
people usually require much closer supervision by sales managers than salespeople who
work under commission plans. Also, salary plans often overpay the least productive mem-
bers of a sales team and cause morale problems when new trainees earn almost as much as
experienced salespeople.

Applications. Research has shown that salary is used more often in competitive labor envi-
ronments, in situations where it is difficult to assess sales force activities and performance,
and in companies where salespeople spend a lot of time on service and paperwork.8 This
suggests that salary is most appropriate in sales positions of Account Management when
it is difficult to relate the efforts of individual salespeople to the size or timing of a sale.
For example, the “detail people” for pharmaceutical companies are engaged primarily in
missionary activities with doctors and do not sell directly to most of their customers. For
COMPENSATION METHODS 305

years it was impossible to track drug orders prescribed by particular physicians. However,
given the sophistication of today’s information systems and the ability to calculate hospital
and drugstore profitability across different product lines, the compensation plans of phar-
maceutical sales forces are becoming more incentive oriented and salary is a lower percent
of total compensation.
Salary is also used when teamwork of other departments is required in the sales process.
Salary, for example, is widely used in the sales of complex aerospace products to airlines
and the government as well as in nonferrous metals such as aluminum. Salespeople in this
industry are technical advisers, and it may take years to convert a customer from one material
to another. Salary is also appropriate in situations where the products are presold through
advertising and the salesperson primarily takes orders. Liquor, for example, is largely presold
through magazines and newspaper ads, and salespeople are mainly responsible for in-store
merchandising and displays.

Straight Commission
Salespeople on commission are paid a percentage of the sales or gross profits that they
generate. The straight commission plan rewards people for their accomplishments rather
than their time or efforts. Straight commissions work on the principle that a salesperson will
add value above his or her cost. Although this principle should be true for all compensation
plans, this type of pay plan is ideal for those who are confident of adding value and want
to be equitably rewarded for their efforts with commissions. The potential to earn higher
wages tends to attract better qualified applicants and provides a strong incentive to work
efficiently. It is interesting to note that straight commission plans are used by a relatively
small number of firms. As shown in Table 12-1, about 20 percent of the firms in the study
reported using straight commissions.

Advantages. Straight commission plans foster independence of action and provide the
maximum possible incentive. They are easy to understand, and it is fairly simple to calculate
wages and administer the plan. Because the selling costs are entirely variable, the firm does
not pay as much when sales decline or fail to meet growth objectives. When commissions are
paid at the time revenues are received, definite cash flow benefits follow. It is also becoming
more popular for firms to base commissions on the profitability of sales to motivate the sales
force to focus on the most profitable products or customers. In these plans, the sales force
would have a variable commission structure where relatively high commissions are paid for
sales of the most profitable products or most profitable accounts. In addition, the variable
rate plan can also be used to direct the sale force’s efforts toward new strategic objectives,
such as introducing a new product line.
The advantages of a 10 percent commission plan are shown graphically in Figure 12-2.
Notice that when the sales-per-person figure is low, the costs of the commission plan are
lower than the fixed cost salary plan ($40,000). Figure 12-2 also shows that when sales are
less than $400,000 per year, the salary plan is the high-cost method. But when sales exceed
$400,000 per year, the straight salary plan results in lower total costs for the company.
Thus, small firms often start off using commission plans and then shift to salary when they
grow. However, financial risk should not be the sole or even primary basis for choosing
between a salary or commission compensation plan. The sales job to be performed should
be the most important criterion. Note, for instance, that sales jobs with most new, small
companies will fall in the New Business Development quadrant of the Customer-Product
Matrix, so compensation should include a significant incentive component.

Limitations. Despite some advantages, straight commission has a number of drawbacks.

The major problems are that sales managers have little control over commission salespeople
306 CHAPTER 12 COMPENSATING SALESPEOPLE

ion
iss
mm
$50,000 co

Total costs per person

%
10
Straight salary
$40,000

$30,000

$20,000

0 $200 $300 $400 $500 $600

Sales per person in thousands

F I G U R E 12-2 Comparing Salary and Commission Plans for Field Sales Representatives

and nonselling activities are likely to be neglected. Commission salespeople are tempted
to sell themselves rather than the company and to service only the best accounts in their
territories. Because salespeople’s wages are directly related to sales to particular accounts,
salespeople are often reluctant to have their territories changed in any way. Turnover can
become excessive among commission salespeople when business conditions are bad, because
they often have little company loyalty. Wide variations in pay under commission plans may
also lead to poor morale among lower paid personnel, and highly paid salespeople with
management potential may be reluctant to move into supervisory or managerial positions.

Applications. Straight commission works best when maximum incentive is needed and
when a minimum of after-sale service and missionary work is required. This situation exists
=non-selling
for most door-to-door organizations and many (những CValthough
car dealerships, phải hướngthis dẫn & follow-up ng mua)
is changing
somewhat as a result of Saturn’s success with “no-haggle” pricing. Other types of busi- môi giới
nesses that use straight commission plans include life insurance, real estate, stock brokerage, chứng
printing, and wholesalers in many industries. Commission rates often range from 5 to 14 khoán
percent of sales.

Salary Plus Bonus

Salary plus bonus programs are used to provide reps with income security while the bonus
gives added incentives to meet company objectives. Bonuses are discretionary payments for
reaching specified goals and are usually paid annually. Probably the most widely used basis
for determining bonus pay is sales to quota. Another popular basis is average gross margin
achieved by the rep. Other bonus factors are the number of new accounts, unit sales, and
overall company performance. Salary plus bonus programs were the most preferred plan
in Table 12-1, used by 24 percent of firms. In fact, a number of companies are starting
to switch to this plan because of its flexibility in rewarding different salesperson activi-
ties. Minneapolis-based Carlson Marketing, for example, recently scrapped its commission
compensation plan in favor of a salary plus bonus plan. The bonus portion of the plan is
designed to foster teamwork by using customer satisfaction and cost to serve its customers
as its performance metrics instead of sales volume.9

Advantages. This compensation plan has several advantages. The main advantage of salary
plus bonus plans is that they balance the need to control selling expenses and provide extra
rewards for added results. When products are largely presold by advertising, like many
COMPENSATION METHODS 307

consumer items, it makes no sense to pay a salary plus a commission to get salespeople to
push for added volume. Under these conditions, a salary plus a modest bonus is enough to
get the job done.
Another possible advantage of salary plus bonus plans is that they may lead to lower
turnover among salespeople.10 This is particularly important when buying cycles are long
and reps must invest time to understand how customers do business. The security of a salary
allows reps time to both court prospects over a considerable period of time and to service
existing customers.

Limitations. One of the potential problems with the salary plus bonus plan is that in some
firms the size of the bonus has been arbitrary. Managers review sales results, customer
relations, and after-sale service and then decide how much each person should receive.
Managers who fail to communicate how bonuses are determined can lose some of their
effectiveness as motivational devices. Another limitation of the salary plus bonus plan deals
with the relationship between performance and rewards. Since bonuses are typically paid
annually, salesperson instrumentality perceptions (i.e., a higher level of performance will
lead to greater personal rewards) may be reduced, thus reducing motivation.

Examples. Salary plus bonus plans are commonly used by large food manufacturers, such
as Quaker Oats and Procter & Gamble. Some companies have used the salary plus bonus
plan to foster teamwork. Principal Financial, for example, uses a bonus plan where all
salespeople in a particular branch office receive a year-end bonus if all salespeople meet
or exceed a certain threshold of performance. Using this approach, Principal has found that
the top performing reps will be more proactive in providing advice and sharing tips to help
the lower performers throughout the year.11

Salary Plus Commission

Industrial sales reps are frequently paid salary plus commission to give them the push
needed to sell complex products or services. Twenty percent of the firms in Table 12-1
employ salary plus commission programs. Although most firms start paying commissions
on the first dollar of sales, approximately 40 percent establish commission thresholds that
must be reached before the commissions apply. Often the commission rates vary, depending
on sales volume. As an illustration, a salesperson might earn 4 percent on the first $20,000
of sales each month, 5 percent on the next $15,000, and 6 percent on anything over $35,000.
These types of progressive commission rates are used when sales increases require extra
efforts.

Advantages. Commission rates can be adjusted to promote the sale of individual products
or to intensify efforts among specific market segments. Many firms vary commission rates
according to the profitability of products. Also, it is common for firms to have wage caps
on the incentive portion of their compensation plans to prevent windfall earnings as a result
of circumstances unrelated to salespeople’s efforts.
Commissions are usually paid monthly, providing almost immediate reinforcement for
the salesperson’s efforts. Some firms spread commissions over several months or years to
smooth out the pattern of payments and to ensure that salespeople continue to service their
accounts after the initial sale. Spreading commissions over a period of time also discourages
a salesperson from leaving the firm once a large sale has been made.

Limitations. The major drawback to salary plus commission plans is that they can be
expensive and costly to administer. Annual compensation surveys consistently show that
the average wages paid with a salary and commission program are higher relative to the
308 CHAPTER 12 COMPENSATING SALESPEOPLE

other plans. What this suggests is that either salespeople are more motivated by these plans
and sell more, or that commission rates are higher than they need to be. Firms that try to
gain some control over the salary plus commission plan expense by imposing commission
ceilings, however, could potentially dampen the enthusiasm and motivation of the sales
force. In particular, the higher performers could reach the earning maximum early in the
year and then take it easy for the remainder of the year.

Applications. Managers who use the salary plus commission plan tend to use the com-
mission part of the plan to motivate certain salesperson behaviors during the year. It’s the
flexibility that is particularly appealing in industries where business fluctuates with seasonal
or economic cycles. Industries that use salary plus commission plans are industrial firms
selling building materials, machinery, electrical supplies, and paper products.

Salary Plus Commission Plus Bonus

The most comprehensive payment plans combine the stability of a salary, the incentives of a
commission, and the special rewards of a bonus. Table 12-1 indicates that 18 percent of firms
surveyed used this plan. A few years ago executives at FedEx Corporation, the shipping and
logistics giant based in Memphis, Tennessee, realized they needed a new compensation plan
for their sales organization. The sales force was constantly complaining that their current
salary plus commission plus bonus plan wasn’t paying out in a timely manner, and the
unpredictability on commissions and bonuses was frustrating. Plus, FedEx needed to focus
its salespeople on selling two new additional product lines instead of just one. An important
goal of the plan was to make it simple enough so that the sales force understood exactly
what levels they had to reach on all three products before they could attain certain bonus
and commission levels. After the plan was introduced, FedEx quickly noticed a change in its
salespeople. The complaining and negativity was quickly replaced by creative conversations
about how to increase revenues on all three product lines. FedEx’s sales and stock price
quickly took off as a result. This example illustrates that salary plus commission plus bonus
plans can be effective when they are simple to understand and consistent with corporate
objects.12

Advantages. The primary benefit of these plans is they allow the sales manager to reward
virtually every activity performed by salespeople. Experts indicate that the salary plus bonus
plus commission plan will become more widely used in the future because sales managers
will be looking to reward salespeople using a more comprehensive set of behaviors, rather
than rewarding solely on revenue. Factors such as teamwork, customer satisfaction, com-
pany profits, and sales to certain customer types (e.g., distributors) are just some of the
sophisticated mix of activities that reps can be measured against. This plan gives managers
maximum flexibility for aligning compensation with these diverse activities. In addition, the
three components of salary, commission, and bonus provide the possibility of designing a
variety of different plans to appeal to different salesperson needs. According to David Cocks,
managing partner of CompensationMaster, based in Charlotte, North Carolina, “When you
give people options, you empower them to make work suit their style and the spot they are
in within their careers.”13

Limitations. Despite these advantages, salary plus commission plus bonus plans have some
significant drawbacks. One of the major drawbacks with the plan is its complexity. A
complex plan provides two challenges. First, administration of the plan becomes more
expensive. Significantly more salesperson, sales manager, and human resource personnel
time is needed for reporting and managing the different components. Second, complexity of
the plan can be confusing to sales reps, as discussed in the FedEx example. As a result, reps
COMPENSATION METHODS 309

might focus on activities that are less difficult to achieve (given their personal strengths) and
ignore other important components of the plan. This could result in sales managers having
to spend valuable time micro-managing some salespeople.

Applications. Industries such as office equipment, instruments, electronics, and business

services tend to use these types of plans. However, as mentioned earlier, more and more
companies from a variety of industries are adopting the salary plus commission plus bonus
plan because of its flexibility.

Commission Plus Bonus

The commission plus bonus plan, although used by only 1 percent of the firms in Table 12-1,
combines the incentives of a commission plus special rewards for meeting objectives.

Advantages. Similar to straight commission plans, commission plus bonus plans are easy
to understand and are fairly simple to administer. These plans also provide similar cash flow
benefits because commissions are paid at the time revenues are received, while the bonus is
typically paid out at year end. However, these plans differ from straight commission plans
in that the bonus feature provides some additional control over the salesperson’s activities.
Another unique benefit of the commission plus bonus plans is the added recruiting feature of
the bonus package. For example, Logical, an international professional services and network
integration company, uses its attractive year-end bonus to recruit the highest performing
salespeople in the industry.14

Limitations. As with any compensation plan where 100 percent of a person’s pay is
at risk, there are a number of inherent limitations. While some were mentioned in the
straight commission limitation section, other problems arise when the bonus component
is added. For example, one limitation is the perceived equity of the year-end bonus. A
typical high-performing salesperson could become frustrated and possibly quit when he or
she sees another top salesperson receive a significantly larger year-end bonus. It becomes
particularly difficult to retain these high producers when they attribute their smaller bonus
to something outside of their control (e.g., a bad territory). Also, the recruiting advantage
that the bonus package offers could become a liability if you lose your best salespeople to
your competitors. Finally, salespeople could develop a mercenary attitude toward year-end
to achieve the bonus, which, in turn, could affect customer relationships.

Applications. Commission plus bonus plans are particularly well suited to a company that
uses brokers or independent sales reps. They are also widely employed for stockbrokers
and bond traders. For example, the financial services industry typically pays its brokers
commissions plus cash bonuses and memberships in recognition circles. These clubs reward
recipients with trips and deferred compensation worth tens of thousands of dollars each year.
To maintain their club membership, brokers must sell a predetermined number of financial
products a year. However, trying the receipt of such perks to quotas on particular products
doesn’t appeal to every salesperson.
Companies are recognizing that compensation plans are more than just a way to pay
salespeople for their services, they have become everything from a recruiting tool to a
culture driver. Also, companies need to have a cutting-edge program, or risk losing top
producers to the competition. It should be no surprise, then, that a recent survey reported
approximately 80 percent of companies will change their compensation program from year
to year.15 Communicating the reasoning behind a new compensation plan and the amount
that above-average, average, and below-average salespeople can expect to earn is vital to
maintaining motivation and increasing acceptance of the new plan. Thus, how you introduce
310 CHAPTER 12 COMPENSATING SALESPEOPLE

a new compensation plan could spell the difference between a successful or unsuccessful
transition.

Customer Satisfaction and Sales Force Compensation

The concept of total quality management focuses on delivering high-quality products to
clients and making sure customers are satisfied. However, linking a portion of sales force
compensation with customer service is not easy. Part of the problem is that firms have
trouble measuring customer satisfaction, and measurability is critical to the success of any
incentive-based plan. There is also the possibility that salespeople will manipulate the data
to gain an advantage. Despite these problems, there is a growing trend toward tying com-
pensation to customer satisfaction.
One common procedure in tying compensation to buyer satisfaction is to ask buyers
to complete customer satisfaction surveys. Companies that use surveys to measure satisfac-
tion typically ask questions on sales force responsiveness and integrity, problem solving,
after-sale service, and communication skills. This information is then used to modify some
other sales force compensation factor or to calculate a percentage of base salary to award
as a bonus. A typical firm assigns about 20 percent of total pay for achievements with
customer satisfaction.
At JD Edwards, a global e-business solutions provider, 20 percent of a sales rep’s earn-
ings are based on the results of twice-yearly customer satisfaction surveys. Customers are
asked questions about software product quality, employee integrity, and overall satisfaction.
Salespeople must score at a certain level, from 1 to 10, to receive from 75 to 125 percent of
their bonus. Don White, senior vice president for the company’s U.S. field operations, says
that at first, some sales reps were resistant to the new metric, feeling it was unfair that they
would be judged based on things out of their control, such as software quality, but they soon
came around. The salespeople are beginning to view their job as less transactional and more
project management—doing anything internally that’s necessary to make customers happy.16

Team-Selling Plans
Customer demands and an increasingly complex business environment are making team
selling more common than ever before. In fact, we believe that effective team selling will
be the critical determinant to a firm’s competitive advantage in the future. Compensating
sales teams to accommodate this trend, therefore, will become crucial to firm performance.
In its simplest form, team selling involves two or more salespeople in separate territories who
need to coordinate their activities to complete the sale. For example, the salespeople from
different divisions of Maritz, Inc., a professional services firm, were not working together,
which stalled growth. Realizing that their current compensation program did not reward a
team approach, executives revised the plan so that reps and managers receive commission
whether they cross-sell into another division or simply pass on a lead to another sales team.
Salespeople now receive redemption points for the first part of the sale and potentially
cash, depending on a seller’s involvement in closing the deal. Maritz executives say that
the different divisions now operate as a cohesive unit.17 How would you deal with the
compensation issues raised by the Team Exercise titled, “Incentives for Team Selling”?
A more complicated team-selling scenario has outside salespeople, technical specialists,
service reps, and telemarketers all working together to make a sale. Because many firms are
emphasizing organizational teamwork to improve sales and profits, compensation programs
must be designed to reward other members of the selling team besides the outside salesper-
son. Since technical reps and service people are typically paid salaries, the usual approach is
to share incentive payments with all members of the selling team. Thus, technical reps and
service people on sales teams may be rewarded with small commissions but, more likely,
group bonuses.
COMPENSATION METHODS 311

TEAM EXERCISE
“Incentives for Team Selling”

Team selling is becoming more common with technical products, and managers need to find
ways to provide incentives for all members of the team. As a regional sales manager, you are
assigned the task of developing an incentive program for the two-person teams selling your
new software package. This program allows PCs to exchange a wide variety of information and
requires considerable initial customer education. The sales teams include a salesperson and a
systems engineer to help demonstrate the product, explain its technical details, answer queries,
and seek out new applications of the software. How would you compensate the salesperson
and the systems engineer? Would they both share in commissions equally? In developing your
compensation plan, assume that the system engineers are more security conscious than the
salespeople with regard to compensation.

Profit-Based Commissions
As mentioned earlier, the main objective of compensation programs is to provide direction
to the sales force to achieve the business’s objectives. Unfortunately, this is not an easy task
due to the multifaceted nature of the sales job. In fact, research suggests that the greater
the role stress (brought on by the many job demands), the lower the performance.18 It is
likely that some salespeople try to compensate for the stress associated with the different job
demands by focusing on the products and services that are easiest to sell or carry the highest
commissions. Also, when incentive payments are based on a percentage of the revenues each
product generates, it is unlikely that a salesperson will sell the mix of items that lead to the
highest profits. Thus, managers would do well to tie a salesperson’s compensation to those
job functions that maximize profits.19
One pay plan that ensures a sales force is working to achieve the highest profits possible
is the gross margin commission plan. Under these plans, commissions are a percentage of
the gross margins realized by the salesperson (i.e., sales price − cost of goods = gross
margin). With a gross margin commission plan, the company and the salesperson share the
same pool of money (realized gross margin); therefore, both are interested in maximizing
this amount. Theoretically, when this occurs, the company makes more gross profit so that
it can share the increased profitability with the sales force, and the sales reps earn more
money. Medical supply and retail automobile salespeople are typically paid a percentage
of the gross margin on each sale so that they will attempt to negotiate with customers to
obtain the highest possible profit for their employer and themselves.
Gross margin plans have not been successful in all situations. A potential problem with
gross margin plans is the implicit incentive to work on larger, lower gross margin orders,
instead of smaller, more profitable sales. Certain-Teed Corporation, for example, tried paying
its building materials salespeople a commission on gross margin but was forced to shift to a
salary plus incentive program because the salespeople were bringing in too many low-margin
orders. The problem arose because the salespeople viewed a 10 percent gross margin on a
$1 million order as equivalent to a 20 percent gross margin on a $500,000 order (Table 12-
2). On both orders, the company makes $100,000 in gross margin, and the salesperson
collects $15,000 in commission. But if the selling time is similar, the salesperson is likely
to work for the prestige of the $1 million order. However, the company may be better off
with the $500,000 sale because the smaller order means lower inventory carrying costs and
a reduced drain on raw materials and plant capacity. Perhaps a more appropriate plan would
have been to pay commissions on a combination of gross margin and order size. The plan
312 CHAPTER 12 COMPENSATING SALESPEOPLE

T A B L E 12-2 Comparing Gross Margin Commissions on Two Orders

Percentage Gross Percentage Commission
Order Gross Margin Size of Margin to Commission on Paid to
Number on Each Order Order Company Gross Margin Salesperson
1 10 $1,000,000 $100,000 15 $15,000
2 20 $ 500,000 $100,000 15 $15,000

could have been designed to pay a lower commission rate when gross margin and the order
size were smaller.

EXPENSE ACCOUNTS AND BENEFITS

No discussion of sales force compensation would be complete without mention of expense
accounts and other benefits. Almost all firms that pay straight salaries or some combination of
salary, commission, and/or bonus cover expenses for salespeople. Typical expenses paid by
firms include those for automobiles and other travel, tips, lodging, food, samples, telephone,
postage, and tickets for sporting and theater events. Annual expense budgets can run in the
tens of thousands of dollars per salesperson per year. It is important, therefore, to have an
effective system for reimbursing salespeople for their business expenses.

Expense Reimbursement Programs

Three types of expense plans can be used: (1) unlimited, (2) per diem, and (3) limited
repayment.

Unlimited Plans. One type of expense reimbursement plan has salespeople submit itemized
forms showing their expenditures, and the firm simply pays all reported expenses. This
approach allows salespeople wide discretion on where they travel and how they entertain
customers. In addition, an unlimited expense plan is inexpensive to administer because no
one regularly spends time checking expense accounts to see if they are overstated.
Unlimited expense plans are often favored by small firms that don’t want to bother
auditing expense accounts. They are also used by companies that sell expensive products
such as airplanes and defense systems, where extensive entertainment of clients is routine.
The main problem with these plans is that some salespeople get too greedy and try to profit
from their expense accounts. This forces management to occasionally fire reps who get out
of line.

Per Diem Plans. A per diem expense plan pays the salesperson a fixed dollar amount
for each day or week spent in the field. The amount is designed to cover food, gasoline,
lodging, telephone calls, and other expenses. A major benefit of a per diem plan is that
it is simple and inexpensive to supervise. However, salespeople may try to profit from
the plan by spending less than the allowance, usually by cutting back on travel. Instead
of driving to distant customers, salespeople could save money by concentrating on nearby
prospects. Also, there is less incentive to entertain customers with a per diem plan than with
an unlimited plan. These actions may keep salespeople under their expense allowance, but
they may also cost the company sales revenues. Another problem is that per diem allocations
have to be revised periodically to reflect inflation. Firms typically use per diem plans for
routine reorder selling of standard items.
EXPENSE ACCOUNTS AND BENEFITS 313

Limited Repayment Plans. With this approach the firm sets dollar limits on each category of
sales expenses. For example, a firm might allow 48 cents a mile for travel, $8 for breakfast,
$12 for lunch, $25 for dinner, and $90 for a room. These limits must reflect actual field
experience, and they need to be adjusted frequently to reflect inflation. The objective of
this plan is to make salespeople aware of what the company will pay and encourage them
to control their expenses. The limited expense approach makes it easier to budget for sales
costs and should reduce expense-account padding.
One problem with limited reimbursement plans is that salespeople may spend their
valuable time juggling expenses from one category to another or from one time period
to another to make sure they cover their costs. This time could be better spent solving
customers’ problems. Another potential drawback with limited repayment plans is that they
may be expensive to monitor. One way to cut monitoring costs would be to keep track
of a few experienced salespeople’s actual expenses for one week a few times a year. The
observed expenses would then be used to set repayment rates for all reps. This new plan
would require minimal administrative overseeing costs and, at the same time, provide few
reporting requirements for the salespeople, which gives more time to sell. Another alternative
would be to “spot-check” expense reports by randomly selecting expense reports to be
verified.

Selecting Benefits
Benefits can be used to attract and reward salespeople. One study found that salespeople
prefer benefits to recognition and incentive awards.20 Benefit packages include a variety of
hospitalization, insurance, and pension plans, as shown in Table 12-3. The recent explosion
in medical care costs has made it difficult for many firms to control the expenses of benefit
packages. One approach has been to raise the medical deductible levels so that employees
pay more of the costs. Another popular solution is to allocate a certain number of benefit
dollars to each salesperson and let each one choose from a cafeteria line of possible benefits.
This allows reps to select a benefit package that fits their individual needs.
You have to decide how much the salesperson should be required to contribute to the
benefit program. If the salesperson is asked to pay a portion of the costs, the firm may
give the person extra compensation to cover the contribution. However, this extra money is
taxable and may even move the person into a higher income tax bracket. If the firm pays
for these benefits directly so that salespeople receive the tax advantage, they may receive
lower total wages than those offered by other firms, but they are ahead in the long run.
Another recent trend is the opportunity for salespeople to negotiate stock purchase plans
and stock options. Companies are offering salespeople an opportunity to buy stock shares
at discounts from market prices, or, better yet, match the investment dollar-for-dollar or
more. Of course, market risk is always a factor, but if the company is not high-risk or of

T A B L E 12-3 Benefits Offered by Companies

Benefit Percentage of Firms Offering
Hospital costs 90%
Life insurance 77
Dental plan 69
Long-term disability 56
Pension plan 55
Short-term disability 49
Profit sharing 44
Thrift savings 22
Employees stock purchase plan 21
314 CHAPTER 12 COMPENSATING SALESPEOPLE

questionable health, such purchase accumulation can be quite lucrative. Stock option plans
are more likely to be offered by ambitious, fast-growing companies, or those that have
only recently—or are about to—become publicly owned. Because such companies rapidly
chew up capital, they often prefer to offer mixed compensation packages of cash and stock
purchase opportunities.
Expense accounts and benefit packages amount to a substantial portion of the costs
of keeping a salesperson in the field. To some degree, cash wages, expense accounts, and
benefits may be substitutes for one another, since they all provide rewards and incentives
to salespeople. On the other hand, Maslow’s hierarchy of needs theory would suggest that
they address different needs.

ASSEMBLING THE PLAN

Sales managers are responsible for combining the various wage elements into an appropriate
compensation plan and then predicting its effectiveness. At first glance, this task does not
seem difficult, because there are only three wage level options. The firm can pay the average
prevailing wage, pay a premium, or offer less than the going rate. A premium wage level is
appealing because it may attract better salespeople and motivate them to sell high volumes.
Paying higher than average wages makes it easier to recruit higher qualified people who
can be promoted into managerial positions later on. However, overpaying salespeople could
cause resentment and low morale among the firm’s other employees and executives when
salespeople earn more than even top management. It is also not clear that offering unlimited
opportunities to earn higher pay is always an effective method for continual motivation
to increase sales effort. The results of one study showed that most salespeople will work
toward a “satisfactory” level of compensation rather than to maximize their pay.21
Sales managers can obtain guidelines about current pay levels by reviewing surveys
published by the Dartnell Corporation, the Conference Board, and trade and industry asso-
ciations. For example, Figure 12-3 shows the results for Sales and Marketing Manage-
ment magazine’s recent compensation survey for companies using combination (salary plus
incentives) plans.22 Note that the highest pay goes to top-performing sales representatives
($161,500) followed by sales managers ($147,800). Sales managers typically earn less than
the top rep in their district when sales reps are on an incentive-based plan. Note that having
positions such as a key account rep in the middle of the compensation range ($94,800) pro-
vides incentives for others, such as trainees and telesales reps to move up the compensation

$160,000
$161,500
$147,800
$120,000
$119,600
$94,800
$80,000
$71,000
$40,000

$0
Average Poorly Midlevel Top Sales
Sales Rep Performing Performing Performing Executive
Rep Rep Rep
Base Salary Bonus + Commission

F I G U R E 12-3 Compensation Levels for Firms Using Salary Plus Incentives

ASSEMBLING THE PLAN 315

ladder. Although sales trainees start with a lower base salary than more experienced reps,
they are often provided an opportunity to earn commissions or a bonus. In addition, new
sales reps are often given a car and an expense account.
To determine a relevant average wage level, another good starting point is to determine
the average compensation paid by other firms of the same size in your industry. Other con-
siderations might be the labor market where people are entering and leaving. Assume that
comparable firms are paying their first-year salespeople an average annual total compensa-
tion of $52,000. The sales manager must now split this total into salary, commissions, and
a bonus. Based on an analysis of the sales job to be performed, the breakdown might be
$38,000 for salary, $10,000 for commissions, and $4,000 for a bonus. The monthly salary of
$3,167 provides stability of income and amounts to 73 percent of the wage package. For this
company the commission rates could be set to vary from 1 to 4 percent of sales, depending
on the profitability of the various products in the line and the source of the business. The
following breakdown shows how the commission portion of the wage would be calculated:

Commission Type and

Rate Source of Business Sales Achieved Commission Amount

0.01 Reorders of supplies $100,000 $ 1,000

0.02 New equipment sales 250,000 5,000
0.04 Sales to new accounts 100,000 4,000
Totals $450,000 $10,000

Note that the compensation plan pays a fairly low commission rate of 1 percent on reorders
of supplies that carry low profit margins. However, a 2 percent commission is paid on sales
of the more profitable new equipment. Also, a 4 percent commission is paid on all sales to
new accounts to encourage sales force prospecting.
The bonus portion of the plan is set up to pay 8.3 percent of salary and commissions
to salespeople who exceed their annual quota for sales achieved. Assuming the salesperson
met this quota, the bonus payment would be 8.3 percent of $48,000 ($38,000 in salary +
$10,000 in commissions), or $4,000. The actual payment of the $4,000 bonus would be
delayed until the end of the year. The total compensation for the salesperson in this case
amounts to $52,000, which is about the average total compensation for a beginning sales
representative. The following list shows the addition of a car, other expenses, and benefits
to the compensation program:

$38,000 Salary
10,000 Commission (1 to 4 percent of sales)
4,000 Bonus (8.3 percent of salary and commissions for exceeding new account
quota)
7,500 Benefits
12,000 Car expense (25,000 miles at 48 cents per mile)
20,000 Lodging, food, and entertainment
87,200 Total costs per salesperson

Although car expenses and payments for lodging, food, and entertainment are not part of
real wages for salespeople, these expenditures do represent a growing proportion of the
cost of keeping a salesperson in the field. Thus, as the price of lodging and entertainment
increases, sales managers may have less money available for cash wages. Although a current
car expense of $12,000 seems high, this figure represents only 125 miles a day for a person
who is on the road 200 days a year. Also, $20,000 a year for food and lodging seems
adequate, but it amounts to only $100 a day for salespeople who are on the road four days
a week. Unless sales managers can find ways to control escalating entertainment and travel
316 CHAPTER 12 COMPENSATING SALESPEOPLE

expenses or increase sales volume or profits, they will have trouble keeping cash wages
competitive.

EVALUATING THE PLAN

After you have selected an appropriate compensation method and wage level, the plan must
be evaluated to see how it will affect salespeople’s wages and total costs. This evaluation
usually involves taking sales figures from the previous year and calculating expected wages
for a group of salespeople under the new program. These calculations are greatly simplified
if you have an automated computer program. Your objective is to see how above- and
below-average salespeople would fare under the new system. You want to avoid having
salespeople reap windfall gains or suffer from unfairly low earnings. Caution should be
used when introducing new compensation programs that pay lower wages than the current
plan, because this often produces resistance among salespeople and can lead to higher
turnover. In some situations, however, turnover may be welcome. Why?

SUMMARY
Compensation is one of the key factors in motivating salespeople to achieve the sales and
profit objectives of the firm. However, the spiraling costs of compensating a sales force
have made it increasingly important to be able to design a plan that encourages salespeople
to work efficiently. After reading this chapter, you should be able to:
1. Explain the need to balance wages against company resources. Compensation plans
should allow salespeople to reach their own income goals without overstocking cus-
tomers or ignoring nonselling duties. However, it is difficult to design a compensation
program that motivates salespeople to reach company goals and satisfy customers without
bankrupting the firm. The Customer-Product Matrix is a useful tool for conceptualizing
a compensation plan that matches company objectives with the desired sales job. Sales
positions that focus primarily on new business development require a greater propor-
tion of incentive (e.g., commissions and bonus) in the compensation plan than account
management sales jobs. Account management-type sales jobs involve a greater account
servicing component, which is better suited to a larger component of salary compensation.
2. Describe the various compensation methods. Straight salary plans and straight com-
mission plans represent two extremes in compensating salespeople. Straight commission
plans offer maximum incentives for performance, but little control over sales force activ-
ities. The opposite is true for straight-salary plans. The limitations of both plans have
made combination plans the most popular with sales organizations. The combination
compensation plans discussed are: salary plus bonus, salary plus commission, salary plus
commission plus bonus, and commission plus bonus. It is important that sales managers
learn to combine salary, commissions, bonuses, and benefits so that both salespeople and
the company benefit.
3. Set pay levels. Beyond the issue of what plan to use is the question of how much to
pay. To determine the appropriate level of wages to pay salespeople, a sales manager
could start with an analysis of competitors’ compensation packages. The availability of
qualified people in a particular labor market is also a consideration. Field sales reps are
sometimes highly paid, and it is the job of the sales manager to balance constantly the
costs against the benefits received for sales force expenditures.
4. Assemble a compensation plan. When properly conceived and implemented, a pay plan
should offer a balance of control and incentive. Important considerations in obtaining
such a balance include determining an expense reimbursement program, selecting a level
DEVELOPING YOUR COMPETENCIES 317

of benefits to be offered, and evaluating the plan to see how it will affect salespeople’s
wages and total cost.

KEY TERMS
Benefits Progressive commission rates Straight salary
Commission plus bonus Salary plus bonus Team selling
Commission threshold Salary plus commission Wage level
Fixed cost Salary plus commission plus bonus
Gross margin commissions Straight commission

DEVELOPING YOUR COMPETENCIES

1. Strategic Action. Assume you are a national sales manager for a large manufacturer
of interconnectivity products for the Internet. The sales force is paid on a salary plus
bonus arrangement. Currently, salespeople can earn up to 35 percent of their salary in
annual bonus once they achieve their yearly sales quota. The current economic situation
is very favorable to salespeople at your firm. You expect salespeople to easily exceed
quota and earn a large bonus. The total average salesperson compensation next year, in
your estimation, will be greater than your competitors’. As a result, you are considering
changing the compensation package because of the expected windfall earnings that you
believe your salespeople will make. Your plan is to increase quota by 20 percent and cut
the annual bonus to a maximum of 20 percent of salary. A few weeks prior to announcing
your new compensation plan to the sales force, you overhear the following conversation
between two of your salespeople:

George: I’m looking forward to this year. I’ve really struggled the past two years to
make only 80 percent of my quota. It’s about time we get a break around
here.
Liz: I agree. If it wasn’t for some unbelievable last-minute luck, I wouldn’t
have made quota last year either. I made it by the skin of my teeth.
George: I was thinking about leaving the company if things didn’t change and I
came up short again. The salary is good enough to make ends meet, but
when I get into the third quarter of the year, I realize I will not make
quota and I just give up trying. What’s the point?
Liz The company gives us a very attractive incentive program, but they set
quota so high that it’s nearly impossible to achieve it. I agree with you,
George, this year is going to be different.

Should you take into consideration this new information? What do you think needs to
be done, if anything, about your plans for introducing the new compensation program?
2. Team Building. Designing compensation plans for team selling when the sales cycle
is long and complicated is a difficult task. One consultant suggests dividing the selling
job into parts, such as identifying the lead, qualifying the prospect, performing technical
assistance, writing the proposal, and closing the sale. Then if a 20 percent commission
was being paid, 4 percent would be allocated to team members who performed each of
these tasks. If some tasks are more important than others, the 4 percent allocations could
be changed to reflect these differences. What are the advantages and disadvantages of
this system?
3. Global Perspective. As discussed in previous chapters, culture has a powerful influence
on an individual’s values. A recent study of salesperson reward valences in the Journal of
318 CHAPTER 12 COMPENSATING SALESPEOPLE

Personal Selling and Sales Management suggests that Chinese salespeople and their Hong
Kong counterparts value rewards differently. The study reported that Chinese salespeople
attached the highest importance to managerial encouragement and support, followed by
recognition for high performers, work-related factors, and finally individual incentives.
Hong Kong salespeople, on the other hand, considered opportunities for career growth
to be the most important factor, followed by incentives, support functions, and quotas.
Assume you are the new international sales director for a multinational company with
sales forces made up of both Hong Kong and Chinese salespeople. Using this new
information, what would you do to design different compensation systems for each?
4. Self-Management. Different types of compensation plans fit different types of people.
Northwestern Mutual Life is a marketer of permanent and term life insurance, disability
income insurance, and annuity plans for the personal, business, estate planning, and
pension markets. Northwestern’s sales agents typically work on 100 percent commission.
Visit Northwestern Mutual Life’s home page at www.northwesternmutual.com. Once on
the home page, click the link “Financial Representative” under the “Careers” tab and
explore the information about what Northwestern considers important traits for success.
You can even take the on-line sales aptitude test (click on the “Take the first step” tab)
to see if you meet Northwestern’s requirements to succeed. Would you like to work in
this type of entrepreneurial culture? Why or why not?
5. Technology. Equity theory introduces the perception of fairness into sales force motiva-
tion and should be considered in the design and implementation of sales force compen-
sation and reward plans. One concern regarding the equity of compensation stems from
the fact that the cost of living varies from one location to another. Most compensation
programs take these differences into consideration, and the calculation of these differ-
ences has been made much easier through the use of the Home Buyer’s Fair site on the
World Wide Web. One of the many popular features of this Web site is its section that
calculates the difference in the cost of living between virtually any two cities in North
America.
As the national sales manager for the Big Cyclone Paper Company, headquartered
in Kansas City, Kansas, you are designing a compensation system that will take into
consideration the different cost-of-living figures for your regional dealer account man-
agers in ten cities across the United States: (1) Kansas City, Kansas; (2) Peoria, Illinois;
(3) Louisville, Kentucky; (4) Denver, Colorado; (5) Dallas, Texas; (6) Los Angeles,
California; (7) Rochester, New York; (8) Orlando, Florida; (9) Atlanta, Georgia; and
(10) Cincinnati, Ohio.
As designed, your compensation plan is a hybrid system incorporating a mixture of
fixed salary plus commission and incentive bonuses. The cost-of-living adjustments will
be made through changes in the fixed salary component of the plan. That is, a base
salary of $30,000 paid to salespeople in other locations will be increased (or decreased)
according to the specific location’s cost of living as compared to the Kansas City base
figure. In this manner, all salespeople will be on an adjusted base salary equivalent to
the $30,000 Kansas City figure.
Access the Home Buyer’s Fair World Wide site at http://www.homefair.com and click
on “The Salary Calculator” located on the left column. Determine the fixed salary for
each of the locations that would be equivalent to the $30,000 base salary in Kansas City,
Kansas:
Kansas City, KS $30,000 Los Angeles, CA
Peoria, IL Rochester, NY
Louisville, KY Orlando, FL
Denver, CO Atlanta, GA
Dallas, TX Cincinnati, OH
DEVELOPING YOUR COMPETENCIES 319

6. Coaching. As regional sales manager, you have to make salary recommendations for
six district sales managers whom you supervise. They have just completed their annual
appraisal period and are now to be considered for their annual raise. Your company has
set aside 10 percent of salary costs for merit increases. Your total current annual salary
cost is $297,300, which means that you have $29,730 for salary increases. There are no
formal company restrictions on how you may distribute the 10 percent merit increase. All
managers have the same job classification, and the salary recommendations are secret.
Using the profiles below, indicate the size of the raise that you would like to give each
sales manager.
Sales Manager Profile Sheet
• John Smith Age 30, three children, current annual salary $59,000, MBA, Harvard.
John is married to the daughter of the chairman of the board and has been with the
company five years, the last two as sales manager. He has one of the easiest groups to
supervise, doesn’t impress you as being very bright, but is a hard worker. You rated him
as “slightly above average” (68 percent) on his last performance rating. You checked
your opinion with others you respect; they, too, felt that he was less effective than
other managers who work for you, but they reminded you of his potential influence.
• Larry Foster Age 27, single, current annual salary $38,300, BA, University of Maine.
Larry has been with the company for four years, the last two as sales manager. He has
a difficult group to supervise, is bright, often works overtime, and has “turned around”
the group he supervises. You rated him as “an excellent manager with a good future”
(89 percent) on his last performance rating.
• Tim Hall Age 44, four children, two in college, current annual salary $60,000 (three
years of college, no degree). Tim has worked for the company for the past eighteen
years and has been in his current position for the past eight years. He is unhappy that
you were named regional sales manager because he was hoping to get the job. He
is well liked by all the other managers and by his employees. He rarely works on
weekends, and he seems to be easygoing with his salespeople. However, his group
had the second highest performance of the groups you manage. You rated him as
outstanding (85 percent) on his last performance appraisal.
• Ellen Panza Age 30, married, two children, current annual salary $45,000, BA, City
University of New York. Ellen has been with the company for two years and worked
as sales analyst for the one year before being promoted to manager. You feel that she
was given the job because she is a woman, and frankly, you resent it. In addition, you
feel that her salary is too high compared with the salaries of others in the company.
However, you must admit that she has performed in an outstanding manner, since her
group went from last to first place in performance this year. Her score on the rating
sheet was 90 percent.
• Otto Lechman Age 36, married (wife works for the company as assistant personnel
director), no children, current salary $55,000, MBA, University of Michigan. Otto has
been with the company for nine years, the past six as manager. He is aggressive and
hot-tempered, and though at one time you thought he was your best employee, during
the past two years, you have found him to be a disappointment. You rated him as
“slightly below average” (59 percent) on his last performance rating. You believe that
one of the reasons Otto’s performance has fallen off is that he has found out about
John Smith’s and Ellen Panza’s salaries.
• David L. Green III Age 29, single, current annual salary $40,000, BA, Wayne State
University. David has been with the company for six years and became the first black
manager in your company five years ago. He has been instrumental in recruiting other
blacks into the company and is often called on by the president to represent the
company at civic and social events. You have found David’s work to be marginal,
and although you assigned him to manage the best group five years ago, the group’s
320 CHAPTER 12 COMPENSATING SALESPEOPLE

performance is not as high now. Based on the drop in performance, you rated David as
“below average” (60 percent). Some people would like to get rid of him, but you don’t
know how you would replace him, given his past success in recruiting minorities.
Your company has a secret pay policy. What information do you plan to share with
your employees? What was your decision rule for administering the pay increases?

SHIELD FINANCIAL: “THE ELUSIVE

COMMISSION–NOW YOU SEE IT, NOW
FEATURED CASE YOU DON’T”

D
oug Bloom, the branch sales manager of that is that. She feels that the handsome base salary and
Shield Financial in Des Moines, is appalled. benefits package are more than enough to compensate
The district director, Liz Shute, again for any discrepancies in commissions.
adjusted one of his sales rep’s commissions. When the When Bloom tells Carr about the commission
rep, Nancy Carr, finds out, she’ll certainly quit. change, Carr’s response is as Bloom expected: Get my
Since the introduction of the First-Plus program at $8,000 back or today’s my last day.
Shield, the reps’ compensation has changed in accor- Bloom doesn’t want to lose one of his top per-
formers.
dance with the company CEO’s new policy. Now 70
percent of the commission would be based on a sales
quota and 30 percent on each sales rep’s numbers from Questions
the First-Plus activities. Lately, however, on several
occasions, once the sale was made, Shute decided that 1. What could he do to broker a compromise between
Shute and Carr?
it didn’t warrant the original commission and lowered
it by whatever she felt was appropriate. In this case, 2. It is obvious that Bloom should try to change
she decreased the commission by $8,000. Shute’s mind about sticking to one standardized
commission program. What would you recommend
Bloom did his best, as usual, to keep the commis-
he do?
sion as promised, but once Shute’s mind is made up,

PROBLEMS∗
1. You were recently hired as the new vice president of sales because something needs
to be done to increase sales growth—sales have been flat the past two years. You are
convinced that the sales force could turn things around for you, if only you could motivate
your salespeople. One of your ideas is to change the compensation plan for next year.
However, you don’t want to “break the bank” in the process.
Your marketing manager has developed three different compensation plans for your
review. Which of these will be the most expensive? Which will be the least expensive?
Which plan would you adopt for your sales staff? Why?
Plan A: Give each salesperson a salary of $40,000. Once a salesperson reaches a sales
volume of $400,000 during the year, an incentive bonus of 8 percent of all sales
made during the year will be awarded. No bonus will be awarded for annual
sales volumes of under $400,000.

*Contributed by Avery Abernethy, Auburn University. Excel spreadsheet templates for these problems are available
at www.wiley.com/college/cron. Go to the “Student” companion site.
PROBLEMS 321

Plan B: Give each salesperson a salary of $30,000 plus an 8 percent commission on

all sales made during the year.
Plan C: Give each salesperson a commission of 15 percent on the first $420,000 of
sales made each year and 25 percent commission on all sales made over $420,000.
Below are the forecasted sales for next year. An Excel spreadsheet is available to help
you in your analysis (the spreadsheet can be found at www.wiley.com/college/cron).

Salesperson Forecasted Sales for Next Year

Jagger $ 550,000
Costello $ 520,000
Keith $ 500,000
McCartney $ 475,000
Dylan $ 450,000
Timberlake $ 420,000
Clarkson $ 420,000
Lovett $ 400,000
Richards $ 400,000
Cash $ 360,000
Total $4,495,000

2. You own the Mayer Electrical Distribution Company, and your goal is to maximize your
before-tax profits. You currently pay salespeople a base salary and a flat 4 percent com-
mission on sales. You sell three products. Following this question is an Excel spreadsheet
printout titled “Current Situation” that gives the starting information.
Unit Costs do not include sales commission costs. You have 10 salespeople. You pay
them $30,000 salary and $10,000 benefits each. This gives you $400,000 fixed sales
costs. You have annual fixed costs of $1,400,000 (including fixed sales costs).
Unfortunately, your firm keeps losing the best salespeople. You are considering several
options to retain your best salespeople. (1) Increase the commission to 6 percent or (2)
alter the commission structure to reflect the profitability of each product. You think that
if the total compensation plan is increased for the sales force your sales will increase 10
percent next year due to retaining the best people and increased motivation. Without this
increase in sales compensation, you think that sales will increase 4 percent.
You might want to look at the potential financial impact of (a) doing nothing, (b)
increasing the commission from a flat 4 percent to a flat 6 percent, or (c) increasing the
commissions in a manner that reflects the profitability of each product.

1. What was your total profit before taxes this year?

2. What is your expected total profit before taxes next year if the sales force payment
plan remains the same (and sales increase 4 percent)?
3. What is your expected total profit before taxes next year if you increase commissions
to 6 percent?
4. If you raise your commissions to 6 percent, sales are expected to increase next year
by 10 percent instead of 6 percent. Is this a reasonable expectation? What is the per-
centage increase in before-tax profit next year for a 6-percent commission compared
to a 4 percent commission?
5. What were your unit contributions this year for products 1, 2, and 3?
6. Since your goal is to maximize before-tax profits next year, specifically how should
you increase the commission structure to retain your best salespeople? Be sure to
explain your answer.
322 CHAPTER 12 COMPENSATING SALESPEOPLE

A quick way to complete this exercise is to copy the first spreadsheet and then
adjust the copied tables for the new information given above. Note that you will have
to change the formulas in the cells titled “Commissions per Unit” and “Sales Com-
missions” to reflect the new adjustment on the commission increase. For example,
to change the commission increase to 6 percent, you just multiply the unit sales by
the new increase and change the sales commission percentage. Also, remember to
change the units sold formula. The program automatically recomputes all of the other
calculations.
 CHAPTER

13 EVALUATING
PERFORMANCE
You can’t manage what you can’t measure.
William Hewlett, co-founder of Hewlett-Packard

Chapter Consultant:
Bob Braasch, Manager Sales Planning, SABRE

LEARNING OBJECTIVES
After studying this chapter, you should be able to:
Conduct a sales force performance review.
Describe the criteria used to evaluate salespeople.
Distinguish between input and output measures of sales performance.
Discuss the value of behavioral control procedures for salespeople.
Understand outcome-based evaluation procedures.
Describe the evaluation models that use both input and output data.

SALES PERFORMANCE REVIEW

At first glance, evaluating a salesperson’s performance seems simple: Merely measure sales
volume. The thinking behind this theory is that higher volume means increased performance.
But the focus on sales volume can be misleading. Consider the following scenario: You are
a first-line sales manager for Bear Computer Company, which is a startup computer solu-
tions provider for manufacturers. Because of the unique nature of each customer’s solution
needs, Bear relies on its field sales force as its primary go-to-market strategy. In other words,
salesperson performance is crucial for the young firm’s survival. Recently, Brett Williams,
Bear’s President asked you: “How’s your branch been doing?” You reply, “We’ve been doing
great!” Brett follows up with the question: “What do you mean by ‘great’?” You quickly
respond: “Last year was a tough year for everyone, but our branch made our performance
goal. That makes it three years in a row for us.”
Does three years of goal attainment make a sales team “great”? One salesperson may
generate a high sales volume made up of low-profit items. Another may have a high volume
with a few customers but may make too few calls. Still another high-volume salesperson
may spend too much time and money on each call. The point is that a higher volume may
not represent a higher level of profit for a business. Properly evaluating sales personnel
requires a look at many factors that influence their value to the company.
323
324 CHAPTER 13 EVALUATING PERFORMANCE

Set goals and objectives for

sales force, including:
Revenues
Contribution profits
Market share
Expense rations

Design Sales plan

Set product performance standards for:

Organization Salespeople
Region Accounts
Districts

Create indices of key success variables

Measure results against standard Take Corrective Action

F I G U R E 13-1 A Sales Force Evaluation Model

We define evaluation as a comparison of sales force goals and objectives with actual
achievements in the field. A general model of the evaluation process is shown in Figure 13-1.
To begin the evaluation process, management must first decide what it wants the sales force
to accomplish. The most common objectives are the attainment of specific sales revenues,
contribution profits, market shares, and expense levels. Then, a sales plan must be prepared
to show how the goals are to be achieved. The next step is to set performance standards for
individual products for different levels in the organization. This typically requires setting
goals for total sales, as well as sales by regions, by product, by salesperson, and for each
separate account.
Once the sales goals are established, the key indicators of success need to be established.
These indicators are the specific measures used to evaluate performance. Care should be
taken to make sure these key metrics are aligned with overall firm goals and strategies.1
For example, the metrics of successful salesperson performance for a prospector strategy
where a firm is looking to increase market share will be very different than those of a
defender strategy where the firm is looking to retain its market share. Firms with a prospector
strategy compete by identifying and taking advantage of emerging marketplace opportunities.
Salesperson success for these firms would likely center around indices such as sales growth
and the number of new customers attained. Defender firms seek to achieve operational
efficiencies and tend to serve stable market segments with a standard set of offerings. These
firms are likely to rely more heavily on contribution margins and expense ratios as important
salesperson success indices.2
At the conclusion of an evaluation period, differences between the performance stan-
dards and the results attained are determined. In this comparison between actual results
with budgeted performance goals, a manager will need to determine the specific factors that
accounted for the variance in overall performance. Understanding the underlying causes for
the above- and below-standard performance for each factor is a critical step in this process.
THE BIG PICTURE 325

Once the reasons for the performance variance are understood, then corrective action is
taken and modifications are made in the plans for the future.
The sales force evaluation model provides an overview of the steps necessary to fairly
and objectively evaluate performance. The remainder of this chapter will explore each of
these steps in more depth. We begin our discussion of sales force evaluation by looking at
the big picture. In this regard, we focus on the process companies use to understand sales
force performance at the organizational level. A good starting point is an examination of
total sales volume, which is the combined sales of all products and all customers from all
salespeople in the firm. To illustrate how to conduct this type of evaluation, we will continue
with the Bear Computer Company example introduced in the opening vignette. Next, we
provide an overview of how to use sales force expenses in analyzing performance. In this
section, we highlight the impact of salesperson efficiency on firm profits. Following our
sales force expense and efficiency discussion, we turn to evaluating individual salesperson
performance and provide specific methods for creating key success factors. We conclude
the chapter with a review of four different sales evaluation models for measuring results
against objectives and offer some “best practices” tips for effective sales force evaluation
systems.

THE BIG PICTURE

To determine whether a company or division has met its sales goals, the first step is to
examine the aggregate sales figures. Some sample sales figures for the Bear Computer
Company are provided in Table 13-1. Bear seems to be doing well; sales have increased
from $17 million to $26 million in only four years, or 18 percent annually. However, the
rate of growth is declining. For some reason, Bear has been unable to maintain the sales
increases that it achieved in earlier years. One excuse for such a situation is that slow growth
simply reflects general economic conditions. However, industry sales have been expanding
rapidly at the same time that Bear’s sales gains have fallen off. The resulting impact on
market share is shown in column 4. Bear’s market position fell from 13.6 percent in 2005
to only 8.6 percent in 2008. Thus, although Bear’s sales increased 53 percent, its market
share took a disastrous plunge. A sales increase, like the tip of the iceberg, tells only part
of the story. The iceberg principle encourages managers to search through their data to find
out what is really going on.
There could be many reasons for the 37-percent drop in market share at Bear Computer.
Competitors may simply be more aggressive and may have attracted the new business from
Bear. Another possibility is that the product itself may be deficient in terms of performance
or reliability. Because personal selling is the primary method of selling business networking
computer solutions, it is a potential problem area. Bear may not have enough salespeople
or sales offices, or the sales force may not be calling on the right prospects.

T A B L E 13-1 Sales Data for Bear Computer Company

1 2 3 4
Company Volume Percentage Change Industry Volume Company Market
Year ($ millions) from Previous Year ($ millions) Share (percent)
2008 26 +8.3 300 8.6
2007 24 +14.3 219 10.9
2006 21 +23.5 165 15.7
2005 17 − 125 13.6
326 CHAPTER 13 EVALUATING PERFORMANCE

T A B L E 13-2 Comparing Dollar and Unit Sales at the Bear Computer Company
2007 2008
Thousands of Avg Price Thousands of Avg Price
Products Dollars Units Per Unit Dollars Units Per Unit
Computer Solutions $16,800 560 $30,000 $18,200 520 $35,000
Accessories 4,800 4,000 1,200 5,200 4,727 1,100
Software 2,400 1,200 2,000 2,600 1,280 2,031
Total $24,000 5,760 $26,000 6,527

Dollar Versus Unit Sales

Sales can also be broken out in terms of number of solutions sold (Table 13-2). Unit sales
can be useful when inflation and other price changes distort dollar sales figures. For example,
dollar sales of Bear computer solutions went from $16.8 million in 2007 to $18.2 million
in 2008. However, unit sales actually declined from 560 to 520 over the same period,
meaning that the average price of a Bear solution went from $30,000 in 2007 to $35,000
in 2008. Although some of the 17 percent increase in computer prices was due to inflation,
some other factor is contributing to this change. The data suggest that the sales force is
trading customers up to more expensive solutions. Further breakdown of sales by individual
installations would tell you what items are being ignored.
A decline in the number of units installed is a serious problem in an expanding market,
so adjustments should be made in the wage and quota systems to achieve more balanced
growth. Unit sales growth is desirable because it keeps production lines and employees busy.
A somewhat different situation exists with Bear’s line of accessory equipment
(Table 13-2). Note that both dollar and unit sales increased between 2007 and 2008.
However, unit sales grew much more rapidly than dollar sales, and the average unit price
dropped from $1,200 in 2007 to $1,100 in 2008. These results suggest that the sales force
may be cutting prices to boost unit volume. This push for market share is to be applauded
as long as profit margins are not completely destroyed. Bear’s software product line also
experienced growth in dollar and unit sales. In this case, the sales force was able to sell
more units at higher average prices. These efforts are commendable, but Bear’s software
sales are still far below the levels suggested by industry and company potential figures.

Sales by Customer Type

Another useful approach is to break down sales by individual customers. These reviews
often show that you obtain a high percentage of sales from a small-number of customers.
When 80 percent of your sales come from only 20 percent of your buyers, you are probably
losing money serving small accounts. Some sales managers use the 80–20 principle to shift
low-volume accounts to mail-order, telephone reorder systems, or the Internet. Other firms
give small accounts to independent distributors so that the regular sales force can concentrate
their efforts on a reduced number of large accounts. Frequently, a policy of providing extra
service to large accounts leads to greater total sales for the firm.

EXPENSE ANALYSIS
Although a sales analysis provides useful data on the operation of a field sales force, it does
not tell the whole story. Sales figures show trends, but they do not reveal the effects of
price-cutting or the differences in selling expenses, potential, and saturation that exist across
EVALUATING SALESPEOPLE 327

T A B L E 13-3 Expense Analysis by Product Line, Bear Computer Company, 2008

CGS and CGS as a Contribution
2008 Sales Commission Percentage of Contribution Margin
Products (000) $ Sales Margin Percentage
Computers $18,200 $12,740 70 $5,460 30
Accessories 5,200 3,120 60 2,080 40
Software 2,600 520 20 2,080 80
Total $26,000 $16,380 63% $9,620 37%

products or territories. A more complete picture of sales force efficiency can be obtained by
reviewing expense data to show the effects of changes in selling tactics on the profitability
of the firm.

What Expenses Are Relevant?

We believe that controllable expenses such as wages and travel are the figures that are
relevant to field sales managers. Thus, national advertising and production costs, which are
not directly controlled by sales managers, should not be used to judge the efficiency of
the sales organization. Of course, cost-of-goods-sold figures are necessary to help measure
price-cutting by salespeople.

Product Expenses
A logical first step in an expense analysis is to look at the differences associated with each
product line. Table 13-3 shows such an analysis for the Bear Computer Company. Note
that the cost-of-goods-sold plus commissions is considerably higher for computer solutions
(70 percent) than it is for accessories (60 percent) and software (20 percent). These results
can be explained in several ways. One possibility is that Bear is paying too much for parts,
with the result that its manufacturing costs are simply higher than those of competitors.
Another explanation is that competition has driven down selling prices in the market and
raised Bear’s cost-of-goods sold as a percentage of sales. A more disturbing possibility
is that salespeople are cutting prices to close sales so that they can raise their commission
income. If this is the case, then the sales manager may need to place limits on the sales
force’s authority to negotiate prices. The sales manager could also shift to a gross margin
commission system so that there would be less incentive to cut prices. A third approach is to
revise the commission structure so that salespeople can earn more by pushing the higher mar-
gin accessories and software lines. This discussion shows that a review of the contribution
margins produced by different product lines can be very helpful for sales managers.

EVALUATING SALESPEOPLE
One of the most difficult tasks you will face as a sales manager is evaluating the perfor-
mance of salespeople under your control. Although appraisals are opportunities to motivate
salespeople to higher levels of achievement, they also provide evidence for disciplinary
action. Thus, performance reviews demand that sales managers play the role of coach and
judge. Some experts believe that salesperson evaluation is the single most difficult job of
the sales manager because of the difficulty of finding the optimal level of monitoring and
the difficulty of eliminating biases in the evaluation process.3 For example, studies suggest
that sales managers may provide inconsistent disciplinary action based on the salesperson’s
gender and weight.4
328 CHAPTER 13 EVALUATING PERFORMANCE

TEAM EXERCISE
“Evaluating for Profit”

As the new vice president of sales for Beta Corporation, you spent your first month traveling
to visit clients with your new sales team. Unfortunately, you don’t like what you’ve seen. You
quickly discovered that discounting is the number one way your salespeople close deals. Since
a key component of your job at Beta is to increase the company’s profitability, you had to stop
the price cutting. How would you structure an evaluation system that would help in this effort?

Why Are Performance Reviews Needed?

Performance reviews are usually conducted on an annual basis, although many firms conduct
evaluations semiannually or quarterly. While these reviews are difficult to administer, they
do provide valuable information for staffing decisions and serve as a basis to improve
salesperson performance. The results of performance reviews can be used to answer a
number of important questions such as:
• Who should receive raises, bonuses, and prizes?
• Who should be promoted?
• What criteria should be used in hiring?
• Who needs retraining?
• What subjects should be emphasized in training classes?
• Have the company’s strategic selling objectives been met?
• How should sales territories be adjusted?
• Who should be terminated?
Each of these decisions requires you to look at a slightly different set of evaluative crite-
ria. For example, performance evaluations used for determining raises, bonuses, and prizes
should emphasize activities and results related to the salesperson’s current job and situa-
tion. Performance evaluations used for the purpose of promoting a salesperson into a sales
management position should focus on criteria related to successful sales managers and not
just current salesperson performance. Adding to the complexity of the evaluation process
is the wide variety of procedures to measure how well salespeople are performing on each
dimension. If you were the new vice president of sales at Beta Corporation in the team
exercise “Evaluating for Profit,” how would you restructure the evaluation system?

Selecting Performance Measures

The task of selecting a set of sales performance measures for a firm is difficult because
each unique sales environment can have its own set of evaluation criteria. The basis for any
salesperson evaluation, however, is typically comprised of one of the following: outcome
controls, behavior controls, or qualitative measures. When using outcome controls, managers
set performance standards for each salesperson and evaluate the results against the preset
standards. Examples of outcome controls are shown in Table 13-4 and include sales, orders,
contributions to profit, number of accounts, and so forth. Companies tend to emphasize
and track only a few of these results however. Firms with outcome systems typically tie
salespeople’s compensation closely to two or three key metrics.
Behavior control systems are concerned with keeping track of what happens at each
stage of the sales process. Under behavior control, managers measure what the salesperson
EVALUATING SALESPEOPLE 329

T A B L E 13-4 Outcome Controls Used in Sales Force Evaluation

Sales Profit
Sales volume dollars Net profit
Sales volume previous year’s growth Gross margin percentage
Sales to quota Return on investment
Sales growth Net profit as a percentage of sales
Sales volume by product Gross margin dollars
Sales volume by customer Margin by product category
New account sales Accounts
Sales volume in units Number of new accounts
Sales volume to potential (market share) Number of accounts lost
Orders Number of accounts sold
Number of orders Number of accounts buying full line
Average order size
Batting average (orders/calls)

actually does—prospecting activities, number of sales calls made, number of hours worked,
for example. Table 13-5 provides examples of the most frequently used behavior controls. As
shown in Table 13-6 qualitative measures include attitude, communication skills, product
knowledge, among others. Typically, a manager provides a subjective evaluation of the
salesperson’s performance on each dimension. These indicators are widely used, but are
difficult to measure accurately and can often lead to biased evaluations. In addition, they
tend to be deemphasized as the managers’ span of control increases.

T A B L E 13-5 Behavior Controls Used in Sales Force Evaluation

Expenses Effort
Total expenses Number of calls
Selling expenses to budget Number of calls per day
Selling expenses as a percentage of sales Number of calls to quota
Nonselling Activities Number of days worked
Advertising displays set up Number of reports turned in
Number of service calls Number of prospecting phone calls
Number of customer complaints Selling time vs. nonselling time

T A B L E 13-6 Qualitative Bases Used in Sales Force Evaluation

Attitudinal and Personality Factors Time Management
Attitude Ability to Plan
Enthusiasm Appearance and Manner
Cooperation Knowledge
Creativity and resourcefulness Product knowledge
Initiative and aggressiveness Pricing knowledge
Motivation Knowledge of competition
Selling Skills Ethical and Moral Behavior
Communication Skills Team Player

Behavior Versus Output Performance Measures

A great unresolved controversy in sales management is whether outcome or behavior con-
trols are best for evaluating salesperson performance.
330 CHAPTER 13 EVALUATING PERFORMANCE

T A B L E 13-7 Conditions When Outcome Versus Behavioral Systems Are Preferred

Outcome Systems (OS) Preferred When. . . Behavioral Systems (BS) Preferred When. . .

Customers need information: When customers Salespeople lack experience: Inexperienced

require lots of information to make a decision, salespeople often lack the necessary know
such as a new buy, or modified rebuy situation, how to become successful. BS provide the
OS ensure salespeople will work to provide the essential building blocks for developing good
most relevant information. sales habits.
Customers trust the salesperson: In markets There is need to protect the brand image: In
where salespeople need to forge high levels of situations where the firm is building or
trust with customers, such as those in the protecting its brand image, it is critical that the
financial industry, OS afford salespeople the sales force represent the firm and its products
freedom needed to develop deep, trusting and services correctly. BS provide the necessary
relationships. management control over the sales process.
There are many ways to close the deal: When Nonselling behaviors are a priority: When
there are many sales behaviors that can be companies need their salespeople to contri-
effective in contributing to performance, OS bute to other nonselling functions, such as new
provide the independence necessary for product development, BS provide the flexibility
success in any situation. for management to reward such behaviors.
The sales environment is competitive: OS It is difficult to assign sales credit: When the
provide salespeople the freedom to use their personnel involved in a sales team cannot
creativity in developing successful sales agree on the appropriate drivers of a successful
strategies. sale, then BS are recommended to avert
endless disputes.

An example of salespeople who are evaluated on behavior measures of performance

are those who receive the majority of their compensation in salary, such as pharmaceutical
and alcoholic beverage salespeople. For these people, number of calls, demonstrations,
and displays erected are key success factors. On the other hand, managers who direct
stockbrokers and insurance and real estate agents who are paid on commission tend to
emphasize outcome measures. Despite these preferences, neither group relies exclusively
on behavior or outcome measures of performance. Sales jobs are multidimensional, and
comprehensive evaluation systems must include multiple criteria. Thus, your dilemma is
how to select and balance a set of behavior and outcome factors that will achieve the best
results for your organization.
Recent research by Anderson and Onyemah, however, provides some guidance as to
when a behavior or outcome system should be considered.5 As a general guideline, when the
salesperson has a substantial influence on the results, an outcome system is recommended.
Conversely, a behavior-based evaluation system is recommended when the sales force does
not have the expertise to conduct the job properly. In other words, a behavior-based system
should be considered when your salespeople are not sure how to handle the freedom that
comes with the job. The specific conditions for an outcome- versus a behavior-based system
are discussed in more detail in Table 13-7. Our discussion of this issue begins with a review
of behavioral measures of performance.

BEHAVIOR-BASED EVALUATION
When using behavioral systems, managers are concerned with keeping track of what hap-
pens at each stage of the sales operations. In some sense, behavioral systems value how
people make sales more than the number of sales they make. The idea is that if the sales-
person follows the recommended behaviors, the sales results will follow. This means that
management must closely monitor sales force activities and direct and intervene to improve
customer relations. For example, Swissôtel reviewed the activities of its ten U.S. salespeople
to see how they were allocating their time and how many calls they were making per week.6
B E H A V I O R -B A S E D E V A L U A T I O N 331

The hotel company found that salespeople were spending too much time in the office prepar-
ing proposals and expense accounts instead of talking to customers. Swissôtel set a new
goal of six calls per day and expected its people to spend 80 percent of their time in direct
customer contact. To help make salespeople more efficient, they equipped them with cellular
phones and laptop computers to provide up-to-the-minute inventory of hotel rooms. This
provided salespeople with the information needed to close calls on the spot.
Behavior-based systems usually require managers to make some subjective evaluations
about individual salespeople. As a result, qualitative factors as illustrated in Table 13-6 are
commonly used in these performance evaluations. Note that factors such as communication
skills, attitude, team player, and appearance can only be judged using subjective interpre-
tations and rating scales. This may introduce problems of bias, halo effects, and credibility
into the evaluation process. Despite these limitations, behavioral systems are thought to
produce a number of desirable benefits.
Since behavioral-based evaluations focus on the activities and procedures of successful
selling, these systems can enhance salesperson knowledge and commitment. Many com-
panies are now evaluating the sales force not just on the increase in sales, but also on a
number of other dimensions such as competitor product knowledge, customer knowledge,
and attainment of personal goals.7 These behavioral measures are designed to encourage
salespeople to achieve all-around excellence and better serve the needs of customers.

Management by Objectives
A commonly used behavioral system is management by objectives (MBO)—also called
development and performance management. With this method, salespeople and sales man-
agers jointly set personal development goals for the subordinate that can be completed
within a specific time period. Salespeople then develop an action plan to reach each goal.
Written performance appraisals are presented to salespeople during review sessions with
sales managers. Reps react favorably to MBO systems because they can see where they
stand and know that progress toward their goals will be rewarded.
Although MBO systems work well for some firms, they are not without problems. One
issue is that some sales force goals do not lend themselves to expression in quantitative
terms. This problem is particularly serious with technical reps when the job often involves
problem solving. In addition, MBO goals can sometimes become ceilings that salespeople
refuse to exceed. Perhaps the biggest weakness of MBO systems is that they require a lot
of the sales manager’s time and heavy paperwork. Because implementing an MBO control
system takes a few days per subordinate per year, a manager supervising twelve salespeople
would spend more than a month every year on this activity alone!

Behavioral Observation Scales

An improvement on MBO is an approach called behavioral observation scales (BOS), which
focuses on identifying a list of critical incidents that lead to job success.8 This approach
assumes that some of a salesperson’s job requirements are more critical to job success than
are others, and the key to evaluating people is to focus on these factors. Salespeople, their
superiors, and customers can help identify these important behaviors. Once the key job
behaviors are identified, they can then be grouped together to form job dimensions. Next,
5-point scales are attached to each activity. The resulting behavioral scales can be used
by regional or district sales managers to measure the frequency with which subordinates
engage in critical behaviors.
Scores on scale items are totaled, and categories for adequate, good, excellent, and
superior performance are set by management. For example, good people skills are often the
difference between success and failure among field sales employees. The use of BOS allows
332 CHAPTER 13 EVALUATING PERFORMANCE

managers to measure the personal interaction skills of their subordinates and identify any
problems.
One advantage of the BOS is that this system requires an extensive analysis of the sales-
person’s job responsibilities that lead to success. Identifying these behaviors is important
because they are considered drivers of sales success. Another advantage of this evaluation
system is that, once these behaviors are identified, use of BOS is less time-consuming for
sales managers than MBO systems.
The main problem with BOS is the expense entailed in preparing reliable and valid rat-
ing scales. They require a good deal of time from a number of people. Also, the task-specific
nature of the scales they produce suggest they are most reliable in evaluating salespeople
performing very similar job functions. Separate job dimensions and critical incidents, there-
fore, must be developed for each level and type of sales job. For example, BOS would have
serious shortcomings if used to compare a territory salesperson against a national account
representative because of differences in their job responsibilities.

Using Behavior-Based Systems

Successful implementation of behavioral evaluations requires periodic analysis of data on
sales force activities. One widely used way to gather this information is through the comple-
tion of daily, weekly, or monthly call reports by salespeople. These reports detail who was
called on, at what stage the prospect is within the sales cycle, and what followup activities
are needed in the future. Some managers use the 10-3-1 rule, meaning that for every 10
qualified prospects, 3 will entertain a proposal and 1 will become a customer. By monitoring
three key databases, a lead log, a proposal log, and an order log, managers can see how
reps are moving leads through the sales cycle.
Firms that do not monitor sales force activities can create serious evaluation problems.
One company gave its salesperson-of-the-year award to a rep who did not close any new
accounts and lost 40 percent of his old customers. Although this person produced high
sales revenues by closing a few existing customers, he was not positioned for the future
because he had no new prospects to move into the proposal stage. He left the company
the following year. To avoid similar situations, companies are relying on technology-based
programs to help keep track of salesperson activities. Internet-based programs, for example,
provide excellent platforms for storing and organizing the details of salesperson activities.
Companies such as Salesforce.com and CRMonDemand.com offer Web-based applications
designed to help manage salesperson behaviors and customer accounts. In the pharmaceu-
tical industry, salespeople record call data directly on notebook computers using a pen or
keyboard. The salespeople have doctors sign their names directly on the screens to request
product samples. At the end of the day, reps download the information to central computers
for processing. This speeds the collection of field data and simplifies the filling of customer
requests for samples, brochures, and merchandise. A side benefit of using notebook comput-
ers for call reports is that the machines have built-in clocks that allow managers to monitor
field activities to ensure that the reps are actually making the calls they are reporting. If
you were the person responsible for changing the sales force evaluation system to include
a bevavior-based component as discussed in Team Exercise: “Measuring More Than Sales
Quotas,” what changes would you recommend?

OUTCOME-BASED EVALUATIONS
In Outcome-based evaluations, managers set performance standards for each salesperson
and evaluate the results against the preset standards. Outcome-based evaluations have
been shown to improve salesperson job attitudes when the salesperson understands what
O U T C O M E -B A S E D E V A L U A T I O N S 333

T A B L E 13-8 Measuring Sales Force Output for Bear Computer Company

1 2 3 4 5 6 7 8
Sales ’07 Sales ’08 Market Potential Sales Percentage Sales
Jan-Sept Jan-Sept Dollar Sales index Quota of Quota Variance
Territory (000) (000) Change Growth (percent) (000) Achieved (000)
Jones $ 750 $ 825 +$75 10.0% 26.0% $ 943 87.0% −$118
Smith 500 570 +70 14.0 15 543 105 +27
Brown 1025 1110 +85 8.3 32 1160 96 −50
West 960 1000 +40 4.2 27 977 102 +23
$3235 $3505 +$270 8.3% 100.0% $3623

is expected and is able to modify his or her work strategy to meet the expected goals.9
An example of a sales results system employed by Bear Computer Company is shown in
Table 13-8. The figures are broken out by territory so that the manager can evaluate the
performance of individual salespeople. Columns 1 and 2 show year-to-date sales volumes
for 2007 and 2008. Note that Brown and West had the highest sales, with Brown also
producing the largest dollar increase. When these changes are converted into percentages,
we see that Smith had the best sales growth, followed by Jones (column 4). Up to this point,
the figures suggest that Brown ranked number one on revenues, and Smith showed the best
sales improvement.

Differences in Potential
One problem with the results-based sales figures given in columns 1 through 4 (Table 13-8)
is that they do not adequately measure conditions faced by salespeople in the field. Thus, the
sales outputs we have observed may simply reflect differences in the size of the territories.
This suggests that sales results need to be compared with the potential available in each
territory.
Bear’s sales potential for the four areas can be estimated from published industry
figures, from the Survey of Industrial Purchasing Power, or from Census of Business data.

TEAM EXERCISE
“Measuring More Than Sale Quotas.”

Victoria Knudson, the new vice president of sales for a New York-based telecommunications
company, feels that the current salesperson evaluation system is flawed. The company’s mis-
sion is to offer the best service and value to its customers through its highly responsive and
well-trained sales force. Under the current system, salespeople are judged primarily on sales
quotas that emphasize gross sales dollars. According to Victoria, “judging salespeople on sales
quotas alone isn’t always the best solution. In many business-to-business sales forces like
ours, less-than-average sales are not necessarily the problem, but more a symptom of a greater
problem. It’s our responsibility to train the sales force so that all-around excellence can be
achieved.”
Victoria wants you to change the sales force evaluation system. Instead of measuring—and
compensating—its account executives, sales managers, and branch managers on sales quota
alone, you need to institute a behavior-based component to the evaluation process. What
changes would you recommend? Why?
334 CHAPTER 13 EVALUATING PERFORMANCE

Once reliable measures of potential are available, the next step is to convert these numbers
into sales quotas. For example, Jones has 26 percent of the sales potential in the area (column
5, Table 13-8). Because Bear expected district sales to increase 12 percent to $3,623,000
($3,235,000 × 1.12 = $3,623,000), the sales quota for Jones would be 0.26 × $3,623,000,
or $941,980. Similar calculations can provide sales quotas for each territory that can be
compared with actual sales results.

Sales to Quota
Dividing actual territory 1 sales of $825,000 by the quota of $942,812 shows that Jones was
only producing 87 percent of company expectations (column 7, Table 13-8). Also, Brown
has not achieved his quota even though he has the largest potential of all (32 percent).
West, who had the lowest dollar increase, was still able to sell 102 percent of his quota.
Thus, two territories with large dollar increases in computer sales actually were the two
weakest territories when sales were related to potential. The best performance was achieved
by Smith, who had the smallest potential in the division and was third in terms of dollar
sales growth. These results suggest that you should consider rewarding Smith with some
of the accounts from Brown. This change may increase total sales of the division because
Brown is apparently not covering this large market adequately.
The figures in Table 13-8 also indicate that Jones needs further review. Jones achieved
a 10 percent sales increase, which is better than the average for the division. However,
computer sales are still $118,000 below potential (column 8). One possible explanation is
that Jones is new to the territory and has not had time to develop the area properly. Perhaps
the area has a history of poor sales because of competitive pressure, or Jones is poorly trained
and needs additional coaching from you. These examples suggest that a careful analysis of
territorial sales data can help in addressing problems that affect performance results.

Contribution-Based Evaluations
Measuring salespeople on the basis of the profit contribution that results from their activities
is often a useful exercise for sales managers. An example of a contribution profit review
for Bear Computer Company is shown in Table 13-9. The analysis begins with net sales
for each territory, from which the cost-of-goods-sold and sales commissions are subtracted.
This gives a dollar contribution margin. Note that Brown had the highest dollar margin.
However, when the dollar contributions are divided by sales to give a contribution margin
percentage, West had a 34 percent margin, compared with only 32 percent for Brown.
Brown is apparently pushing a mix of items with low markups or is possibly cutting prices
to gain sales volume.

Trading Profits for Revenues. The disadvantages of trading profits for volume can be
clearly seen by comparing Jones’s and Smith’s performances. Jones appears to be selling
high-profit products at list prices to generate an impressive 40 percent margin. On the other
hand, Smith is cutting prices, leaving only a 25 percent contribution margin. These results
help explain the sales figures reported in Table 13-8. This earlier analysis showed that Smith
achieved a 14 percent sales growth and produced 105 percent of quota. The information
in Table 13-9 suggests that the results were related to Smith’s selling strategy—offering
low prices and pushing low-markup items. Conversely, the high prices charged by Jones
resulted in slower sales growth, and Jones attained only 87 percent of the planned sales
quota.
An analysis of the direct selling expenses in the four computer sales territories provides
another view of the results of individual efforts (Table 13-9). Even though West had the
USING MODELS FOR EVALUATION 335

T A B L E 13-9 Measuring Territory Profit Output for Bear Computer Company

Territory Performance (thousands)a
Jones Smith Brown West
Net Sales $825 $570 $1100 $1000
Less CGS and Commissions 495 428 744 660
Contribution margin 330 142 356 340
CM as a percentage of sales 40% 25% 32% 34%
Less direct selling costs
Sales force salaries 55.0 35.0 55.0 65.0
Travel 15.5 4.1 3.5 5.0
Food and lodging 12.5 4.0 3.2 4.5
Entertainment 11.4 0.3 0.5 1.0
Home sales office expense 4.5 2.3 2.0 4.5
Profit contribution $231.1 $96.3 $291.8 $260.0
PC as a percentage of sales 28% 17% 26% 26%

a
Sales figures are from Table 13-8.

second-highest contribution margin percentage, he was tied with Brown on net profit con-
tribution as a percentage of sales (26 percent). The reason is that Brown kept direct selling
expenses to 6 percent of sales, while these expenses ran to 8 percent of sales in West’s
territory. Part of the problem was that West was paid more than anyone else. In addition,
West’s expenses for travel, food, and entertainment were relatively high. If these could be
reduced to the level achieved by Brown without hurting sales, West’s profits would improve
substantially.

Buying Customers. Another profitability issue is raised by the activities of Jones, who
produced a contribution margin that was 6 percent higher than that produced by any other
territory (Table 13-9). However, the profit contribution of 28 percent was only 2 percent
more than that generated by Brown and West. The explanation for the failure to push
this advantage through to the bottom line lies in the various expense categories. Although
Jones’s salary ($55,000) seems reasonable, the amounts spent on travel, food, lodging, and
entertainment appear to be excessive. Although salespeople in the other three territories
averaged $11,500 for these expenses, Jones spent $43,900. The typical response of a sales
manager to expenditures of this size would be to pressure the salesperson to cut back so that
the profit contribution would increase. However, the issue of how much control managers
should place on sales expenses is a very delicate one. Salespeople need to spend enough
to get the sale, but not so much that profits are reduced. Sometimes it pays to entertain
customers. For example, one study revealed that the most successful insurance agents were
those who exceeded their office expense budgets.10 Thus, Jones’ success may be due to
his ability to wine and dine clients. On the other hand, it is possible that Jones is using
his expense account to offer customers under-the-table discounts. If these travel, food, and
entertainment expenditures are legitimate, the manager might consider asking the other
salespeople to spend more on these items.

USING MODELS FOR EVALUATION

As mentioned earlier, most sales managers use both behavioral and outcome-based factors.
This combination approach allows them to appraise more effectively the multidimensional
nature of the field sales job. Several evaluation models allow you to review different aspects
of selling at the same time.
336 CHAPTER 13 EVALUATING PERFORMANCE

Four-Factor Model
Perhaps the simplest sales force evaluation model includes just four measures of perfor-
mance. Individual input is gauged by the number of days worked and the total number of
calls made. The output of the salesperson is measured by the number and average size of
orders. These factors are combined to give the following equation:
Calls Orders Sales $
$ Sales = Days worked × × ×
Days worked Calls Orders
The four-factor model indicates that sales can be increased by working more days, making
more calls per day, closing more sales with customers, and increasing the sales per order. If
a salesperson is not generating sufficient volume, then the problem must be a deficiency in
one or more of these areas. The model must be used with caution because of the interactions
among the factors. Calls, for example, have a positive correlation with sales but often have
a negative relationship with sales per order. This means that even though sales increase as
you make more calls, at some point the size of the order begins to decline because there is
less time to spend with each customer. Thus, there appears to be an optimum number of
sales calls for each salesperson that will maximize profits.
An example of the four-factor model is presented in Table 13-10. The data show that
Pete’s sales were about average for a salesperson in 2008 ($1,400,000), whereas Ann’s were
a little low. However, Ann worked more days, made more calls, had lower expenses, and
landed more orders. As a result, she made one more call per day and had a 50 percent
batting average (orders per calls). Although Jones closed the sale on only 40 percent of his
calls, he had a high average order size. Thus, despite lower values for days worked, calls
per day, and batting average, Jones obtained larger orders and a higher total sales volume.
In this case, a sales manager might be tempted to encourage Ann Smith to increase
the size of her average order. Suggestions of using different selling strategies to account
for differences within and across territories are sometimes warranted. A first step to get
Ann to focus on larger accounts, for example, could be to direct her smaller, less profitable,
accounts to the Internet for reordering. Care must be taken, however, to approach only
those customers who would feel comfortable with this new ordering procedure. Although
larger orders should increase total sales, Ann would be making fewer and longer sales calls
and possibly could be experiencing a reduction in her batting average. Fewer calls per day
produced larger orders in Jones’ territory, but it is not clear that this strategy would work
as well for Smith. It is possible that Ann’s average order size is lower than Pete’s because
her account opportunity is lower. For example, Ann’s territory may have fewer numbers of
large firms. If this is the case, then Ann’s overall evaluation would be higher than Pete’s.

T A B L E 13-10 Evaluating Performance Using Behavior and Outcome Data

Performance factors Pete Jones Ann Smith
Sales (annual) $1,400,000 $1,100,000
Days worked 210 225
Calls 1,200 1,500
Orders 480 750
Expenses $19,000 $14,900
Calls per day 5.7 6.7
Batting average (orders per calls) 40% 50%
Sales per order $2,916 $1,466
Expenses per call $15.83 $9.93
Expenses per order $39.58 $19.86
Expenses as % of sales 1.35% 1.35%
USING MODELS FOR EVALUATION 337

Also, Pete’s expenses were $3,000 above industry averages in 2008 and Ann’s were below
average. Jones’s expenses are also sharply higher than Smith’s when expressed on a per
call or order basis. It is important to point out, however, that expenses as a percentage of
sales were the same for both representatives.

Ranking Procedures
A second way to combine sales force evaluations is to use ranking procedures. Rankings
can be added up to give an overall measure of efficiency. For example, Table 13-11 shows
how five salespeople ranked on ten different input/output factors. The first factor used to
evaluate performance is sales per person. Although this variable is a good overall measure,
it can be deceiving. Note that Ford, for example, had the highest total sales but was last on
sales to potential, suggesting that this high volume was due to a large territory. Gold, on
the other hand, had low volume and high sales to potential, indicating good coverage of a
limited market.
Sales to quota shows a salesperson’s ability to increase revenue, and Mann was best
on this factor. Sales per order is important to some firms because they have found that
small orders are unprofitable. Ford, for example, achieved a high sales volume by making a
large number of calls and selling small amounts to each customer. Gold had the best batting
average, ranking first on the ratio of orders to calls. The gross margin percentage achieved
by the salespeople shows how well they control prices and sell the right mix of products.
The data suggest that Ford’s low margins were the result of price-cutting to increase the
number of accounts and boost sales. Ford was also weak on the behavioral factors measuring
the number of reports turned in and expense control.
The performance of the five salespeople varied widely across the ten factors in
Table 13-11, and each person ranked first on two criteria and last on at least one factor.
When the rankings are added to give an overall measure of performance, Bell, Shaw,
and Mann had total scores close to 30, the expected value. However, Ford’s score of 36
and Gold’s score of 25 suggest that these two representatives require special attention.
Although Ford had the best sales volume, he had the lowest scores on four other factors
and the weakest overall record. Gold, on the other hand, was doing a good job despite low
total sales. The most obvious change suggested is to shift some of Ford’s territory to Gold,
giving Gold more to do and providing better coverage for some of Ford’s customers. Also,
Ford should be encouraged to work for larger orders and told to stop cutting prices.
Summing the ranks of the factors in Table 13-11 provides a rough indication of the
salespeople’s performance levels. Companies such as Ford, General Electric, and Microsoft
use rankings because of its supposed objectivity. At General Electric, supervisors use the

T A B L E 13-11 Ranking Salespeople on 10 Input/Output Factors

Ranking Factors Ford Bell Shaw Mann Gold
Dollar Sales 1 2 3 4 5
Sales to Potential 5 3 4 2 1
Sales to Quota 5 4 2 1 3
Sales per Order 5 1 4 3 2
Number of Calls 2 5 1 3 4
Orders per call 4 2 5 3 1
Gross Margin Percent 5 1 3 4 2
Direct Selling Costs 4 3 5 1 2
New Accounts 1 4 2 5 3
Number of Reports Turned in 4 3 1 5 2
Total of Ranks 36 28 30 31 25
338 CHAPTER 13 EVALUATING PERFORMANCE

ranking system to identify the top 20 percent and the bottom 10 percent of their staffs each
year. The top 20 percent are richly rewarded, while the bottom 10 percent will likely be
fired.10 Ranking procedures, however, do have some disadvantages. Perhaps the biggest
weakness is that it assumes that all 10 criteria are equally important. This is rarely the case,
because firms may be looking for sales growth at one point in the business cycle and profits
at another. Also, ranking does not eliminate the potential for subjectivity and bias to enter
into the process, especially when behavioral data are used.

Performance Matrix
Deficiencies of the four-factor model and ranking procedures have led to the development
of a new performance matrix11 shown in Figure 13-2. The diagram was constructed by
dividing sales force sales and contribution margin percentages into high and low categories.
Then averages were calculated for age, calls, and contribution dollars for salespeople falling
into each cell. The four cells of the matrix have been given descriptive names to highlight
comparisons among different groups. The stars in the upper-right quadrant produced the
highest sales and highest gross margin percentages. Slowpokes in the lower-right cell pro-
duced good percentage margins but lower sales. Salespeople who fell into the lower-left
quadrant were low on both sales and percentage margins. The compromisers in the upper-left
cell had high sales and lower contribution margin percentages.
A performance matrix allows you to review and compare the accomplishments of your
sales force along several input/output dimensions at the same time. Note that Figure 13-2
includes data on two input measures (calls and age as a proxy for experience) and three
output measures (sales, contribution dollars, and contribution margin percentage). In this
case, the matrix shows that the youngest salespeople are either slowpokes or stars and
that the oldest are laggards or compromisers. These data suggest that many reps start their
careers by selling a high-margin mix of products and end it by sacrificing margins for
revenue.

F I G U R E 13-2 Performance Matrix for 56 Building Products Salespeople

USING MODELS FOR EVALUATION 339

Data from the performance matrix shown in Figure 13-2 can be used to make
a number of managerial recommendations. The eleven laggards represent a plateau
problem and, therefore, are ripe for retraining, redeployment, or dismissal. Also, if these
salespeople made more calls, they might be able to move up to the compromiser category.
A crucial issue for the sales manager is deciding whether to encourage reps to become
stars or compromisers. This is a tough choice because although the stars had the highest
contribution percentage, the compromisers produced more sales and more contribution
dollars. Thus, managers looking for dollars would reward the compromisers, and those
seeking a higher net profit percentage would reward the stars. After reviewing the data
in Figure 13-2, management of the firm changed the compensation plan from straight
commission to a salary plus commission plus bonus program to tie sales efforts more
closely to the profitability of the different product lines.
This example shows that a performance matrix can provide a useful way to review
behavior and the results achieved by salespeople. The matrix is easy to construct, and it
neatly summarizes a variety of sales activities in a readable format. With this procedure, the
manager’s key task is to select appropriate performance measures for the review process.

Relative Performance Efficiency

Another procedure called the relative performance efficiency index uses both inputs
and outputs to compare performance to a peer group. This approach employs data
envelopment analysis and simulation techniques to prepare a single index of efficiency.12
Table 13-12 shows a relative performance index of 85 percent calculated for a salesperson
selling advertising space to businesses. In this case, rep 22 is compared with three other
salespeople who had scores of 100 percent operating in similar conditions. The analysis
is based on a comparison of output measured by three variables relative to the size of
four input variables. If salesperson 22 had been as efficient as his peers, he would have
exceeded his quota by 20 percent, sold $5,500 more advertising, received $2,000 less
salary, had one less management support person, and had operated in a smaller territory.
Sales manager can use the results of the analysis to allocate resources and make
decisions on retraining. Organizations that pay their salespeople straight commissions to
maximize output are rarely concerned with input factors, and relative performance indexes
would not be an appropriate evaluation technique. However, some companies are experi-
menting with relative performance systems to reduce manager time in setting, managing,
and adjudicating complaints about quotas.

T A B L E 13-12 Relative Performance Efficiency for Sales Rep 22

Variable Type Variable Name Value Measured Value if 100% Efficient Slack
Output Percent Quota Attained (%) 100 120 20
Output Supervisor Evaluation 5 5 0
Output Sales Volume ($) 45,000 50,500 5,500
Input Sales Training 5 5 0
Input Salary ($) 20,000 18,000 2,000
Input Management Ratio 3 2 1
Input Territory Potential ($) 60,500 50,000 10,500

Reference Set Efficiency = 0.85

Influence Iterations = 10
Salesperson 7 0.49
Salesperson 20 0.43
Salesperson 45 0.08
340 CHAPTER 13 EVALUATING PERFORMANCE

Six Insights for Successful Evaluation and Control Systems

Throughout this chapter, we have focused on the development and management of the sales
force evaluation and control systems. However, experts suggest that sales managers are
more likely to spend time in the evaluation process and use the results if a similar process
is employed to manage their own performance as well as others in the sales organization.
The six insights listed below are based on research conducted by Andris Zoltners and his
colleagues.13
1. The evaluation system is used at all levels of the company. Although the focus of this
chapter is on developing salesperson evaluation systems, these development processes
work at all levels in the sales organization. First-line sales managers (as well as sales-
people) are more likely to take the process seriously and use it if a similar process is
used to manage their own performance.
2. A good evaluation system reflects the company’s culture. An evaluation system needs
to be consistent with the sales force culture. For example, a results-based evaluation
system works well where the culture of the company is informal and the focus of the
commissioned-based sales force is to increase its customer base with new accounts. A
behavior-based evaluation system in this culture will likely lead to confusion and conflict.
3. Peer influence is powerful in helping manage performance. Most evaluation interac-
tions occur between a salesperson and his or her superior. That is, the evaluation system
is hierarchical. Some companies that use team selling have discovered a powerful way to
influence performance—horizontal (i.e., peer) evaluations. Team selling naturally lends
itself to horizontal evaluations because team members expect good performances and
encouragement from one another. This system will identify nonperformers relatively
quickly.
4. Evaluation systems must leverage a person’s motivators. It is important to remem-
ber that people are motivated by positive feedback, specific and understandable goals,
and a compensation system that reinforces these goals. In addition to these factors, the
manager must also take the role of a coach by appealing to the achievement, power, ego
gratification, social affiliation, and survival needs of the salespeople.
5. Empowerment and direction—it’s not just a question of “either/or”; it’s also a ques-
tion of when. A person may need to be empowered in one area and directed in another.
For example, a salesperson may have excellent prospecting and relationship-building
skills but poor closing skills. Thus, an evaluation system that permits the manager to
tailor the evaluation procedure to an individual is recommended.
6. The evaluation system itself must evolve. As indicated throughout this book,
high-performing sales organizations are able to change with the marketplace; and these
changes include salesperson success factors. Thus, the evaluation system must also
evolve to adapt and reflect these changes.

SUMMARY
Sales force evaluation is a process that compares goals with accomplishments. Our discus-
sion has shown that the evaluation of salespeople is an essential but tricky task. You want
to be able to motivate reps to higher levels of achievement while at the same time judge
them on their accomplishments. This chapter has introduced you to a number of topics and
issues dealing with the sales force evaluation process. You should now be able to:
1. Conduct a sales force performance review. The first step is to decide what you want
the sales force to accomplish. Once decided, the second step is to prepare a sales plan.
The third step is to set performance standards for individual products for different levels
KEY TERMS 341

in the organization. Next, measures of success need to be developed. Finally, reasons

for above- and below-standard performance are analyzed, and modifications are made in
future plans.
2. Describe the criteria used to evaluate salespeople. The most common criteria used are
sales by territories, products, units sold, and customers. However, sales figures do not
tell the whole story; you must also evaluate selling expenses and margins. An effective
expense analysis could show whether salespeople are wasting company travel funds or
cutting prices to boost their commission income.
3. Distinguish between input and output measures of sales performance. Input criteria
measure important factors that are generally thought to be closely associated with sales,
such as number of calls, days worked, and expenses. Output measures, on the other hand,
look at those criteria that are direct measurements of salesperson performance, such as
sales volume, number of new accounts, margins, and the number of orders. Although
selecting a set of sales performance measures for a firm is difficult, one guideline is
to use those performance measures that are consistent with the organization’s goals
and objectives. Most sales managers use both input and output criteria to assess the
multidimensional character of sales jobs. Ranking procedures, performance indexes, and
performance matrices can be used to combine control factors to show overall effects and
interactions more clearly.
4. Discuss the value of behavioral control procedures for salespeople. Behavioral sys-
tems produce a number of desirable benefits. First, behavior-based evaluation procedures
can lead to knowledgeable and expert salespeople who are more committed to the
organization. Second, salespeople tend to be self-motivated and react favorably to peer
recognition. With behavior systems, salespeople can be expected to spend more time plan-
ning their calls and providing sales support activities to their customers. Third, behavioral
measures encourage salespeople to achieve company goals and better serve the needs of
customers. Commonly used behavioral systems are management by objectives (MBO)
and behavioral observation scales (BOS).
5. Understand outcome-based evaluation procedures. Results-based evaluation criteria
are effective when the salesperson understands what is expected and is able to modify
his or her strategy to meet the expected goals. Sales-to-quota and contribution-based
evaluation procedures are commonly used. One problem with outcome based measures
is that they do not adequately measure the conditions faced by salespeople in the field.
6. Describe the evaluation models that use both input and output data. Based on the
four-factor model, the individual’s input is gauged by the number of days worked and
the total number of calls made. The output of the salesperson is measured by the number
and average size of orders. Ranking also combines input and output measures of sales
force output and are generally added up to give an overall measure of efficiency. The
performance matrix is constructed by dividing sales force sales and contribution margin
percentages into high and low categories. Then averages are calculated for age, calls,
and contribution dollars for salespeople falling into each cell. The four cells of the
matrix are given descriptive names to highlight comparisons among different groups.
Finally, the relative performance efficiency index uses both inputs and outputs to compare
performance to a peer group. The analysis is based on a comparison of output measures
relative to the size of the input variables.

KEY TERMS
Account opportunity Behavioral observation scales (BOS) Contribution margin percentage
Average order size Behavioral systems Dollar contribution margin
Batting average Call reports 80–20 principle
342 CHAPTER 13 EVALUATING PERFORMANCE

Evaluation Number of accounts Ranking procedures

Expenses as a percentage of sales Outcome controls Relative performance efficiency index
Four-factor model Outcome-based evaluation Sales per order
Iceberg principle Performance matrix Sales to potential
Input/output factors Profit contribution Sales to quota
Management by objectives (MBO) Qualitative measures Total sales volume

DEVELOPING YOUR COMPETENCIES

1. Technology. In order to use salesperson performance information, a sales manager must
first correctly interpret problems and causes influencing salesperson performance. Inter-
pretation is often assisted by better understanding the personal values and motives that
are primary determinants of the individual salesperson’s behavior and performance. One
of the more highly accepted personal assessment instruments used for this purpose is the
VALS2 survey developed by SRI.
A version of VALS2 has recently been added to SRI’s extensive set of sites on
the World Wide Web and can be accessed through the URL: http://www.sric-bi.com/
VALS/presurvey.shtml. Access this Web page and complete the VALS2 survey as pro-
vided. Immediate feedback is provided to the user regarding their personal values and
motivation profile. Additional informational pages provided on this site are designed to
give the user more information and discussion of their profile, what it means regarding
behaviors, and how it compares with the rest of the population.
What is your VALS typology? Consider a salesperson with this same typology. What
are its implications for evaluating and motivating that individual salesperson’s (a) per-
formance and (b) job satisfaction? Why?
2. Global Perspective. Richard Smith is the vice president of sales and marketing for Triton
Manufacturers, Inc., which manufactures electric motors. For the past seven years, the
company has been doing business in Germany and Switzerland. The first three months
of the company’s fiscal year have ended, and Richard is preparing for the European
quarterly sales review meeting.
The managing director for the German and Switzerland operations is Helmut Schmidt.
Sales in Switzerland are currently above projected targets, but sales in Germany are not
keeping pace with the rate of industry or competitor growth. What factors would you
need to examine to guide your evaluation and feedback to Helmut?
3. Strategic Action. The most successful companies reward their salespeople by grow-
ing the value of each customer. One metric used to measure customer value is the
“share-of-customer.” It is calculated using the ration of business the customer gives to
your firm divided by the amount of business the customer is doing with the competition.
What are the strategic implications for the share-of-customer metric in the evaluation
process? How will you know that a rep is on the right track when his or her relationship
with the customer is strong, but the share-of-customer is low?

PROBLEMS∗
1. You have recently been hired as the new branch sales manager for a distributor of
steel products and manage four salespeople. The company has been in business for
twenty-five years and has been successful over the years. However, sales revenues have

*Contributed by Avery Abernethy, Auburn University. Excel spreadsheets for working on these problems are
available at www.wiley.com/college/cron. Go to “Student Resources.”
PROBLEMS 343

been relatively flat the past three years. One reason why you took the job was because
success of this business is dependent on the success of the sales staff, and you knew
you could turn things around. Also, the company’s marketing research department had
recently discovered a need for prefabricated steel products, which, up to this point,
has not been offered by your firm. Fortunately, your company had recently invested in
some state-of-the-art fabrication equipment, and you now are able to offer this service.
This is exciting news to you because pre-fab processing typically provides a healthy
30 percent contribution margin. Off-the-shelf products, on the other hand, are similar to
the competition’s product offerings and have lower contribution margin (forged steel =
10 percent; stainless steel = 12 percent). Last year, your sales quota for each prod-
uct line was $10,000/month for forged steel, $15,000/month for stainless steel, and
$10,000/month for prefabricated products.
The year-end evaluation of your four salespeople is due to your immediate boss,
the marketing director, next week. She wants to review your written evaluation of each
salesperson and your recommendations and ideas for performance improvement of your
sales staff, including any recommended changes in quotas for the three product lines.
Below are the net sales revenues for last year. An Excel spreadsheet has been devel-
oped to help you in your evaluation. When using the spreadsheet, insert the net sales
and the number of sales calls shown below into the appropriate cells. The spreadsheet
has the formula necessary to complete the ratios needed to complete this assignment and
can be found at www.wiley.com/college/cron.
Net Sales Bailey Karr Craig Kennedy

Forged steel products $135,000 $115,000 $132,000 $121,000

Stainless steel products 188,000 198,000 205,000 190,000
Prefabricated products 95,000 101,500 105,500 103,000
Total Sales $418,000 $414,500 $442,000 $414,000
Number of Sales Calls 79 94 81 97
Salary $ 42,000 $ 50,000 $ 50,000 $ 55,000
Travel 4,560 4,800 5,100 6,750
Food and Lodging 2,200 2,100 2,350 3,500
Entertainment 850 1,100 1,200 1,500
Total Salesperson Expenses $ 49,610 $ 58,000 $ 58,650 $ 66,750
2. You are the district sales manager for Conglomerate Corporation in the Southeast region.
It is January 2009, and you’ve completed the annual evaluations. You now need to
distribute the $60,000 in bonus money and $20,000 in salary increase money to your
five-person sales force.
The company’s goal is profits. Sales force pay is salary plus commission. If the firm
does well, bonus money is allocated on the basis of merit.
Your salary as district manager was $94,000 in 2007 ($88,000 in 2006, and you also
have a bonus system for meeting district goals that is not discussed here). You received
the second biggest percent salary raise last year; it would have been number one except
for a failure to turn in paperwork on time, largely due to Ann’s being chronically late
with her call reports.
Salespeople have quotas for sales, new accounts, expenses, and average calls per day.
They are also expected to turn in paperwork correctly done and on time. District man-
agers are responsible for setting quotas, allocating raise/merit money, and hiring/firing
salespeople. As district manager, you are evaluated by your superior on the following
criteria:
• District total sales
• District sales to quota
344 CHAPTER 13 EVALUATING PERFORMANCE

• District profit (sales minus expenses)

• Following company policy (e.g., paperwork done, don’t violate company rules or fed-
eral/state Laws)
Following is a copy of a performance printout that gives the previous two-year perfor-
mances of your five salespeople (2007 and 2008). Inflation in 2008 was 3.2 percent.
The Excel spreadsheet of this performance data can be downloaded from the stu-
dent companion Web site for this textbook. The textbook Web site can be found at
www.wiley.com/college/cron.
1. Allocate the salary and bonus money.
2. Give a written allocation of your funds.
3. Give a written performance review to each person.
4. Sign each performance evaluation and date it February 1, 2009. Note: Contribution
margin, attitude, selling skills, product knowledge, and paperwork are all measured
on a 1–10 scale with 1 = unacceptable and 10 = excellent; 5 is average.
In May 2008, Mr. McDonald’s wife was diagnosed with cancer. She has been through
extensive, painful treatments.
2007 Annual Evaluation

Bob Janice Sam Jeff Ann

Smith Davis Cheek McDonald White

Sales $222,000.00 $191,000.00 $351,000.00 $422,500.00 $895,000.00

Sales/Quota 1.01 1.12 0.95 1.67 2.45
New Accounts 6 9 19 8 26
New
Accounts/Quota 1 1.11 1.8 0.75 3
Expense/Quota 0.98 0.96 1.04 1.1 1.01
Avg. Calls/Day 4.5 3.7 4 4.9 4.2
Contribution 8 7 6 5 6
Margin
Attitude 5 5 5 7 3
Selling Skills 5 7 4 8 9
Product 7 3 5 9 7
Knowledge
Paperwork 7 7 7 9 1
Years with Firm 2 1 4 8 6
2007 Salary $29,500.00 $29,000.00 $37,800.00 $40,500.00 $49,750.00
2007 $6,660.00 $5,730.00 $10,530.00 $12,675.00 $26,850.00
Commission
Salary (Increase) $1,600.00 $2,500.00 $1,400.00 $2,500.00 $4,250.00
(1/1/08)

2008 Annual Evaluation

Bob Janice Sam Jeff Ann

Smith Davis Cheek McDonald White

Sales $240,000.00 $250,000.00 $350,000.00 $300,500.00 $960,000.00

Sales/Quota 1.03 1.49 0.94 1.13 2.51
New Accounts 6 15 9 6 20
New
Accounts/Quota 1 1.6 0.9 0.65 2.7
SHIELD FINANCIAL: “MISSED QUOTA” 345

2008 Annual Evaluation

Bob Janice Sam Jeff Ann

Smith Davis Cheek McDonald White

Expense/Quota 0.97 0.99 1.06 0.98 1.01

Avg. Calls/Day 4.5 4.3 3.9 4.1 4.2
Contribution 7 6 4 5 6
Margin
Attitude 5 7 4 9 4
Selling Skills 6 7 4 8 9
Product 6 5 4 9 7
Knowledge
Paperwork 8 8 5 6 4
Years with
Firm 3 2 5 9 7
2008 Salary $31,100.00 $31,500.00 $39,200.00 $43,000.00 $54,000.00
2008
Commission $7,200.00 $7,500.00 $10,500.00 $9,015.00 $28,800.00
2009 Salary
Increase (1/1/09)

FEATURED CASE SHIELD FINANCIAL: “MISSED QUOTA”

J
on MacAllister has been one of the lowest per- own. MacAllister even turned in his letter of resig-
former at Shield’s Des Moines location. Every nation after a heated argument with Bloom regarding
month since being hired he has sold 60 or his performance. After some time, he reconsidered his
70 percent of quota, but just can’t seem to get any decision and wanted to return to Shield. Bloom didn’t
higher. MacAllister keeps saying that he is on the mind taking MacAllister back, but only if he knew for
verge of turning things around in his performance and sure that changes will be made to his performance and
that introduction of a new First-Plus account program attitude.
would only make things worse if the change was forced Bloom could tell that MacAllister was not going
on him. to change a thing about his current performance, nor
When MacAllister, a two-year insurance sales vet- would he accept any changes forced on him. Doug
eran, joined Shield, he was given the accounts of the assumed that MacAllister was capable of doing better,
rep he replaced. Those accounts are performing well. but was having a difficult time finding a way to get
Doug Bloom went on sales calls to these customers him to improve.
with MacAllister and observed that he’s a natural at
developing relationships and partnering. The problem
is that he is unwilling to change the way he handles his Questions
accounts and prospecting activities. Bloom wanted to
1. How should Bloom handle this situation?
help MacAllister improve his performance by showing
him a more efficient way to organize his work schedule • Should Bloom keep investing his time in helping
in order to see new prospects. However, MacAllis- MacAllister to improve?
ter was angry at Bloom and said that he realizes that • Should he let MacAllister try to prove himself on
he’s not the best performer in the company, but he is his own?
not incompetent and is close to improvement on his • Is there a better approach?
 NOTES

Chapter 1: Introduction to Selling and Sales Management

1. “Round Table Talk,” Sales & Marketing Management (January/February 2007), pp. 33–35.
2. Rebecca Aronauer, “What’s It All Worth?” Sales & Marketing Management Magazine (May 2007), p. 29.
3. This section is based on some excellent discussions of current market and sales force changes, including the
following: Gerald Bauer, Mark Baunchalk, Thomas Ingram, and Raymond LaForge, Emerging Trends in Sales
Thought and Practice (Westport, CT: Quorum Books, 1998); and Neil Rackham, Rethinking the Sales Force
(New York: McGraw-Hill, 1999).
4. Howard Stevens, “Eight Sales Myth-Breakers,” Repertoire (October 2002), p. 70.
5. Allen Webb, Profiting from Proliferation (New York, NY: McKinsey & Company, 2006), p. 22.
6. Jim Carbone, “Motorola Simplifies to Lower Costs,” Velocity, 1 (2002), p. 45.
7. Thomas Ingram, Raymond LaForge, and Thomas Leigh, “Selling in the New Millennium: A Joint Agenda,”
Industrial Marketing Management, 31 (2002), pp. 1–9.
8. Joseph Kornik, “Risky Business,” Sales & Sales Management Magazine (June 2007), p. 32.
9. Kenneth R. Evans, David Good, and Theodore Hellman, “Relationship Selling: New Challenges for Today’s
Sales Manager,” in Bauer, Baunchanet, Ingram, and La Forge (eds.) Emerging Trends in Sales Thought and
Practice, (Wesport, CONN: Quorum Books), p. 36.
10. Greg Marshall, Danel Goebel, and William Moncrief, “Hiring for Success at the Buyer-Seller Interface,”
Journal of Business Research, 56 (2003), pp. 247–55.
11. Tuba Ustuner and David Godes, “Better Sales Networks,” Harvard Business Review (July–August 2006),
pp. 1–10.
12. See Ken Le Meunier-FitzHugh and Nigel Piercy, “Does Collaboration Between Sales and Marketing Affect
Business Performance,” Journal of Personal Selling & Sales Management 27 (Summer 2007), pp. 207–220;
Andrea Dixon, “Successful and Unsuccessful Sales Calls: Measuring Salesperson Attributions and Behavioral
Intention,” Journal of Marketing, 65 (July 2001), pp. 64–79; and Greg Marshall, William Moncrief, and
Felicia Lassk, “The Current State of Sales Force Activities,” Industrial Marketing Management, 28 (1999),
pp. 87–98.
13. See Jennifer McFarland, “Behind Every Successful Manager Is a Great Inside Sales Job,” Harvard Management
Update (December 2001); Christopher Plouffe, “Salesperson Navigational Competency: A Conceptualization
and Empirical Examination,” unpublished doctoral dissertation, 2003, The University of Western Ontario:
London, Ontario, Canada; Sanjit Sengupta, Robert Krapfel, and Michael Pusateri, “An Empirical Investigation
of Key Account Salesperson Effectiveness,” Journal of Personal Selling & Sales Management, 20 (Fall 2000),
pp. 253–261; and Christian Homburg, John Workman, and Ove Jensen, “Fundamental Changes in Market-
ing Organization: The Movement Toward a Customer-Focused Organizational Structure,” Journal of of the
Academy of Marketing Science, 28 (2000), pp. 459–478.
14. Linda Hill, Becoming a Manager (Boston: Harvard Business School, 1992), p. 88.
15. Our definition of sales management competencies is adapted from the definition for managerial competen-
cies provided in Don Hellriegel, Susan Jackson, and John Slocum, Management, 10th ed. (Cincinnati, OH:
Southwestern College Publishing, 2006), p. 4.
16. David Cravens, “The Changing Role of the Sales Force,” Marketing Management, 4 (Fall 1995), pp. 49–57.
17. The discussion in this section and the dimensions of coaching are based on Gregory Rich, “The Constructs
of Sales Coaching: Supervisory Feedback, Role Modeling and Trust,” Journal of Personal Selling & Sales
Management, 18 (Winter 1998), pp. 53–63.

346
NOTES 347

18. “Quota Busters,” Sales & Marketing Management (July 2001), p. 67.
19. Anna Britnor Guest, “Use the GROW Model for Better Coaching,” Sales & Marketing Management Magazine
(June 2007), p. 4.
20. R. Venkatesh, Goutam Challagalla, and Ajay Kohli, “Heterogeneity in Sales Districts: Beyond Individual-Level
Predictors of Satisfaction and Performance,” Journal of the Academy of Marketing Science, 29 (2001),
pp. 238–254.
21. Terry Loe, “The Effect of Perceived Ethical Climate on the Search for Sales Excellence,” Journal of Personal
Selling & Sales Management (Summer 2004).
22. Hill, Becoming a Manager, p. 171.
23. Mica Douglas, “Selling Peak Performance,” Industrial and Commercial Training, 34, 5(2002), pp. 188–191.
24. Bonnie Guy and W.E. Patton, “Managing the Effects of Culture Shock and Sojourner Adjustment on the
Expatriate Industrial Sales Force,” Industrial Marketing Management, 25 (1996), pp. 385–393.
25. Paul Greenberg, CRM: At the Speed of Light (Berkeley, CA: Osborne/McGraw-Hill, 2001), pp. 69–70.
26. Cheri Speier and Viswanath Venkatesh, “The Hidden Minefields in the Adoption of Sales Force Automation
Technology,” Journal of Marketing (July 2002), p. 98.
27. Devon Johnson and Sundar Bharadwaj, “Digitization of Selling Activity and Sales Force Performance,” Journal
of the Academy of Marketing Science (Winter 2004), pp. 3–18.
28. Alan Dubinsky, “Salesperson Failure: Sales Management Is the Key,” Industrial Marketing Management, 28
(2000), pp. 7–17.
29. Oranauer, “What’s It All Worth,” p. 29.
30. Christine Galea, “The 2004 Compensation Survey,” Sales & Marketing Management (May 2004), p. 29.
31. “So You Wanna Be a CEO,” Sales & Marketing Management (January 2002), pp. 31–32.

Chapter 2: Strategy and Sales Program Planning

1. Joe Sperry, “2002 SAMA Performance Award,” Velocity (3rd Quarter 2002), pp. 43–44.
2. Stanley Slater and Eric Olson, “Marketing’s Contribution to the Implementation of Business Strategy: An
Empirical Analysis,” Strategic Management Journal, 22 (2001), pp. 1055–1067.
3. “Data Watch,” Velocity (1st Quarter 2002), p. 5.
4. Michael Porter, Competitive Strategy (New York: Free Press, 1980).
5. Stanley Slater and Eric Olson, “Strategy Type and Performance: The Influence of Sales Force Management,”
Strategic Management Journal, 21 (2000), pp. 813–829.
6. For more information on marketing strategy in general and these decisions in particular, see David Cravens,
Marketing Strategy (Boston: Irwin McGraw-Hill, 1999): Shelby Hunt and Robert Morgan, “The Comparative
Advantage Theory of Competition,” Journal of Marketing, 59 (1995), pp. 1–15: and Charles Lamb, Joseph
Hair, and Carl McDaniel, Marketing, 6th ed. (Cincinnati, OH: Southwestern Publishing, 2002).
7. Theodore Kinmi, “How Strategic Is Your Sales Strategy?” Harvard Management Update (February 2004),
p. 5.
8. Kevin Lane Keller, “Building Customer-Based Brand Equity,” Marketing Management (July/August 2001),
p. 15.
9. Tom Mitchell, “Cisco Resellers Add Value,” Industrial Marketing Management, 30 (2001), pp. 115–118.
10. This section is based on Rajendra Srivastava, Tasdduq Shervani, and Liam Fahey, “Marketing, Business
Processes, and Shareholder Value: An Organizationally Embedded View of Marketing Activities and the
Discipline of Marketing,” Journal of Marketing, 63 (1999), pp. 168–179.
11. The discussion in this section draws primarily from Andris Zolners, Prabhakant Sinha, and Greggor Zoltners,
Accelerating Sales Force Performance (New York: AMACOM, 2001).
12. Per Vagan Freytag and Ann Hojbjerg Clarke, “Business to Business Market Segmentation,” Industrial Mar-
keting Management, 30 (2001), pp. 473–486.
13. This and other customer contact estimates in this section are based on the Penton Media, PRO Reports No.
303A, 1997.
14. Erin Strout, “Fast Forward,” Sales & Marketing Management (December 2001), p. 39.
15. Zoltners et al., Accelerating Sales Force Performance, p. 22.
16. “IBM to Shift Business to Resellers,” Sales & Marketing Management (March 1995), p. 36.
17. Rajiv Mehta, Alan Dubinsky, and Rolph Anerson, “Marketing Channel Management and the Sales Manager,”
Industrial Marketing Management, 31 (2002), pp. 429–439.
18. Bob Kearney, “Joining Forces: 3M Puts Stock in Bonding,” 3M Today (January 1995), pp. 2–5.
348 NOTES

19. Greg Stevens and James Burley, “3, 000 Raw Ideas = 1 Commercial Success!” Research-Technology Man-
agement (May–June 1997), pp. 16–27.
20. James Cross, Steven Hartley, William Rudelius, and Michael Vassey, “Sales Force Activities and Marketing
Strategies in Industrial Firms: Relationships and Implications,” Journal of Personal Selling & Sales Manage-
ment, 21 (Summer 2001), pp. 199–206.
21. Cravens, Marketing Strategy, p. 256.
22. Roger Kerin, Steven Hartley, Eric Berkowitz, and William Rudelius, Marketing, 8th ed. (New York: Irwin
McGraw-Hill, 2006), p. 144.
23. Jim Carbone, “Lucent’s Supply Chain Focus Fattens Margins,” Velocity, 4 (2002), p. 56.
24. Paul Greenberg, Customer Relationship Management at the Speed of Light (New York: McGraw-Hill, 2001).
25. Lesley Abery, Colleen Chirsten, and Erin Kriessmann, “Customers Talk, BT Listens,” Velocity (1st and 2nd
Quarter 2002), p. 14.
26. Jeff Golterman, “Strategic Account Management in the Age of the Never Satisfied Customer,” Velocity, 2
(2000), pp. 13–16.
27. It is certainly beyond the scope of this text to fully describe CRM. Good sources of additional information on
CRM include Jay Curry and Adam Curry, The Customer Marketing Method (New York: Free Press, 2000);
Philip Evans and Thomas Wurster, Blown to Bits (Boston: Harvard Business School Press, 2000); Greenberg,
Customer Relationship Management at the Speed of Light; Don Peppers and Martha Rogers, One to One
B2B (New York: Currency Doubleday, 2001); and Ronald Swift, Accelerating Customer Relationships (Upper
Saddle River, NJ: Prentice Hall PTR, 2001).
28. Robert Peterson and George Lucas, “What Buyers Want Most from Salespeople: A View from the Senior
Level,” Business Horizons, 30 (October 2001), pp. 576–586.
29. Much of the discussion in this section is adapted from Neil Rackham and John DeVincentis, Rethinking the
Sales Force (New York: McGraw-Hill, 1999).
30. For more information on customer-supplier relationships, see Esko Penttinen and Jonathan Palmer, “Improving
Firm Positioning through Enhanced Offerings and Buyer-Seller Relationships,” Industrial Marketing Manage-
ment, 36, 5 (July 2007) pp. 552–564.
31. Kapil Tuli, Ajay Kohli, and Sundar Bharadwaj, “Rethinking Customer Solutions: From Product Bundles to
Relational Processes,” Journal of Marketing, 71 (July 2007), p. 13.
32. For more on partnering relationships, see Jean Johnson, Raviprett Sohi, and Rajdeep Grewal, “The Role of
Relational Knowledge Stores in Interfirm Pertnering,” Journal of Marketing, 68, 3 (July 2004), pp. 21–36.
33. Nicole Coviello, Roderick Brodie, Peter Danaher, and Wesley Johnston, “How Firms Relate to Their Markets:
An Empirical Examination of Contemporary Marketing Practices,” Journal of Marketing, 66 (July 2002),
pp. 33–46.
34. Rackam and DeVincentis, Rethinking the Sales Force, p. 146.
35. David Wilson, “Deep Relationships: The Case of the Vanishing Salesperson,” Journal of Personal Selling &
Sales Management, 20 (Winter 2000), p. 53.
36. Gary Frankwick, Stephen Porter, and Lawrence Crosby, “Dynamics of Relationship Selling: A Longitudinal
Examination of Changes in Salesperson-Customer Relationship Status,” Journal of Personal Selling & Sales
Management, 21, 2 (Spring 2001), pp. 135–146.
37. Michael Beverland, “Contextual Influences and the Adoption and Practice of Relationship Selling in a
Business-to-Business Setting: An Exploratory Study,” Journal of Personal Selling & Sales Management, 21,
3 (Summer 2001), pp. 207–216.
38. See Barton Weitz and Kevin Bradford, “Personal Selling and Sales Management: A Relationship Marketing
Perspective,” Journal of the Academy of Marketing Science, 27 (Spring 1999), pp. 241–254, for more on
conflict management.
39. Joseph Cannon and Christian Homburg, “Buyer-Supplier Relationships and Customer Firm Costs,” Journal of
Marketing, 65 (January 2001), pp. 29–43.

Sales Management Resource: Estimating Potentials and Forecasting Sales

1. Rolph Anderson, Rajiv Mehta, and James Strong, “An Empirical Investigation of Sales Management and
Training Programs for Sales Managers,” Journal of Personal Selling & Sales Management, 17, 3 (Summer
1997), p. 61.
2. “2004 Survey of Buying Power,” Sales & Marketing Management (September 2004), p. 77.
3. William Keenan, “Numbers Racket,” Sales & Marketing Management (May 1995), p. 66.
4. The seasonal indexes derived in Table F-4 are easy to explain, but most computer programs use a more
sophisticated procedure known as the ratio to moving average method.
NOTES 349

Sales Management Resource: Sales Force Investment and Budgeting

1. Andris Zoltners, Prabhakant Sinha, and Greggor Zoltners, The Complete Guide to Accelerating Sales Force
Performance (New York: AMACOM), 2001.
2. Ibid., p. 77.
3. A word of caution here: most costs are neither purely variable nor fixed, but are actually a combination of the
two. Similarly, most operating costs are relatively fixed in the short term, but fixed costs will increase over
time as the sales volume increases beyond current capacity limits.
4. Andy Cohen, “Budget Backlash,” Sales & Marketing Management (September 2002), p. 38.
5. Kathleen Cholewka, “Looking for a Travel Alternative,” Sales & Marketing Management (December 2001),
p. 23.
6. Kathleen Cholewka, “Easy ROI,” Sales & Marketing Management (May 2002), p. 21.
7. Cohen, “Budget Backlash,” p. 38.

Chapter 3: Sales Opportunity Management

1. Ernest Waaser, Marshall Dahneke, Michael Pekkarinen, and Michael Weissel, “Smarter Segmentation for Your
Sales Force,” Harvard Business Review (March 2004), pp, 14–18.
2. Robert Blattberg, Gary Getz, and Jacquelyn Thomas, Customer Equity (Cambridge, MA: Harvard Business
School Press, 2001), p. 11.
3. Michael Johnson and Fred Selnes, “Customer Portfolio Management: Toward a Dynamic Theory of Exchange
Relationships,” Journal of Marketing (April 2004), pp. 1–17.
4. Michele Marchetti, “Is Cold Calling Worth It?” Sales & Marketing Management (August 1997), p. 103.
5. For more information on trade shows, call or write to Trade Show Bureau, 1660 Lincoln Street, Suite 2080.
Denver, Colorado 80264–2001 or call 303-860-7626.
6. Sam Whitmore, “Forecasting The Future of Webcasting,” Forbes.com (December 2003).
7. John Boe, “Sales Training: Six Powerful Prospecting Tips,” Sales & Marketing Management (October 2007),
p. 21.
8. Catherine Arnold, “Reference Programs Keep b-to-b Customers Satisfied,” Marketing News (August 18, 2003),
p. 4.
9. Christine Galea, “2002 Salary Survey,” Sales & Marketing Management (May 2002), p. 33.
10. Michele Marchetti, “1999 Sales Manager’s Budget Planner,” Sales & Marketing Management (September
1999), pp. 56–57.
11. Raymond LaForge, David Cravens, and Clifford Young, “Improving Salesforce Productivity,” Business Hori-
zons (September–October 1982), pp. 50–59.
12. Andris Zoltners and Sally Lrimer, “Sales Territory Alignment: An Overlooked Productivity Tool,” Journal of
Personal Selling & Sales Management (Summer 2000), pp. 139–150.
13. This discussion is based on Stephen Heiman, Diane Sanchez, Tad Tuleja, and Robert Miller, The New Strategic
Selling (New York: Morrow, 1998), pp. 234–269.
14. “Data Watch,” Velocity (3rd Quarter 2007), p. 8.
15. For more on the development of CLV for valuing customers see Robert Blattberg, Gary Getz, and Jacquelyn
Thomas, Customer Equity: Building and Managing Relationships as Valuable Assets (Boston: Harvard Business
School Press, 2001); Sunil Gupta, Donald Lehmann, and Jennifer Stuart, “Valuing Customers,” Journal of
Marketing Research, 16 (February 2004), pp. 7–18; Roland Rust, Valarie Zeithaml, and Katherine Lemon,
Driving Customer Equity: How Customer Lifetime Value Is Reshaping Corporate Strategy (New York: The
Free Press, 2001).
16. For examples of calculating CLV see Rajkumar Venkatesan and V. Kumar, “A Customer Lifetime
Value Framework for Customer Selection and Resource Allocation Strategy,” Journal of Marketing, 68
(October 2004), pp. 106–125; and Roland Rust, Katherine Lemon, and Valarie Zeithaml, “Return on
Marketing: Using Customer Equity to Focus Marketing Strategy,” Journal of Marketing, 68 (January 2004),
pp. 109–127.
17. Martin Elling, Holly Fogle, Charles McKhann, and Chris Simon, “Making More of Pharma’s Sales Force,”
McKinsey Quarterly, 3 (2002), p. 5.
18. Jeff Marr and Mark Walker, “Value Mapping for Strategic Accounts,” Velocity (2nd Quarter 2007), p. 35.
19. For more on time management, see Julie Morgenstern, Time Management from the Inside Out (New York:
Henry Holt and Company, 2004).
20. Stephen Covey, The Eighth Habit (New York: Free Press, 2004).
350 NOTES

Chapter 4: Account Relationship Management

1. Joseph Sperry, “Turning Innovative Account Management into Dollars: The Satyam-Caterpillar Story,” Velocity
(4th Quarter 2003), pp. 31–34.
2. Marvin Jolson, “Broadening the Scope of Relationship Selling,” Journal of Personal Selling & Sales Manage-
ment (Fall 1997), pp. 75–88.
3. “Looking at the Numbers,” Sales & Marketing Management (January/February, 2007), p. 39.
4. William Weeks and Lynn Kahle, “Salespeople’s Time Use and Performance,” Journal of Personal Selling &
Sales Management (Winter 1990), pp. 29–37.
5. For further development of the purchasing process, see William Moncrief and Greg Marshall, “The Evolution
of the Seven Steps of Selling,” Industrial Marketing Management, 34 (January 2005), pp. 13–22.
6. Weijun Xia and Shiming Wu, “Supplier Selection with Multiple Criteria in Volume Discount Environments,”
Omega, 35 (2007), pp. 494–504.
7. Kapil Tuli, Ajay Kohli, and Sundar Bharadwaj, “Rethinking Customer Solutions: From Product Bundles to
Relational Processes,” Journal of Marketing, 71 (July 2007), 1–17.
8. Tim Minahan, “Chrysler Elects Procurement Team Leader as Its New President,” Purchasing Magazine
(January 1998), pp. 22–25.
9. For more on writing proposals, see Bud Porter-Roth, Writing Killer Sales Proposals, (Toroato, Canada: E. P.
Entrepreneur, 2004).
10. Mary Shoemaker, “A Framework for Examining IT-enabled Market Relationships,” Journal of Personal Selling
& Sales Management, 21 (Spring 2001), p. 178.
11. James Anderson and James Narus, Business Market Management (Upper Saddle River, NJ: Prentice Hall,
2003), pp. 172–173.
12. Tuli et al., “Rethinking Customer Solutions: From Product Bundles to Relational Processes,” p. 5.
13. Barton Weitz and Kevin Bradford, “Personal Selling and Sales Management: A Relationship Marketing Per-
spective,” Journal of the Academy of Marketing Science, 27, 2 (1999), pp. 241–254.
14. Tuli et al., “Rethinking Customer Solutions: From Product Bundles to Relational Processes,” p. 8.
15. Jim Morgan, “Top Execs Pinpoint Six Game-Changing Strategies,” Velocity (2nd Quarter 2001), p. 48.
16. For more on understanding buyer-seller relationships and interactions, see Gabriel Gonzalez, Douglas
Hoffman, and Thomas Ingram, “Improving Relationship Selling Through Failure Analysis and Recovery
Efforts: A Framework and Call to Action,” Journal of Personal Selling & Sales Management, 25 (Winter 2005),
pp. 57–65.
17. This discussion is based on concepts presented in Stephen Heiman, Diane Sanchez, Tad Tuleja, and Robert
Miller, The New Strategic Selling (New York: Morrow, 1998), pp. 81–115.
18. Mark Shonka and Dan Kosch, Beyond Selling Value (Chicago: Dearborn Trade Publications, 2002), p. 58.
19. Shonka and Kosch, Beyond Selling Value.
20. Tuli et al., “Rethinking Customer Solutions: From Product Bundles to Relational Processes,” p. 12.
21. Ben Liu, Nicholas Petruzzi, and D. Sudharshan, “A Service Effort Allocation Model for Assessing Customer
Lifetime Value in Service Marketing,” Journal of Services Marketing, 21 (2007), pp. 24–35.
22. For more on relationship development, see Paul Schurr, “Buyer-Seller Relationship Development Episodes:
Theories and Methods,” Journal of Business & Industrial Marketing, 22 (2007), 161–170.
23. John Abele, Brian Elliott, Ann O’Hara, and Eric Roegner, “Fighting for Your Price,” McKinsey Quarterly, 4
(2002), p. 21.
24. For more on relationship binders, see Kristof De Wulf, Gaby Oderkerken-Schroeder, and Dawn lacobucci,
“Investments in Consumer Relationships: A Cross-Country and Cross-Industry Exploration,” Journal of Mar-
keting, 65 (October 2001), pp. 33–50.
25. Susan DelVecchio, James Zemanek, Roger McIntyre, and Reid Claxton, “Buyers’ Perceptions of Salesperson
Tactical Approaches,” Journal of Personal Selling & Sales Management, 23 (Winter 2003), pp. 39–49.
26. Sandy Jap, “The Strategic Role of the Salesforce in Developing Customer Satisfaction Across the Relationship
Lifecycle,” Journal of Personal Selling & Sales Management, 21 (Spring 2001), pp. 95–108.
27. Douglas Bowman and Das Narayandas, “Linking Customer Management Effort to Customer Profitability in
Business Markets,” Journal of Marketing Research, 41 (November 2004), pp. 433–447.
28. For more on building trust, see Louise Young, “Trust: Looking Forward and Back,” Journal of Business &
Industrial Marketing, 21 (2006), pp. 439–445; Carolyn Nicholson, Larry Compeau, and Rajesh Sethi, “The
Role of Interpersonal Liking in Building Trust in Long-Term Channel Relationships,” Journal of the Academy
of Marketing Science, 29 (2001), pp. 3–15.
NOTES 351
29. Lan Xia, Kent Monroe, and Jennifer Cox, “The Price is Unfair! A Conceptual Framework of Price Fairness
Perceptions,” Journal of Marketing, 68 (October 2004), pp. 1–15l; and Roy Lweicki and Barbara Bunker,
“Trust in Relationships: A Model of Development and Decline,” in Conflict, Cooperation, and Justice: Essays
Inspired by the Work of Morton Deutsch, The Jossey-Bass Management Series and The Jossey-Bass Conflict
Series, vol. 33.
30. See the work of Erik Rautalinko and Hans-Olof Lisper, “Effects of Training Reflective Listening in a Corporate
Setting,” Journal of Business and Psychology 18 (Spring 2004), pp. 281–299, and Lucette Comer and Tanya
Drollinger, “Active Empathetic Listening and Selling Success: A Conceptual Framework,” Journal of Personal
Selling & Sales Management, 19 (Winter 1999), pp. 15–29.

Chapter 5: Customer Interaction Management

1. Rick Page, Hope Is Not a Strategy (New York: Nautilus Press, 2002), p. 45.
2. Robert Peterson, Michael Cannito, and Steven Brown, “An Exploratory Investigation of Voice Characteristics
and Selling Effectiveness,” Journal of Personal Selling & Sales Management (Winter 1995), pp. 1–15.
3. Jeff Thull, Exceptional Selling, p. 59.
4. Betsy Cummings, “Wake Up, Salespeople,” Sales & Marketing Management (June 2002), p. 11.
5. Martin Elling, Holly Fogle, Charles McKhann, and Chris Simon, “Making More of Pharma’s Sales Force,”
McKinsey Quarterly (August 2002), pp. 12–13.
6. Kathleen Cholewka, “E-Market Stats,” Sales & Marketing Management (June 2002), p. 19.
7. Alston Gardner, Stephen Bistritz, and Jay Klompmaker, “Selling to Senior Executives: Part 1,” Marketing
Management (Summer 1998), p. 14.
8. For more on call reluctance, see Willem Verbeke and Richard Bagozzi, “Sales Call Anxiety: Exploring What
It Means When Fear Rules a Sales Encounter,” Journal of Marketing, 64 (July 2000), pp. 88–101.
9. Thomas Stafford, “Conscious and Unconscious Processing of Priming Cues in Selling Encounters,” Journal
of Personal Selling & Sales Management (Spring 1996), pp. 37–44.
10. For more on the impact of first impressions, see Kenneth Evans, Robert Kleine, Timothy Landry, and Lawrence
Crosby, “How First Impressions of a Customer Impact Effectiveness in an Initial Sales Encounter,” Journal
of the Academy of Marketing Science (2000), pp. 512–526.
11. John Andy Wood, “NLP Revisited: Nonverbal Communications and Signals of Trustworthiness,” Journal of
Personal Selling & Sales Management, 26 (Spring 2006), pp. 198–204.
12. David Lichtenthal and Thomas Tellefsen, “Toward a Theory of Business Buyer-Seller Similarity,” Journal of
Personal Selling & Sales Management, 21 (Winter 2001), pp. 1–14.
13. There is also research suggesting that buyer and seller nonbusiness disclosures do not affect the quality of
the relationship, but that business disclosures have an impact on the quality of the relationship. See Richard
Jacobs, Kenneth Evans, Robert Kleine, and Timothy Landry, “Disclosure and Its Reciprocity as Predictors of
Key Outcomes of an Initial Sales Encounter,” Journal of Personal Selling & Sales Management, 21 (Winter
2001), pp. 51–61.
14. Ralph Giacobbe, Donald Jackson, Lawrence Crosby, and Claudia Bridges, “A Contingency Approach to
Adaptive Selling Behavior and Sales Performance: Selling Situations and Salesperson Characteristics,” Journal
of Personal Selling & Sales Management, 26 (Spring 2006), pp. 115–142.
15. Lawrence Chonko and Eli Jones, “The Need for Speed. Agility Selling,” Journal of Personal Selling & Sales
Management, 25 (Fall 2006), pp. 372–382.
16. Theodore Kinni, “How Strategic is Your Sales Strategy?” Harvard Management Update (February
2004), p. 5.
17. Richard Jacobs, Ken Evans, Robert Kleine, and Timothy Landry, “Disclosure and Its Reciprocity as Predictors
of Key Outcomes of an Initial Sales Encounter,” Journal of Personal Selling & Sales Management, 21 (Winter
2001), pp. 51–61.
18. Roberta Schultz and Kenneth Evans, “Strategic Communication by Key Account Representatives,” Journal of
Personal Selling & Sales Management, 22 (Winter 2002), pp. 23–31.
19. This is not the only way that personal motives have been classified. For alternatives see Lou Quast and
Jane Helsing, “Motivating Others as They Would Have You Motivate Them,” Velocity (1st Quarter 2001),
pp. 31–34; LaVon Koerner, “Value Door Relationship Management,” Velocity (2nd Quarter 2001), pp. 29–34.
20. David Reid, Ellen Pullins, and Richard Plank, “The Impact of Purchase Situation on Salesperson Communi-
cation Behaviors in Business Markets,” Industrial Marketing Management, 31 (2002), pp. 205–213.
21. Annie Liu and Mark Leach, “Developing Loyal Customers with a Value-adding Sales Force: Examining
Customer Satisfaction and the Perceived Credibility of Consultative Salespeople,” Journal of Selling & Sales
Management, 21 (Spring 2001), pp. 147–156.
352 NOTES

22. For more on the format of successful sales proposals, see Tom Sant, Mark Shonka, and Dan Kosch, “Gaining
Competitive Advantage by Integrating Sales Process and Proposal Creation,” Velocity (3rd Quarter 2000),
pp. 25–30.
23. Kim Sydow Campbell, Lenita Davis, and Lauren Skinner, “Rapport Management During the Exploratory Phase
of Salesperson-Customer Relationship,” Journal of Personal Selling & Sales Management, 26 (Fall 2006),
pp. 359–370.
24. For more on buyer reactions to selling tactics, see Susan DelVecchio, James Zemanek, Roger McIntyre, and
Reid Claxton, “Buyers’ Perceptions of Salesperson Tactical Approaches,” Journal of Personal Selling & Sales
Management, 23 (Winter 2003), pp. 39–49.
25. Exchange, 17 (Stamford, CT: Xerox Learning Systems, 1990), p. 3.
26. See, for example, Stephen Schiffman, The 250 Sales Questions to Close the Deal (Avon, MA: Adams Media,
2005); Brian Tracy, Be a Sales Superstar (San Francisco: Berrett-Koehler Publishers, 2002); or Wendy Weiss,
Cold Calling for Women: Opening Doors and Closing Sales (Philadelphia: D.F.D. Publications, 2000).
27. Richard McFarland, “Crisis of Conscience: The Use of Coercive Sales Tactics and Resultant Felt Stress in the
Salesperson,” Journal of Personal Selling & Sales Management, 23 (Fall 2003), pp. 311–325.
28. Andrea Dixon, Rosann Spiro, and Maqbul Jamil, “Successful and Unsuccessful Sales Calls: Measuring Sales-
person Attributions and Behavioral Intentions,” Journal of Marketing, 65 (July 2001), pp. 64–78.
29. Jennifer Gilbert, “No Strings Attached,” Sales & Sales Management (July 2004), pp. 22–27.
30. Stacy Dehnel, “Sharing Success Factors,” Velocity (1st Quarter 2001), p. 21.

Chapter 6: Sales Force Organization

1. Andris Zoltners, Prabhakant Sinha, and Sally Lorimer, Sales Force Design for Strategic Advantage (New York:
Palgrave Macmillan, 2004), pp. 27–32; and “The Best Managers,” BusinessWeek (January 10, 2005), p. 62.
2. Andris Zoltners, Prabhakant Sinha, and Greggor Zoltners, The Complete Guide to Accelerating Sales Force
Performance (New York: AMACOM, 2001), p. 117.
3. George Day, “Managing Market Relationships,” Journal of the Academy of Marketing Science, 28 (Winter
2000), pp. 24–30.
4. Christian Homburg, John Workman, and Ove Jensen, “Fundamental Changes in Marketing Organization:
The Movement Toward a Customer-Focused Organizational Structure,” Journal of the Academy of Marketing
Science, 28 (2000), p. 467.
5. Erin Strout, “Blue Skies Ahead?” Sales & Marketing Management (March 2003), pp. 25–29; Spenser Ante,
“The New Blue,” Business Week (March 17, 2003), pp. 80–88; and Daniel Eisenberg, “There’s a New Way
to Think @ Big Blue,” Time (January 20, 2003), pp. 49–52.
6. Jerome Colletti and Mary Fiss, Compensating New Sales Roles, 2nd ed. (New York: AMACOM, 2001), p. 8.
7. Erika Rasmussen, “3M’s Big Strategy for Big Accounts,” Sales & Marketing Management (September 2002),
p. 92.
8. Ravipeet Sohi, Daniel Smith, and Neil Ford, “How Does Sharing a Sales Force Between Multiple Divisions
Affect Salespeople?” Journal of the Academy of Marketing Science (Summer 1996), pp. 195–207.
9. Zoltners et al., Accelerating Sales Force Performance, p. 125.
10. Homburg et al., “Fundamental Changes,” p. 463.
11. Jeremy Allen, Sherina Ebrahim, and Gregory Kelly, “Building a Top Consumer Goods Sales Force,” The
McKinsey Quarterly (February 2006), p. 1.
12. Allen et al., “Building a Top Consumer Goods Sales Force,” p. 1.
13. Tom Johnson, Larry Killingsworth, and Amy Miller, “Success Is a Marathon, Not a Sprint,” Velocity (4th
Quarter 2001), p. 30.
14. “Data Watch,” Velocity (3rd Quarter 2003), p. 6.
15. See for example Julian Birkinshaw, Omar Toulan, and David Arnold, “Global Account Management in Multi-
national Corporations: Theory and Evidence,” Journal of International Business Studies, 32 (2nd Quarter
2001), pp. 231–248; Sanjit Sengupta, Robert Krapfel, and Michael Pusateri, “An Empirical Investigation of
Key Account Salesperson Effectiveness,” Journal of Personal Selling & Sales Management, 20 (Fall 2000),
pp. 253–261; and John Workman, Christian Homburg, and Ove Jensen, “Intraorganizational Determinants
of Key Account Management Effectiveness,” Journal of the Academy of Marketing Science, 31, 1 (2003),
pp. 3–21.
16. Based on presentation by Nigel Percy at the M. J. Neeley School of Business, Texas Christian University,
February 20, 2008.
17. Christian Homburg, John Workman, and Ove Jensen, “A Configurational Perspective on Key Account Man-
agement,” Journal of Marketing, 66 (April 2002), p. 53.
NOTES 353
18. John Workman, Christian Homburg, and Ove Jensen, “Intraorganizational Determinants of Key Account Man-
agement Effectiveness,” Journal of the Academy of Marketing Science, 31 (Winter 2003), p. 15.
19. Connie Bateman and JoAnn Schmidt, “Do Not Call Lists: A Cause for Telemarketing Extinction or Evolution,”
Academy of Marketing Studies Journal, 11 (January 2007), p. 84.
20. Reed Research Group, Evaluating the Cost of Sales Calls in Business-to-Business Markets (January 2002).
available at www.cahnerscarr.com.
21. Robert Palmatier, Lisa Scheer, and Jan-Bendict Steenkamp, “Customer Loyalty to Whom? Managing the
Benefits and Risks of Salesperson-Owned Loyalty,” Journal of Marketing, 44 (May 2007), pp. 185–199.
22. For more on nonfinancial means of motivating sales agents, see Erin Anderson and Bob Trinkle, Outsourcing
the Sales Function (Mason, OH: Thomson/Southwestern, 2005).
23. Julia Change, “The Sweet Taste of Sales,” Sales & Marketing Management (July/August 2007), pp. 20–24.
24. Barry Trailer and Jim Dickie, “Understanding What Your Sales Manager Is Up Against,” Harvard Business
Review (July–August 2006), pp. 48–55.
25. Philip Kotler, Neil Rackham, and Suj Krishnaswamy, “Ending the War Between Sales and Marketing,” Harvard
Business Review (July–August 2006), pp. 68–78.
26. Michael Ahearne, Narasimhan Srinivasan, and Luke Weinstein, “Effect of Technology on Sales Performance:
Progressing from Technology Acceptance to Technology Usage and Consequences,” Journal of Personal
Selling & Sales Management, 24 (Fall 2004), pp. 297–310.
27. Economist Intelligence Unit and Andersen Consulting, “A Survey of More than 200 Leading Executives in
North America, Europe and Asia,” Velocity (Summer 1999), p. 3.
28. George Yip and Audrey Bank, “Managing Global Accounts,” Harvard Business Review (September 2007),
p. 103.
29. Julie LaNasa, “Building Customer Teams to Deliver on Your Company’s Value Proposition,” Velocity
(1st Quarter 2002), pp. 31–34.
30. Yip and Bank, “Managing Global Accounts,” pp. 103–111.
31. Michele Marchetti, “IBM’s Marketing Visionary,” Sales & Marketing Management (September 2000),
pp. 52–61.

Management Resource: Territory Design

1. Andris Zoltners and Sally Lorimer, “Sales Territory Alignment: An Overlooked Productivity Tool,” Journal of
Personal Selling & Sales Management, 20 (Summer, 2000), p. 140.
2. This section is based on the discussion in Andris Zoltners, Prabhakant Sinha, and Greggor Zoltners, Accelerating
Sales Force Performance (New York: AMACOM, 2001), pp. 136–140.
3. Sheree Curry, “Coping with Ever-Enlarging Sales Territory,” Sales & Sales Management (March 2002), p. 11.
4. Zoltners et al., Accelerating Sales Force Performance, p. 154.
5. Ibid.
6. Kirk Smith, Eli Jones, and Edward Blair, “Managing Salesperson Motivation in a Territory Realignment,”
Journal of Sales & Sales Management, 20 (Fall 2000), pp. 215–226.
7. Zoltners et al., Accelerating Sales Force Performance, p. 157.
8. Neeli Bendapudi and Rober Leone, “Managing Business-to-Business Customer Relationships Following Key
Contact Employee Turnover in a Vendor Firm,” Journal of Marketing, 66 (April 2002), p. 94.
9. TERRALIGN, Metron, Inc., 11911 Freedom Drive, Suite 800, Reston, VA 20190.

Chapter 7: Recruiting and Selecting Personnel

1. Based on discussions with Jonathan Scarborough, District Manager, Federated Insurance (2007).
2. Thomas N. Ingram, Raymond W. LaForge, and Thomas W. Leigh, “Selling in the New Millennium—A Joint
Agenda,” Industrial Marketing Management, 31 (October 2002), pp. 559–567; Thomas W. Leigh and Greg
W. Marshall, “Research Priorities in Sales Strategy and Performance,” Journal of Personal Selling and Sales
Management, 21 (Spring 2001), pp. 283–293.
3. Andris Zoltners, Prabhakant Sinha, and Greggor Zoltners, The Complete Guide to Accelerating Sales Force
Performance (New York: AMACOM, 2001), p. 167.
4. For more information on the causes of turnover and how to manage turnover, see Eli Jones, Donna Massey
Kantak, Charles Futrell, and Mark Johnston, “Leader Behavior, Work-Attitudes, and Turnover of Salespeople:
An Integrative Study,” Journal of Personal Selling & Sales Management, 16 (Spring 1996), pp. 13–23; Pradeep
Tyagi and Thomas Wotruba, “An Exploratory Study of Reverse Causality Relationships Among Sales Force
Turnover Variables,” Journal of the Academy of Marketing Science, 21 (Spring 1993), pp. 143–153; and Jeff
Sager, “A Longitudinal Assessment of Change in Sales Force Turnover,” Journal of the Academy of Marketing
Science, 19 (Winter 1991), pp. 25–36.
354 NOTES

5. Harris and Brannick, Finding and Keeping Great Employees, pp. 18–19; and Rick E. Ridnour, Felicia G.
Lassk, and C. David Shepard, “An Exploratory Assessment of Sales Culture Variables: Strategic Implications
Within the Banking Industry,” Journal of Personal Selling & Sales Management (Summer 2001), pp. 247–254.
6. Based on discussions with Alan Frakes, Zone Vice President, Klein Tools, Inc. (2008).
7. Earl Naumann, Scott M. Widmier, and Donald W. Jackson, Jr. “Examining the Relationship Between Work
Attitudes and Propensity to Leave Among Expatriate Salespeople,” Journal of Personal Selling & Sales Man-
agement (Fall 2000), pp. 227–241.
8. William L. Cron, Greg W. Marshall, Jagdip Singh, Rosann L. Spiro, and Harish Sujan, “Salesperson Selection,
Training and Development: Trends, Implications, and Research Opportunities,” Journal of Personal Selling
and Sales Management, 25 (Spring 2005), pp. 123–136; Andrew J. Vinchur, Jeffery S. Schippmann, Fred
S. Switzer III, and Philip L. Roth, “A Meta-Analytic Review of Predictors of Job Performance for Salespeople,”
Journal of Applied Psychology (August 1998), pp. 586–597.
9. Murray R. Barrick, Greg L. Stewart, and Mike Piotrowski, “Personality and Job Performance: Test of the
Mediating Effects of Motivation Among Sales Representatives,” Journal of Applied Psychology (February
2002), pp. 43–51.
10. Lyndon E. Dawson, Jr., Barlow Soper, and Charles E. Pettijohn, “The Effects of Empathy on Salesperson
Effectiveness,” Psychology & Marketing (July/August 1992), pp. 297–311.
11. Rosann Sprio and Barton Weitz, “Adaptive Selling: Conceptualization, Measurement, and Nomological Valid-
ity,” Journal of Marketing Research, 27 (February 1990), pp. 61–69.
12. Arun Sharma, Michael Levy, and Heiner Evanschitzky, “The Variance in Sales Performance Explained by the
Knowledge Structures of Salespeople,” Journal of Personal Selling and Sales Management, 2 (Spring 2007),
pp. 169–181; Thomas W. Leigh and Patrick F. McGraw, “Mapping the Procedural Knowledge of Indus-
trial Sales Personnel: A Script-Theoretic Analysis,” Journal of Marketing, 53(1) (1989), pp. 16–34; Leong,
Siew Meng, Paul S. Busch and Deborah Roedder John, “Knowledge Bases and Salesperson Effectiveness: A
Script-Theoretic Analysis,” Journal of Marketing Research, 26 (May 1989), pp. 164–178.
13. For more on the biases involved in hiring salespeople, see Greg W. Marshall, Thomas H. Stone, and
I. M. Jawahar, “Selection Decision Making by Sales Managers and Human Resource Managers: Decision
Impact, Decision Frame and Time of Valuation,” Journal of Personal Selling & Sales Management (Winter
2001), pp. 19–28; and Greg W. Marshall, Miriam B. Stamps, and Jesse N. Moore, “Preinterview Biases:
The Impact of Race, Physical Attractiveness, and Sales Job Type on Preinteriew Impressions of Sales Job
Applicants,” Journal of Personal Selling & Sales Management (Fall 1998), pp. 21–38.
14. Michael A. Wiles and Rosann Spiro, “Attracting Graduates to Sales Positions and the Role of Recruiter
Knowledge: A Reexamination,” Journal of Personal Selling and Sales Management, 24 (Winter 2004),
pp. 39–48.
15. Tricia Campbell, “Finding Hidden Sales Talent,” Sales & Marketing Management (March 1999), p. 84.
16. Campbell, “Finding Hidden Sales Talent,” p. 85.
17. Andy Cohen, “Hire Power,” Sales & Marketing Management Magazine (December 2001), p. 13; Zoltners
et al., The Complete Guide to Accelerating Sales Force Performance, p. 187.
18. Per discussion with Bill Jones, CEO, O’Neal Steel, Inc. (2008).
19. Julia Chang and Andy Cohen, “Should You Raid Your Rival’s Sales Force?” Sales & Marketing Management
Magazine (August 2002), pp. 43–47.
20. Timothy S. Bland and Sue S. Stalcup, “Build a Legal Employment Application,” HR Magazine, 44 (March
1999), p. 129.
21. Michael A. Wiles and Rosann Spiro, “Attracting Graduates to Sales Positions and the Role of Recruiter
knowledge: A Reexamination,” Journal of Personal Selling and Sales Management, 24 (Winter 2004),
pp. 39–48.
22. William L. Cron, Greg W. Marshall, Jagdip Singh, Rosann L. Spiro, and Harish Sujan, “Salesperson Selection,
Training and Development: Trends, Implications, and Research Opportunities,” Journal of Personal Selling
and Sales Management, 25 (Spring 2005), pp. 123–136.
23. Harris and Brannick, Finding and Keeping Great Employees, p. 74.
24. See Zoltners et al., The Complete Guide to Accelerating Sales Force Performance for more information about
this study.

Chapter 8: Sales Training

1. Kelly Shermach, “Shifting the IT Sales Game: Increased Competition Has Changed Sales Processes,”
www.salesandmarketing.com (September 6, 2006), accessed August 17, 2008.
2. William L. Cron, Greg W. Marshall, Jagdip Singh, Rosann L. Spiro, and Harish Sujan, “Salesperson Selection,
Training and Development: Trends, Implications, and Research Opportunities,” Journal of Personal Selling
and Sales Management, 25 (Spring 2005), pp. 126–136.
NOTES 355
3. Cron et al., “Salesperson Selection, Training and Development: Trends, Implications, and Research Opportu-
nities,” p. 124.
4. Mark P. Leach and Annie H. Liu, “Investigating Relationships Among Sales Training Evaluation Methods,”
Journal of Personal Selling and Sales Management (Fall 2003), pp. 327–339; Seonaid Farrell and A. Ralph
Hakstain, “Improving Salesperson Performance, A Meta-Analytic Investigation of the Effectiveness and Util-
ity of Personnel Selection Procedures, and Training Interventions,” Psychology & Marketing (March 2001),
pp. 281–316.
5. Mark P. Leach and Annie H. Liu, “Investigating Relationships Among Sales Training Evaluation Methods,”
p. 327.
6. Tammy Galvin, “The 2004 Top 100,” Training (October 2004), pp. 40–48.
7. Andris Zoltners, Prabhakant Sinha, and Greggor Zoltners, The Complete Guide to Accelerating Sales Force
Performance (New York: AMACOM, 2001), p. 167.
8. For more information about the difficulties in evaluating sales training, see Ashraf M. Attia, Earl D. Honeycutt,
and Magdy Mohamed Attia, “The Difficulties of Evaluating Sales Training,” Industrial Marketing Management,
31 (2002), pp. 253–259.
9. Earl D. Honeycutt, Jr., Kiran Karande, Ashraf Attia, and Steven D. Maurer, “A Utility Based Framework
for Evaluating the Financial Impact of Sales Force Training Programs,” Journal of Personal Selling & Sales
Management (Summer 2001), pp. 229–238.
10. Mark P. Leach, Annie H. Liu, and Wesley J. Johnston, “The Role of Self-Regulation Training in Developing
the Motivation Management Capabilities of Salespeople, Journal of Personal Selling and Sales Management,
25 (Summer 2006), pp. 270–281.
11. Based on conversations with William J. Bartholomew, former Director of Sales, Tellabs, Inc.
12. Andris Zoltners, Prabhakant Sinha, and Sally E. Lorimer, Sales Force Design for Strategic Advantage (New
York: Palgrave Macmillan, 2004), p. 336.
13. Erin Strout, “Prisoners of Paperwork,” Sales & Marketing Management (December 2002), pp. 41–45.
14. Based on conversations with John Campo, Vice President of Sales, O’Neal Steel, Inc. (February 2008).
15. Mark McMaster, “Is Your Training a Waste of Money?” Sales & Marketing Management (January 2001),
pp. 40–48.
16. Tammy Galvin, “The 2004 Top 100,” Training (October 2004), pp. 40–48.
17. Carl Wiens, “2002 Sales Training Survey,” Sales & Marketing Management (July 2002), pp. 34–37.
18. Zoltners et al., Sales Force Design for Strategic Advantage, p. 333.
19. For more information on salespeople’s knowledge structures, see Thomas W. Leigh, Thomas E. DeCarlo,
David Allbright, James Lollar, and Kay Keck, “Persuasion Knowledge Distinctions Among Higher and Lower
Performing Sales Agents” (Working Paper, 2008); Thomas W. Leigh and Patrick McGraw, “Mapping the
Procedural Knowledge of Industrial Sales Personnel: A Script-Theoretic Investigation,” Journal of Marketing,
53 (January 1989), pp. 16–34; and Thomas Ainscough, Thomas E. DeCarlo, and Thomas W. Leigh, “Building
Expert Systems for Novice Salespeople from the Selling Scripts of Multiple Experts,” Journal of Services
Marketing, 10 (1996), pp. 23–40.
20. Malcolm Wheatley, “ERP Training Stinks,” CIO Magazine (June 1, 2000).
21. Thomas W. Leigh and John O. Summers, “An Initial Evaluation of Industrial Buyers’ Impressions of Sales-
persons’ Nonverbal Cues,” Journal of Personal Selling and Sales Management, 25 (Winter 2002), pp. 41–53.
22. Zoltners et al., Sales Force Design for Strategic Advantage, p. 335.
23. The H. R. Chally Group, The Customer Selected World Class Sales Excellence Research Report, p. 52.
24. For more on mentoring, see Ellen Pullins, Leslie Fine, and Wendy Warren, “Identifying Peer Mentors in the
Sales Force: An Exploratory Investigation of Willingness and Ability,” Journal of the Academy of Marketing
Science, 24 (Spring 1996), pp. 125–136.
25. Julia Chang, “Born to Sell?” Sales & Marketing Management (July 2003), 34–37.
26. Chris Lee, “IBM Takes the Top Spot,” Sales & Marketing Management.com (March 1, 2005).
27. Mark McMaster, “Express Train,” Sales & Marketing Management (May 2002), pp. 46–54.
28. For an interesting application of Kirkpatrick’s framework in assessing sales training effectiveness, see Mark P.
Leach and Annie H. Liu, “Investigating Interrelationships Among Sales Training Evaluation Methods,” Journal
of Personal Selling & Sales Management, 23 (Fall 2003), pp. 327–329; Donald L. Kirkpatrick, “Techniques
for Evaluating Training Programs,” Journal of the American Society for Training and Development, 13 (1959),
pp. 3–9.
29. Sarah Boehle, “Are You Too Nice to Train?” Sales & Marketing Management (August 1, 2006). Retrieved
March 1, 2008, www.smm.com
356 NOTES

30. Christine Galea and Carl Wiens, “2002 Sales Training Survey,” Sales & Marketing Management (July 2002),
pp. 34–37.
31. Tammy Galvin, “The 2004 Top 100,” Training (October 2004), pp. 40–48.

Chapter 9: Leadership
1. Per conversation with Liz Crute, Divisional Vice President of Pitney Bowes, Inc. (August 2007). The name
of the sales rep was changed for confidentiality purposes.
2. Society for Human Resource Management’s 2006 U.S. Job Retention Poll (http://www.shrm.org/
press published/CMS 019635.asp). Accessed April 20, 2008.
3. See Thomas N. Ingram, Raymond W. LaForge, William B. Locander, Scott B. MacKenzie, and Philip
M. Podsakoff, “New Directions in Sales Leadership Research,” Journal of Personal Selling & Sales Man-
agement (Spring 2005), pp. 137–54; and Scott B. MacKenzie, Phillip M. Podsakoff, and Gregory A. Rich,
“Transformational and Transactional Leadership and Salesperson Performance,” Journal of the Academy of
Marketing Science (Spring 2001), pp. 115–34.
4. For a review of sales leadership studies, see Artur Baldauf, David W. Cravens, and Nigel F. Piercy, “Sales
Management Control Research-Synthesis and an Agenda for Future Research,” Journal of Personal Selling
and Sales Management (Winter 2005), pp. 7–26; and Thomas N. Ingram, Raymond W. LaForge, William B.
Locander, Scott B. MacKenzie, and Philip M. Podsakoff, “New Directions in Sales Leadership Research,”
Journal of Personal Selling & Sales Management (Spring 2005), pp. 137–54.
5. Per conversation with Liz Crute, Divisional Vice President, Pitney Bowes, Inc. (August 2007).
6. Based on John French, Jr. and Bertram Raven, “The Bases of Social Power,” in Studies in Social Power,
D. Cartwright, ed. (Ann Arbor: University of Michigan Press, 1959).
7. Michael Weinreb, “A Fine Line,” Sales & Marketing Management (October 2002), pp. 49–54.
8. For more on organizational change see: Lawrence B. Chonko, Eli Jones, and Alan J. Dubinsky, “The Role
of Environmental Turbulence, Readiness for Change, and Salesperson Learning in the Success of Sales Force
Change,” Journal of Personal Selling & Sales Management (Fall 2004), p. 227–245.
9. See William A. Weeks, James Roberts, Lawrence B. Chonko, and Eli Jones, “Organizational Readiness for
Change, Individual Fear of Change, and Sales Manager Performance. An Empirical Investigation,” Jour-
nal of Personal Selling & Sales Management (Winter 2002), pp. 7–17; and Karen E. Flaherty and James
M. Pappas, “The Role of Trust in Salesperson-Sales Manager Relationships,” Journal of Personal Selling &
Sales Management, 20 (Fall 2000), pp. 271–278.
10. This section is based on Jerome A. Colletti and Lawrence B. Chonko, “Change Management Initiatives:
Moving Sales Organizations from Obsolescence to High Performance,” Journal of Personal Selling & Sales
Management, 17, No. 2 (Spring 1997), pp. 1–30; and Gerald Bauer, Mark Baunchalk, Thomas Ingram,
and Raymond LaForge, eds. Emerging Trends in Sales Thought and Practice (Westport, CT: Quorum
Books, 1998).
11. Thomas N. Ingram, Raymond W. LaForge, William B. Locander, Scott B. MacKenzie, and Philip M. Podsakoff,
“New Directions in Sales Leadership Research,” Journal of Personal Selling & Sales Management (Spring
2005), pp. 137–154.
12. This section is largely based on Gary A. Yukl, Leadership in Organizations, 6th ed. (Englewood Cliffs, NJ:
Prentice Hall, 2006); and Scott B. MacKenzie, Phillip M. Podsakoff, and Gregory A. Rich, “Transformational
and Transactional Leadership and Salesperson Performance,” Journal of the Academy of Marketing Science
(Spring 2001), pp. 115–134.
13. For an international perspective on matching desired sales styles, see Thomas E. DeCarlo, Raymond C. Rody,
and James E. DeCarlo, “A Cross National Example of Supervisory Management Practices in the Sales Force,”
Journal of Personal Selling & Sales Management, 19, No. 1 (Winter 1999), pp. 1–14.
14. Bernard Jaworski and Ajay Kohli, “Supervisory Feedback: Alternative Types and Their Impact on Salespeople’s
Performance and Satisfaction,” Journal of Marketing Research, 28 (May 1991), pp. 190–201.
15. Tom Atkinson and Ron Koprowski, “Finding the Weak Links,” Harvard Business Review (July-August 2006),
pp. 22.
16. Atkinson, “Finding the Weak Links,” p. 22. Jaworski and Kohli, “Supervisory Feedback: Alternative Types
and Their Impact on Salespeople’s Performance and Satisfaction,” pp. 190–201.
17. Gregory A. Rich, “The Constructs of Sales Coaching: Supervisory Feedback, Role Modeling and Trust,”
Journal of Personal Selling & Sales Management, 18, No. 1 (Winter 1998), pp. 53–63.
18. Ibid.
19. Gregory A. Rich, “The Sales Manager as a Role Model: Effects on Trust Job Satisfaction, and Performance
of Salespeople,” Journal of the Academy of Marketing Science, 25 (October 1997), pp. 319–328.
NOTES 357
20. Kwaku Atuahene-Gima and Haiyang Li, “When Does Trust Matter? Antecedents and Contingent Effects of
Supervise Trust on Performance in Selling New Products in China and the United States,” Journal of Marketing
(July 2002), pp. 61–81.
21. Karen E. Flaherty and James M. Pappas, “The Role of Trust in Salesperson-Sales Manager Relationships,”
Journal of Personal Selling & Sales Management (Fall 2000), pp. 271–278.
22. Andris Zoltners, Prabhakant Sinha, and Sally E. Lorimer, Sales Force Design for Strategic Advantage (New
York: Palgrave Macmillan, 2004), p. 38.
23. Michele Marchetti “Why Teams Fail,” Sales & Marketing Management (June 1997), pp. 91–92.
24. This section is based on: Eli Jones, Andrea L. Dixon, Lawrence B. Chonko, and Joseph P. Cannon, “Key
Accounts and Team Selling: A Review, Framework and Agenda,” Journal of Personal Selling & Sales Man-
agement (Spring 2005), pp. 181–198.
25. Michael J. Barone and Thomas E. DeCarlo, “Trend Effects in Managerial Decision Making,” Working Paper
(July, 2007).
26. Steven G. Rogelberg, Cliff Scott and John Kello, “The Science and Fiction of Meetings,” MIT Sloan Man-
agement Review (Winter 2007), pp. 17–21.
27. John Ueland, “Meetings,” Sales & Marketing Management (August 1998), p. 49.
28. Erin Strout, “Masterful Meetings,” Sales & Marketing Management (May 2000), pp. 68–76.
29. Brian Moskal, “Easy ROI: Three Areas Where It Pays to Get Technical,” Sales & Marketing Management
(May 2002), p. 21.
30. Harry J. Abramson, “The Perfect Sales Meeting in the Eye of the Rep,” Agency Sales (February 2002),
pp. 55–60.
31. Jennifer Gilbert, “Become a Meeting Master,” Sales & Marketing Management (December 2002), pp. 46–51.
32. Julia Chang, “A Bore No More,” Sales & Marketing Management (August 2002), p. 55.
33. Leslie M. Fine, C. David Shepherd, and Susan L. Josephs, “Insights into Sexual Harassments of Salespeople
by Customers: The Role of Gender and Customer Power,” Journal of Personal Selling & Sales Management,
19 (Spring 1999), pp. 19–34.
34. See Wendy L. Kosanovich, Jill L. Rosenberg, and Lisa Swanson, “Preventing and Correcting Sexual Harass-
ment: A Guide to the Ellerth/Faragher Affirmative Defense,” Employee Relations Law Journal (Summer 2002),
pp. 79–99 for more information about developing sexual harassment policies.
35. As reported on the National Institute on Alcohol Abuse and Alcoholism’s Web page (http://www.niaaa.nih
.gov), August 2007.
36. Judith Spain and Rosemary Ramsey, “Workers’ Compensation and Superior Liability Legal Cases Involving
Salespersons’ Misuse of Alcohol,” Journal of Personal Selling & Sales Management (Fall 2000), pp. 263–269.

Chapter 10: Ethical Leadership

1. This section is based on Joseph L. Badaracco, Jr., Defining Moments: When Managers Must Choose Between
Right and Right (Boston: Harvard Business School Press), 1997.
2. Bridget O’Brian, “Prudential Fined $20 Million by NASD over Its Sales of Variable Life Insurance,” The Wall
Street Journal (July 9, 1999), pp. C1, C11.
3. Mara Der Hovanesian, “Markets in Turmoil: Bonfire of the Builders,” Business Week (August 13, 2007),
pp. 26–30.
4. Charles H. Schwepker, Jr. and David J. Good, “Marketing Control and Sales Force Customer Orientation,”
Journal of Personal Selling & Sales Management, 24 (Summer 2004), pp. 167–179. See also William A.
Weeks, Terry W. Loe, Lawrence B. Chonko, and Kirk Wakefield, “The Effect of Perceived Ethical Climate on
the Search for Sales Force Excellence,” Journal of Personal Selling & Sales Management, 24 (Summer 2004),
pp. 199–214.
5. Jay Prakash Mulki, Fernando Jaramillo, William B. Locander, “Effects of Ethical Climate and Supervisory
Trust on Salesperson’s Job Attitudes and Intentions to Quit,” Journal of Personal Selling & Sales Management,
26 (Winter 2006), pp. 19–26. See also, Fernando Jaramillo, Jay Prakash Mulki, Paul Solomon, “The Role
of Ethical Climate on Salesperson’s Role Stress, Job Attitudes, Turnover Intention, and Job Performance,”
Journal of Personal Selling & Sales Management, 26 (Summer 2006), pp. 272–282.
6. Susan Powell Mantel, “Choice or Perception: How Affect Influences Ethical Choices Among Salespeople,”
Journal of Personal Selling & Sales Management, 25 (Winter 2005), pp. 43–55.
7. Eugene Sivadas, Susan Bardi Kleiser, James Kellaris, and Robert Dahlstrom, “Moral Philosophy, Ethical
Evaluations, and Sales Manager Hiring Intentions,” Journal of Personal Selling & Sales Management, 23
(Winter 2003), pp. 7–21.
8. Ken Bass, Tim Barnett, and Gene Brown, “The Moral Philosophy of Sales Managers and Its Influence on
Ethical Decision Making,” Journal of Personal Selling & Sales Management, 18 (Spring 1998), pp. 1–17.
358 NOTES

9. Niccolò Machiavelli, The Prince (New York: Mentor Classics, 1952).

10. Eric Strout, “To Tell the Truth,” Sales & Marketing Management (July 2002), pp. 40–47.
11. Erin Strout, “Are Your Salespeople Ripping You Off?” Sales & Marketing Management (March 2001), p. 59.
12. Melinda Ligos, “Are Your Reps Bribing Customers?” Sales & Marketing Management (March 2002),
pp. 33–40.
13. Ibid.
14. Sean Valentine and Tim Barnett, “Ethics Codes and Sales Professionals’ Perceptions of Their Organizations’
Ethical Values.” Journal of Business Ethics (October 2002), pp. 191–200.
15. Alan J. Dubinsky, Marvin A. Jolson, Ronald E. Michaels, Masaaki Kotabe, and Chae Un Lim, “Ethical
Perceptions of Field Sales Personnel: An Empirical Assessment,” Journal of Sales & Marketing Management
(Fall 1992), p. 18.
16. Gabriella Stern and Joann S. Lublin, “New GM Rules Curb Wining and Dining,” The Wall Street Journal
(May 5, 1996), p. B1.
17. Charles Haddad and Amy Barrett, “A Whistle-Blower Rocks an Industry,” Business Week (June 24, 2002),
pp. 126–130.
18. Charles H. Schwepker Jr., “Ethical Climate’s Relationship to Job Satisfaction, Organizational Commitment,
and Turnover Intention in the Sales Force,” Journal of Business Research (October 2001), p. 39.
19. Ken Bass, Tim Barnett, and Gene Brown, “The Moral Philosophy of Sales Managers and Its Influence on
Ethical Decision Making,” Journal of Personal Selling & Sales Management, 18 (Spring 1998), pp. 1–17.

Chapter 11: Motivating Salespeople

1. Based on discussions with Robby Armstrong, Area Manager, Eaton Corporation (October 2007).
2. Frederick Herzberg, “One More Time: How Do You Motivate Employees?” Harvard Business Review, 46
(January–February 1968), pp. 53–62.
3. Geoffrey Brewer, “What Makes Great Salespeople?” Sales & Marketing Management (May 1994), pp. 82–92.
4. Marvin Jolson, “The Salesman’s Career Cycle,” Journal of Marketing, 38 (July 1974), pp. 39–46.
5. The discussion in this section is based on the following studies: Karen E. Flaherty and James M. Pappas, “The
Influence of Career Stage on Job Attitudes: Toward a Contingency Perspective,” Journal of Personal Selling &
Sales Management, 22 (Summer 2002), pp. 135–143; William L. Cron and John W. Slocum, “The Influence
of Career Stages on Salespeople’s Job Attitudes, Work Perceptions and Performance,” Journal of Marketing
Research (May 1986), pp. 119–129.
6. Karen E. Flaherty and James M. Pappas, “The Influence of Career Stage on Job Attitudes: Toward a Contin-
gency Perspective,” Journal of Personal Selling & Sales Management, 22 (Summer 2002), pp. 135–143.
7. Ibid.
8. Katharine Kaplan, “Better With Age,” Sales & Marketing Management (July 2001), pp. 58–62.
9. For further discussion of expectancy theory, see Gordon T. Gray and Stacia Wert-Gray, “Research Note:
Decision-Making Processes and Formation of Salespeople’s Expectancies, Instrumentalities, and Valences,”
Journal of Personal Selling & Sales Management (Summer 1999), pp. 53–59; Thomas E. DeCarlo, R. Kenneth
Teas, and James C. McElroy, “Salesperson Performance Attribution Processes and the Formation of Expectancy
Estimates,” Journal of Personal Selling & Sales Management, 27 (Summer 1997), pp. 1–17; and Wesley J.
Johnston and Keysuk Kim, “Performance Attribution and Expectancy Linkages in Personal Selling,” Journal
of Marketing, 58 (October 1994), pp. 68–81.
10. For a detailed discussion of role perceptions, see Jeffrey Sager, “A Structural Model Depicting Salespeople’s
Job Stress,” Journal of the Academy of Marketing Science, 22 (January 1994), pp. 74–84.
11. See Andrea L. Dixon, Rosann L. Spiro, and Maqbul Jamil, “Successful and Unsuccessful Sales Calls: Mea-
suring Salesperson Attributions and Behavioral Intentions,” Journal of Marketing (July 2001), pp. 64–78; and
Thomas E. DeCarlo, R. Kenneth Teas, and James C. McElroy, “Salesperson Performance Attribution Processes
and the Formation of Expectancy Estimates,” Journal of Personal Selling & Sales Management, 27 (Summer
1997).
12. Andris Zoltners, Prabhakant Sinha, and Greggor Zoltners, The Complete Guide to Accelerating Sales Force
Performance (New York: AMACOM, 2001), p. 277.
13. For more on this subject, see C. Fred Miao and Kenneth R. Evans, “The Impact of Salesperson Motivation on
Role Perceptions and Job Performance: A Cognitive and Affective Perspective.” Journal of Personal Selling
& Sales Management, 27 (Winter 2006), 89–101: Steven Brown and Robert Peterson, “The Effect of Effort
on Sales Performance and Job Satisfaction,” Journal of Marketing, 58 (April 1994), pp. 70–80.
14. Zoltners et al., The Complete Guide to Accelerating Sales Force Performance, p. 329.
15. Michele Marchetti, “The Art of Setting Sales Quotas,” Sales & Marketing Management (April 2000), p. 4.
NOTES 359
16. For more information on goal theory and its application to sales management, see Lawrence S. Silver,
Sean Dwyer, and Bruce Alford, “Learning and Performance Goal Orientation of Salespeople Revisited: The
Role of Performance-Approach and Performance-Avoidance Orientations,” Journal of Personal Selling & Sales
Management (Winter 2006); pp. 27–39; Thomas Wotruba, “The Effect of Goal-Setting on the Performance of
Independent Sales Agents in Direct Selling,” Journal of Personal Selling & Sales Management, 9 (Fall 1989),
pp. 22–29.
17. See William Ross, “Performance Against Quota and the Call Selection Decision,” Journal of Marketing
Research, 28 (August 1991), pp. 296–306, for more information on how quota difficulty may influence
salespeople’s strategies for achieving the quota.
18. Silver, Dwyer, and Alford, “Learning and Performance Goal Orientation of Salespeople Revisited: The Role
of Performance-Approach and Performance-Avoidance Orientations,” pp. 27–39.
19. Zoltners et al., The Complete Guide to Accelerating Sales Force Performance, p. 359; see also Bernard Jaworski
and Ajay Kohli, “Supervisory Feedback: Alternative Types and Their Impact on Salespeople’s Performance
and Satisfaction,” Journal of Marketing Research, 28 (May 1991), pp. 190–201; and Ajay Kohli and Bernard
Jaworski, “The Influence of Coworker Feedback on Salespeople,” Journal of Marketing, 58 (October 1994),
pp. 82–94.
20. Steven P. Brown, William L. Cron, and John W. Slocum Jr., “Effects of Trait Competitiveness and Perceived
Intraorganizational Competition on Salesperson Goal Setting and Performance,” Journal of Marketing, 62
(October 1998), pp. 88–98.
21. AnJanette A. Nease, Brad O. Mudgett, and Miguel A. Quinones, “Relationships Among Feedback Sign,
Self-Efficacy, and Acceptance of Performance Feedback,” Journal of Applied Psychology (October 1999),
pp. 806–814.
22. The Buying Power Index is reported by cities, countries, and states each July by Sales & Marketing Manage-
ment magazine.
23. Zoltners et al., The Complete Guide to Accelerating Sales Force Performance, p. 265.
24. Kathleen Cholewka, “Tech Tools: Online Incentives,” Sales & Marketing Management (July 2001), p. 24.
25. Julia Chang, “Trophy Value,” Sales & Marketing Management (October 2004), pp. 24–29.
26. Based on discussions with Liz Crute, Vice President, Pitney Bowes’ Credit Corporation (October 2007).
27. Steven Brown, William Cron, and Thomas Leigh, “Do Feelings of Success Mediate Sales Performance-Work
Attitude Relationships?” Journal of the Academy of Marketing Science, 21 (Spring 1993), pp. 91–100.

Chapter 12: Compensating Salespeople

1. Joseph Kornik, Maggie Rauch, Rebecca Aronauer, “What’s It All Worth? 2007 Compensation Survey,” Sales
& Marketing Management (May 2007), pp. 27–39.
2. Ellen Neuborne, “A Compensation Plan Checkup,” Sales & Marketing Management (May 2003), pp. 38–41.
3. Michele Marchetti, “Rethinking Compensation Plans,” Sales & Marketing Management (September 2007),
p. 14.
4. Andris Zoltners, Prabhakant Sinha, and Greggor Zoltners, The Complete Guide to Accelerating Sales Force
Performance (New York: AMACOM, 2001), p. 301.
5. Ibid., p. 50.
6. For more information on how salesperson career stages attect compensation perceptions, see Karen E. Flaherty
and James M. Pappas, “The Influence of Career Stage on Job Attitudes: Toward a Contingency Perspective,”
Journal of Personal Selling and Sales Management, 22 (Summer 2002), pp. 135–143.
7. Thomas E. DeCarlo, “The Effects of Suspicion of Ulterior Motives and Sales Message on Salesperson Eval-
uation,” Journal of Consumer Psychology, 15 (2005), pp. 238–249.
8. George John and Barton Weitz, “Salesforce Compensation: An Empirical Investigation of Factors Related to
Use of Salary Versus Incentive Compensation,” Journal of Marketing Research, 26 (February 1989), p. 9.
9. Leo Jakobson, “The Leader of The Band,” Incentive (January 2007), pp. 12–17.
10. Kissan Joseph and Manohar U. Kalwani, “The Role of Bonus Pay in Salesforce Compensation Plans,” Industrial
Marketing Management, 27 (March 1998), pp. 147–159.
11. Based on conversations with John Burns, Branch Sales Manager, Des Moines, IA (2005).
12. Andy Cohen, Jennifer Gilbert, Melinda Ligos, “Extreme Makeovers,” Sales & Marketing Management (May
2004), pp. 36–43.
13. Christine Galea, “Third Annual Compensation Survey,” Sales & Marketing Management (May 2003), p. 39.
14. Based on conversations with Mike Cox, President and CEO of Logical (Spring 2003).
15. Christine Galea, “Third Annual Compensation Survey,” Sales & Marketing Management (May 2003),
pp. 32–36.
360 NOTES

16. Eilene Zimmerman, “Quota Busters,” Sales & Marketing Management (January 2001), pp. 59–63.
17. Betsy Cummings, “Breaking Down Boundaries,” Sales & Marketing Management (October, 2004). Retrieved
November 1, 2007, from www.salesandmarketingmanagement.com.
18. For more on salesperson stress and performance, see George J. Avlonitis and Nikolaos G. Panagopoulos,
“Role Stress, Attitudes, and Job Outcomes in Business-to-Business Selling: Does the Type of Selling Situation
Matter?” Journal of Personal Selling & Sales Management, 26 (Winter 2006), pp. 67–77; Fernando Jaramillo,
Jay Prakash Mulki, and Paul Solomon, “The Role of Ethical Climate on Salesperson’s Role Stress, Job
Attitudes, Turnover Intention, and Job Performance,” Journal of Personal Selling & Sales Management, 26
(Summer 2006), pp. 272–282.
19. Suni Erevelles, Indranil Dutta, and Carolyn Galantine, “Sales Force Compensation Plans Incorporating Mul-
tidimensional Sales Effort and Salesperson Efficiency,” Journal of Personal Selling & Sales Management, 24
(Spring 2004), pp. 101–112.
20. Lawrence B. Chonko, John F. Tanner, and William A. Weeks, “Selling and Sales Management in Action:
Reward Preferences of Salespeople,” Journal of Personal Selling & Sales Management (Summer 1992), p. 69.
21. Rene Y. Darmon, “Salesmen’s Responses to Financial Incentives,” Journal of Marketing Research (July 1974),
pp. 39–46.
22. Joseph Kornik, Maggie Rauch, and Rebecca Aronauer, “What’s It All Worth? 2007 Compensation Survey,”
Sales & Marketing Management (May 2007), pp. 27–39.

Chapter 13: Evaluating Performance

1. Erin Anderson and Vincent Onyemah, “How Right Should the Customer Be?” Harvard Business Review
(July-August 2006), pp. 59–67.
2. For more information on business strategy and sales force management, see Stanley Slater and Eric Olson,
“Strategy Type and Performance: The Influence of Sales Force Management,” Strategic Management Journal,
21 (August 2000), pp. 813–829.
3. Donald W. Jackson, John L. Schlacter, and William G. Wolfe, “Examining the Bases Utilized for Evaluating
Salespeoples’ Performance,” Journal of Personal Selling & Sales Management, 15, No. 4. (Fall 1995), p. 65.
4. Joseph A. Bellizzi and Ronald W. Hasty, “The Effects of a Stated Organizational Policy on Inconsistent
Action Based on Salesperson Gender and Weight,” Journal of Personal Selling & Sales Management, 21
(Summer 2001), pp. 189–198; for related findings, see Nigel F. Piercy, David W. Cravens, and Nikala Lane,
“Sales Manager Behavior Control Strategy and Consequences: The Impact of Gender Differences,” Journal
of Personal Selling & Sales Management, 21 (Winter 2001), pp. 39–49.
5. Anderson and Onyemah, “How Right Should the Customer Be?” pp. 59–67.
6. Andy Cohen, “Movin’ Out,” Sales & Marketing Management (January 1996), pp. 24–25.
7. William L. Cron, Greg W. Marshall, Jadip Singh, Rosann L. Spiro, and Harish Sujan, “Salesperson Selection,
Training, and Development; Trends, Implications, and Research Opportunities,” Journal of Personal Selling
& Sales Management, 25 (Spring 2005), pp. 123–136.
8. Sanjeev Agarwal, “Impact of Job Formalization and Administrative Controls on Attitude of Industrial
Sales-persons,” Industrial Marketing Management, 28 (1999), pp. 359–368.
9. Kay L. Keck, Thomas W. Leigh, and James G. Lollar, “Critical Success Factors in Captive, Multi-Line
Insurance Agency Sales,” Journal of Personal Selling & Sales Management, 14, No. 1 (Winter 1995),
pp. 17–33.
10. Mark McMaster, “Should You Rank Your Salespeople?” Sales & Marketing Management (August 2001),
p. 13.
11. Douglas J. Datrymple and William M. Strable, “Career Path Charting: Frameworks for Sales Force Evaluation,”
Journal of Personal Selling & Sales Management, 10, No. 203 (Summer 1990), pp. 59–68.
12. James S. Boles, Naveen Donthu, and Ritu Lohtia, “Salesperson Evaluation Using Relative Performance Effi-
ciency: The Application of Data Envelopment Analysis,” Journal of Personal Selling & Sales Management, 15,
No. 3 (Summer 1995), pp. 31–49; to compute relative efficiency by adjusting for territory considerations, see
Bruce K. Pilling, Naveen Donthu, and Steve Henson, “Accounting for the Impact of Territory Characteristics
on Sales Performance: Relative Efficiency as a Measure of Salesperson Performance,” Journal of Personal
Selling & Sales Management (Spring 1999), pp. 35–45.
13. Andris Zoltners, Prabhakant Sinha, and Greggor Zoltners, The Complete Guide to Accelerating Sales Force
Performance (New York: AMACOM, 2001), pp. 430–431.
CASES ANALYSIS

CASE CHAPTERS
1 The Case Method
2 Adams Brands 7
3 Arapahoe Pharmaceutical Company 1, 7, 9, 13
4 Atomic Company 2, 6, 12
5 Conner Labs 4, 5
6 Crestfield Furniture (A) 2, MR: Budgeting
7 Crestfield Furniture (B) 2, 6, MR: Budgeting
8 Dave MacDonald’s Ethical Dilemmas 4, 8, 10
9 Erekson Industrial Supply MR: Forecasting
10 First National Bank 7, 9, 13
11 General Electric Appliances 2, 11, 12
12 Hanover-Bates Chemical Corporation 1, 2, 13
13 Hyde-Phillip Appliances MR: Forecasting
14 Inject Plastics 2, 10, 12
15 Milligan Pharmaceuticals 2, 6, 11, 13
16 National Mutual Funds 2, 5, 6, 8
17 Power and Motion Industrial Supply 7, 12, 13
18 Quado Systems Group 2, 3, 5
19 Romano Pitesti 9, 13
20 Skata, Inc. 11, 12, 13
21 Tekspan Corporation 2, 6, 8, 12
22 The Sullivan Group (A) 5
23 The Sullivan Group (B) 5
24 Venture Insurance Corporation 10, 11, 13
25 White Electronics 13, MR: Territory Design
26 Winston Liu, Bookman 4, 10

361
This page intentionally left blank
THE CASE METHOD 363

CASE 1 THE CASE METHOD

T
he objective of the case method is to introduce executive usually does not have the facts presented as
a measure of realism into business education. A clearly and as neatly as they are in casebooks. Problem
case approach forces you to deal with problems solving in business usually involves extensive data col-
as they actually occur in a for profit or a not-for-profit lection, something that has been essentially completed
organization. Each case is simply a written description for you.
of the facts surrounding a particular business situa-
tion. With the case approach, it is your responsibility
A FRAMEWORK FOR ANALYSIS
to develop solutions to the problem. Instructors, for
example, may set the stage for the case discussion You can approach the analysis of business cases in
by providing background material or by helping you many different ways. Each instructor has his or her own
gain insight into the problem. They may also act as ideas on the number and nature of the steps involved.
devil’s advocates and as critics to test arguments and We believe the following six-step procedure is a logical
proposals that you put forth. Finally, they evaluate your and practical way to begin.
performance, assign grades, and make suggestions for
improvement. 1. Define the problem.
2. Formulate the alternatives.
BENEFITS AND LIMITATIONS 3. Analyze the alternatives.
4. Recommend a solution.
The case method becomes an effective teaching device
5. Specify a plan of action.
when students are encouraged to analyze the data pre-
6. Prepare contingency plans.
sented and to formulate their own sets of recommen-
dations. Because each case is different, the solution
that is developed for one case cannot be randomly Defining the Problem
applied to another. This raises the question of what Once you are familiar with the facts of the case, you
you actually learn by working with business cases. should isolate the central problem. Until this is done, it
One obvious benefit is that preparation and discussion is usually impossible to proceed with an effective anal-
of case studies helps you improve your skills in oral ysis. Sometimes instructors provide questions to help
and written expression. In addition, the case method you start your analysis. You should look at questions
provides an easy way to learn about current business as guides for action rather than as specific issues to be
practices. Perhaps the most important advantage of the resolved. All cases should be considered as problems
case method is the experience it provides in thinking in the management of the marketing mix, not as spe-
logically about different sets of data. The development cific issues concerned only with some narrow phase of
of your analytical ability and judgment is the most management.
valuable and lasting benefit derived from working with We use the term problem loosely and employ it
business cases. to indicate a state of nature that may involve either a
Most cases, including those in this book, are drawn negative situation possibly requiring corrective action
from the experiences of real firms. The names and loca- or simply a situation needing opportunity assessment.
tions may be disguised to protect the interests of the You must distinguish between problems and symptoms
companies involved. In addition, final decisions are of problems. Declining sales, market share, or the size
usually omitted to enhance the problem-solving ori- of the sales force are symptoms of more fundamental
entation of the cases, thus permitting you to reach underlying problems that are their cause. Any business
your own conclusions without being forced to criticize situation may pose multiple problems. The key to solv-
the actions taken by others. The case method departs ing unstructured problems is to identify the one that
from the typical business situation in that the business must be solved first, the one whose solution will either

This case was prepared by Professor Richard C. Leventhal of Regis University in Denver, Colorado. Reproduced by permission.
364 CASES ANALYSIS

eliminate other problems or permit their solution. We as accounting, statistics, economics, psychology, and
are usually interested in solving the most immediate sociology. The criterion in using outside material is
critical problem. For example, we may have problems that it must be appropriate to the particular situation.
maintaining the size of our field sales force, prob- For example, do not use census data for 2000 to make
lems that have been created by a poor recruiting and decisions in a case dated 1995. For this book we have
selection process. Our immediate concern, however, is attempted to select cases that provide you with enough
with finding ways to get new salespeople quickly into information to complete the analysis. In some situ-
unfilled sales territories. We may well recommend an ations, however, you may wish to collect additional
evaluation of the firm’s recruitment process, but we materials from other sources.
will leave that for future study. Note that the central Sometimes the most important facts in the case are
problem is a state of nature. A statement of it should buried in some chance remark or seemingly minor sta-
not contain any action verbs (i.e., to do is part of the tistical exhibit. Be careful to sift through the data to
plan of action). Nor should it contain the words or and uncover all the relationships that apply to the alterna-
and, which are, respectively, part of the statement of tives being considered. This means that the quantitative
alternatives, and an indication of compound problems information must be examined using a variety of ratios,
and lack of identification of the central problem. graphs, tables, or other forms of analysis. Rarely are
the data supplied in the case in the form most appropri-
Selecting the Alternatives ate to finding a solution, and instructors expect students
The second step is to define possible alternatives avail- to work out the numbers.
able to resolve the problem. Some of these alternatives Marketing analyses are usually based on incomplete
may be obvious from the material supplied in the case information. Assumptions must be made.1 However,
and from the statement of the main issue. Others may they should be made only when necessary and must be
have to be supplied from your own review of the sit- clearly labeled as such. Moreover, a rationale should
uation. You should be careful to limit your analysis be given for any assumption made. For example, a
to a reasonable number of alternatives. Three or four retail chain stops carrying one of your product lines
alternatives are usually sufficient for a typical case. but continues carrying another. You are interested in
One alternative that should always be considered is what your sales of the dropped product line would
the maintenance of the status quo. Sometimes doing have been. You might note that over the past few
what you have been doing is the best course of action. years the ratio of the sales of the two product lines
had been relatively constant. You could assume that
Analyzing the Alternatives the ratio would have remained the same for the cur-
The heart of the case method is the analysis of alter- rent year as well, and multiply this ratio by the current
natives. To analyze is to separate into parts so as to year’s sales of the continuing product line to estimate
find out the nature, proportion, function, and under- sales of the discontinued line in that chain. Or per-
lying relationships among a set of variables. Thus, haps you would calculate the lowest and highest ratios
to analyze is to dig into, and work with, the facts over recent history to calculate conservative and opti-
to uncover associations that may be used to evaluate mistic estimates of lost sales. In any case, at the end
possible courses of action. Your analysis should begin of any decision-making exercise, you always want to
with a careful evaluation of the facts presented in the review your assumptions to see how dependent your
case. You should be sensitive to the problem of sort- conclusions are on the assumptions made. (At one
ing relevant material from that which is peripheral or extreme, you could assume away the problem!) You
irrelevant. In reviewing a case, you must be careful to should make contingency plans in the event that major
distinguish between fact and opinion. You must also assumptions do not hold.
make sure that the facts are consistent and reliable. You should realize that a complete analysis is not
Some cases may contain errors, and the instructor may one-sided. A review of a business situation is not sound
prefer to remain silent. unless both sides of important issues are examined.
You are expected to base your analysis on the evi-
dence presented in the case, but this does not mean
1
that other information cannot be used. You should uti- In most large companies, a corporate planning group provides cer-
tain forecasts, assumptions, and planning premises so that everyone
lize facts that are available to the trade and information in the company is using the same numbers, for instance, on future
that is general or public knowledge. You should incor- inflation rates. These tend to be long documents and are not included
porate relevant concepts from other disciplines, such in casebooks.
THE CASE METHOD 365

This does not necessarily mean that every point must decide whether additional research is needed. Remem-
be mentioned, but major opposing arguments should ber, managers should have a predisposition to act and
be addressed where possible. You will find it helpful then adapt, rather than to procrastinate.
to explicitly list the pros and cons or advantages and
disadvantages of each alternative. Preparing Contingency Plans
When you make a decision, it is based on the facts at
Making Recommendations hand, as well as on your expectations about the future
After you have carefully analyzed the data and alterna- that you hold at that point in time. Since the future
tives, you are in a position to make recommendations. does not always unfold as we expect or wish, we must
Sometimes more than one course of action will look be prepared for any significant alternative future sce-
attractive. This is not an unusual situation, as most nario. You must ask yourself what you will do if the
cases do not have a single right answer. Still, you must market does not respond to your marketing actions as
come up with a concrete proposal. To arrive at a solu- you anticipate, if competitors take actions that deviate
tion, you should judge the relative risks and opportu- from their usual behavior, if the economy is different
nities offered by the various alternatives. The optimum than economists have forecasted, and so on.
choice is the one that provides the best balance between
profit opportunities and the risks and costs of failure. Writing the Report
Make a clear-cut decision, and avoid qualifications and We believe that students who prepare written reports
other obvious hedges. Instructors are much more con- do a better job of analyzing business problems. Writing
cerned with how a particular decision was reached than a good report takes a certain skill, and we would like
with what alternative was selected. to suggest a few ideas that may be of help.
Students sometimes review the facts and decide that When instructors read reports, they check to see
they do not have enough information to reach a deci- whether students fully understand the situation and
sion. They recommend that the decision be postponed whether student interpretations of the facts are reason-
pending the results of further research. Usually, “get able. They also like to see papers that are objective,
more information” is not an acceptable solution to a balanced, consistent, and decisive. Perhaps the most
business case. Decisions cannot wait the length of time common error made by students in writing case reports
necessary to conduct good research. In addition, it is is to repeat the facts that have been provided. Instead
unlikely that you will ever have all the information you of analyzing the data in light of alternatives, students
think you need. Because of the cost of research and the frequently repeat statements that appear in the cases,
penalties of delay, business decisions are almost always with no clear objective in mind. Nothing upsets an
made under conditions of uncertainty. instructor more than reading a paper that devotes sev-
eral pages to explaining what he or she already knows
Specifying a Plan of Action about the case.
Having made your decision, how are you going to Another deficiency often observed in writing
implement it? You should suggest, in as much detail reports is lack of organization. Students who make
as the case allows, what actions you would take, when this error begin with the first thought that enters their
they would be taken, and how much they would cost. minds and continue, in almost random fashion, until
You may want to provide pro forma income statements, they run out of ideas. The end result is a paper that
and other relevant supporting material. Once you have has no beginning and no end, and often consists of one
proposed your actions, you would do well to reflect on long paragraph. To avoid this problem, some instruc-
the potential market reactions to them, especially com- tors require that reports be presented in outline form.
petitive reactions. These possible reactions might lead However, the condensed nature of such reports some-
you to modify your actions. times makes them hard to follow. Therefore, we prefer
If you judge that collecting additional information the more readable narrative approach.
is the only feasible means of solving a case, you must There is no optimal length for a written case anal-
provide support for this decision. First, you should ysis. It depends on the amount of data provided, the
state exactly what the research will show and how preferences of the instructor, and the number of case
this information will be used. In addition, you should reports the student turns in during the course. The
indicate the research methodology to be followed and report should be long enough to cover the subject
the anticipated cost of the study. After you have com- adequately. It is fairly obvious that written reports
pleted these tasks, you will be in a better position to must be neat, legible, and free of grammatical and
366 CASES ANALYSIS

spelling errors. Business professors are not hired to thinking about business problems. The case method
teach English composition, but they do expect certain helps train you to use logic to solve realistic business
minimal standards of performance in written expres- issues. Remember, however, that solutions are worth-
sion. Their standards for written work reflect what the less unless they can be sold to those who are in a posi-
business community expects from college graduates. tion to act on the recommendations. The case approach
provides you with practical experience in convincing
SUMMARY others of the soundness of your reasoning.
Case analysis is designed to give you an opportu-
nity to develop a productive and meaningful way of

CASE 2 ADAMS BRANDS

K
en Bannister, Ontario regional manager for The division was a stable unit for Warner-Lambert
Adams Brands, was faced with the decision Canada, with profits being used for investments
of which of three candidates he should hire throughout the company. Success of the Adams Brands
as the key account supervisor for the Ontario region. was built on the following:
This salesperson would be responsible for working
1. Quality products.
with eight major accounts in the Toronto area. Ban-
nister had narrowed the list to the three applicants and 2. Strong marketing management.
began reviewing their files. 3. Sales force efforts in distribution, display, and mer-
chandising.
4. Excellent customer service.
COMPANY
Adams was organized on a regional basis. The
Warner-Lambert, Inc., a large, diversified U.S. multi- Ontario region, which also included the Atlantic
national, manufactured and marketed a wide range of provinces, had forty-six sales representatives whose
health care and consumer products. Warner-Lambert responsibilities were to service individual stores. Five
Canada Ltd., the largest subsidiary, had annual sales district managers coordinated the activities of the sales
exceeding $200 million. Over one-half of the Canadian representatives. As well, three key account supervisors
sales were generated by Adams Brands, which focused worked with the large retail chains (e.g., supermar-
on the confectionery business. The major product lines kets) in Ontario and the Atlantic area. The key account
carried by Adams were: supervisor in the Toronto area had recently resigned his
1. Chewing gum, with brands such as Chiclets, Den- position and joined one of Adams’s major competitors.
tyne, and Trident.
2. Portable breath fresheners including Certs and THE MARKET
Clorets.
3. Cough tablets and antacids such as Halls and The confectionery industry comprised six major com-
Rolaids. petitors that manufactured chocolate bars, chewing
gum, mints, cough drops, chewy candy, and other prod-
4. Several other products, including Blue Diamond
ucts. The market shares of these six companies are
Almonds and Sparkies Mini-Fruits.
provided in Exhibit 1.
In these product categories, Adams Brands was usu- In the past few years, total industry sales in the
ally the market leader or had a substantial market share. confectionery category had been flat to marginally

This case was prepared by Gordon McDougall, Wilfrid Laurier University, and Douglas Snetsinger, University of Toronto.
ADAMS BRANDS 367

EXHIBIT 1 Major Competitors in the Confectionery Industry

Market
Company Share (%) Major Product Lines Major Brands
Adams 23 Gum, portable breath fresheners, cough drops Trident, Chiclets, Dentyne, Certs, Halls
Nielsen/Cadbury 22 Chocolate bars Caramilk, Crunchie, Dairy Milk, Crispy
Crunch
Nestlé Canada 15 Chocolate bars Coffee Crisp, Kit-Kat, Smarties, Turtles
Hershey 14 Gum, chocolate bars, chewy candy Glossette, Oh Henry, Reese’s Pieces,
Lifesavers
Effem Foods 11 Chocolate bars, chewy candy Mars, Snickers, M&M’s, Skittles
Wrigley’s 9 Gum Hubba Bubba, Extra, Doublemint
Richardson-Vicks 2 Cough drops Vicks
Others 4

Source: Company records and industry data.

declining in unit volume. This sales decline was in the industry, in part because of its limited prod-
attributed to the changing age distribution of the pop- uct line and its new approach to the retail trade. The
ulation (i.e., fewer young people). As consumers grew company had only eight fast-turnover products in its
older, their consumption of confectionery products line. Effem had developed its own sales force, consist-
tended to decline. While units sales were flat or declin- ing of over 100 part-time merchandising salespeople
ing, dollar sales were increasing at a rate of 10 percent and eight full-time sales personnel, and focused on the
per annum as a result of price increases. head offices of “A” accounts. “A” accounts were large
In the confectionery business, it was critical to retail chains such as 7-Eleven, Beckers, Loblaws, A&P,
obtain extensive distribution in as many stores as possi- Food City, Shopper’s Drug Mart, K-Mart, Towers, and
ble and, within each store, to obtain as much prominent Zellers. Other than Adams, Effem was one of the
shelf space as possible. Most confectionery products few companies that conducted considerable research
were purchased on impulse. In one study it was found on racking systems and merchandising.
that up to 85 percent of chewing gum and 70 per-
cent of chocolate bar purchases were unplanned. While THE RETAIL TRADE
chocolate bars could be viewed as an indirect competi-
Within Adams Brands, over two-thirds of confec-
tor to gum and mints, they were direct competitors for
tionery volume flowed through wholesalers. The
retail space and were usually merchandised on the same remaining balance was split between direct sales and
display. Retailers earned similar margins from all con- drop shipments to retailers. Wholesalers were neces-
fectionery products (25–36 percent of the retail selling sary because, with over 66,000 outlets in food, drug,
price) and often sought the best-selling brands to gen- and variety stores alone, the sales force could not ade-
erate those revenues. Some industry executives felt that quately cover a large proportion of the retailers. The
catering to the retailers’ needs was even more impor- percentage of Adams sales through the various chan-
tant than understanding the ultimate consumers’ needs. nels is provided in Exhibit 2.
Adams Brands had always provided store dis- The volume of all consumer packaged goods sold
play racks for merchandising all confectionery items, in Canada was increasingly dominated by fewer and
including competitive products and chocolate bars. The larger retail chains. This increased retail concentration
advantage of supplying the displays was that the manu- resulted in retailers becoming more influential in trade
facturer could influence the number of prelabeled slots promotion decisions, including dictating the size, tim-
that contained brand logos and the proportion of the ing, and number of allowance, distribution, and coop
display devoted to various product groups such as advertising events. The new power of the retailers had
chewing gum versus chocolate bars. The displays were not yet been fully wielded against the confectionery
usually customized to the unique requirements of a business. Confectionery lines were some of the most
retailer, such as the height and width of the display. profitable lines for the retailer. Further, the manufac-
Recently, a competitor, Effem, had become more tures were not as reliant on listings from any given
competitive in the design and display of merchan- retailer as were other food and household product
dising systems. Effem was regarded as an innovator manufacturers.
368 CASES ANALYSIS

Manufacturer
(Adams)

Retail chain
Wholesalers
warehouse

Food Drug Mass

Variety Othersa
retailers stores merchants
(17%) (26%)
(32%) (17%) (10%)

aConsists of a wide variety of locations, including vending machines, restaurants, cafeterias, bowling alleys, and resorts.

E X H I B I T 2 Adams Brands Sales by Distribution Channel

The increased size of some retail chains also other times, both had to wait for approval from their
changed the degree of management sophistication at all respective companies.
levels, including that of the retail buyers—those indi- The interesting aspect of the key account supervi-
viduals responsible for deciding what products were sor’s position was that the individual had to feel com-
carried by the retail stores. At one time, the relationship fortable dealing with both the old and new schools of
between manufacturers’ sales representatives and retail retail management. The task for Bannister was to select
buyers was largely based on long-term, personal asso- the right candidate for this position. The salary for the
ciations. Usually the sales representative had strong position ranged from $54,000 to $74,200, depending
social skills, and an important task was to get along on qualifications and experience. Bannister expected
well with the buyers. Often when the representatives that the candidate selected would probably be paid
and buyers met to discuss various promotions or list- somewhere between $56,000 and $70,000. An expense
ings, part of the conversation dealt with making plans allowance would also be included in the compensation
for dinner or going to a hockey game. The sales rep- package.
resentative was the host for these social events.
More recently, a new breed of buyer had been THE KEY ACCOUNTS SUPERVISOR
emerging in the retail chains. Typically, the new The main responsibility of the key accounts supervisor
retail managers and buyers had been trained in was to establish and maintain a close working relation-
business schools. They often had product manage- ship with the buyers of eight A accounts whose head
ment experience, relied on analytical skills, and used offices were located in the Toronto area. An important
state-of-the-art, computer-supported planning systems. task was to make presentations (15 to 30 minutes in
In some instances, the buyer was more sophisticated length) to the retail buyers of these key accounts every
than the sales representative with respect to analytical three to six weeks. At these meetings, promotions or
approaches to display and inventory management. The deals for up to five brands would be presented. The
buyers frequently requested detailed plan-o-grams with supervisor was responsible for all Adams brands. The
strong analytical support for expected sales, profits, and buyer might have to take the promotions to the buying
inventory turns. The buyer would also at times become committee, where the final decision would be made.
the salesperson. After listening to a sales presentation In addition, the representative used these meetings to
and giving an initial indication of interest, the buyer hear about and inform the buyer of any merchandising
would attempt to sell space, both on the store floor and problems occurring at the store level.
in the weekly advertising supplements. For example, Midyear reviews were undertaken with each
the buyer for Shopper’s Drug Mart offered a dump bin account. These reviews, lasting for 1 hour, focused
location in every store in the chain for a week. In some on reviewing sales trends and tying them into mer-
instances, both the buyer and the representative had the chandising programs, listings, service, and new pay-
authority to conclude such a deal at that meeting. At ment terms. Another important and time-consuming
ADAMS BRANDS 369

responsibility of the key account supervisor was to candidate should possess analytic skills because many
devise and present plan-o-grams and be involved with of the sales and performance reports (from both manu-
the installation of the displays. The key account repre- facturers and retailers) were or would be computerized.
sentative also conducted store checks and spent time on Thus, the individual should feel comfortable working
competitive intelligence. Working with the field staff with computers. Bannister hoped that he could find a
was a further requirement of the position. candidate who would be willing to spend a minimum
Bannister reflected on what he felt were the of three years on the job in order to establish a personal
attributes of the ideal candidate. First, the individual relationship with the buyers.
should have selling and merchandising experience in Ideally, the candidate selected would have a blend
the retail business in order to understand the language of all three skills because of the mix of buyers he or
and dynamics of the situation. On the merchandis- she would contact. Bannister felt it was most likely
ing side, the individual would be required to initiate that these characteristics would be found in a business
and coordinate the design of customized display sys- school graduate. He had advertised the job internally
tems for individual stores, a task that involved a cer- (through the company’s newsletter) and externally (in
tain amount of creativity. Second, strong interpersonal the Toronto Star). A total of twenty applications were
skills were needed. The individual had to establish received. After an initial screening, three possible can-
rapport and make effective sales presentations to the didates for the position were identified. None were
buyers. Because of the wide range of buyer sophisti- from Warner-Lambert (Exhibit 3).
cation, these skills were particularly important. Ban- Bannister and a member of the personnel depart-
nister made a mental note to recommend that whoever ment interviewed each of the candidates. After com-
was hired would be sent on the Professional Selling pleting the interviews, brief fact sheets were prepared.
Skills course, a one-week program designed to enhance Bannister began reviewing the sheets prior to making
listening, selling, and presentation skills. Finally, the the decision.

EXHIBIT 3
Lydia Cohen
Personal: Born 1974, 168 cm; 64 kg; Single
Education: B.B.A. (1996), Wilfrid Laurier University, Active in Marketing Club and intramural sports
Work: 2003–2005 Rowntree Macintosh Canada, Inc.–District Manager
Responsible for sales staff of three in Ottawa and Eastern Ontario region. Establish annual sales
plan and ensure that district meets its quota.
1996–2002 Rowntree Macintosh Canada, Inc.–Confectionary Sales Representative
Responsible for selling a full line of confectionary and grocery products to key accounts in Toronto
(2001–2002) and Ottawa (1998–2000). 2002 Sales Representative of the Year for highest
volume growth.
Interests: Racquet sports
Candidate’s Comments: I am interested in working in the Toronto area, and I would look forward to concentrating on the
sales task. My best years at Rowntree were in sales in the Toronto region.
Interviewer’s Comments: Lydia presents herself very well and has a strong background in confectionary sales. Her record at
Rowntree is very good. Rowntree paid for her to take an Introductory course in data analysis, but
she has not had much opportunity to develop these skills. She does not seem to be overly
ambitious or aggressive. She stated that personal reasons were preeminent in seeking a job in
Toronto.
John Fisher
Personal: Born 1978, 190 cm; 88 kg; Single
Education: B.A. (Phys. Ed.) (1992), University of British Columbia
While at UBC, played 4 years of varsity basketball (team captain for 2 years). Assistant Coach,
Senior Basketball, at University Hill High School, 1999–2003. Developed and ran a 2-week
summer basketball camp at UBC for 3 years. Profits from the camp were donated to the Varsity
Basketball Fund.
370 CASES ANALYSIS

EXHIBIT 3 (continued)

Work: 1998–2004 Jacobs Suchard Canada, Inc. (Nabob Foods)

Six years’ experience (full-time 2003–2004, and 5 years part-time, 1998–2003, during school
terms and full-time during the summers) in coffee and chocolates distribution and sales; two
years on the loading docks, 1 year driving truck, and 3 years as a sales representative. Sales tasks
included calling on regular customers, order taking, rack jobbing and customer relations
development.
2004–2005 Scavolini (Professional Basketball)
One year after completing studies at UBC, traveled to Western Europe and Northern Africa. Travel
was financed by playing professional basketball in the Italian First Division.
Candidate’s Comments: I feel the combination of educational preparation, work experience, and my demonstrated ability
as a team player and leader make me well suited for this job. I am particularly interested in a job,
such as sales, that rewards personal initiative.
Interviewer’s Comments: A very ambitious and engaging individual with a good record of achievements. Strong
management potential is evident, but interest in sales as a career is questionable. Minored in
computer science at UBC. Has a standing offer to return to a sales management position at Nabob.
Barry Moore
Personal: Born 1975, 180 cm; 84 kg; Married with two children
Education: Business Administration Diploma (1990), Humber College
While at school, was active participant in a number of clubs and political organizations. President
of the Young Liberals (1989–1990).
Work: 2002–2005 Barrigans Food Markets–Merchandising Analyst
Developed merchandising plans for a wide variety of product categories. Negotiated
merchandising programs and trade deals with manufacturers and brokers. Managed a staff of four.
1999–2002 Dominion Stores Ltd.–Assistant Merchandise Manager
Liaison responsibilities between stores and head office merchandise planning. Responsible for
execution of merchandising plans for several food categories.
1998—Robin Hood Multifoods, Inc.—Assistant Product Manager
Responsible for the analysis and development of promotion planning for Robin Hood Flour.
1993–1998 Nestlé Enterprises Ltd.—Camation Division Sales Representative.
Major responsibilities were developing and maintaining sales and distribution to wholesale and
retail accounts.
1990–1993 McCain Foods Ltd.—Inventory Analyst
Worked with sales staff and head office planning to ensure the quality and timing of shipments to
brokers and stores.

Activities: Board of Directors, Richview Community Club

Board of Directors, Volunteer Centre of Etobicoke
Paste President of Etobicoke Big Brothers
Active in United Way
Yachting—CC 34 Canadian Champion

Candidate’s Comments: It would be a great challenge and joy to work with a progressive industry leader such as Adams
Brands.

Interviewer’s Comments: Very articulate and professionally groomed. Dominated the interview with a variety of anecdotes
and humorous stories, some of which were relevant to the job. Likes to read popular books on
management, particularly books that champion the bold, gut-feel entrepreneur. He would
probably earn more money at Adams if hired.
ARAPAHOE PHARMACEUTICAL COMPANY 371

CASE 3 ARAPAHOE PHARMACEUTICAL COMPANY

Note: An Excel file with the data for this case is available at www.wiley.com/college/cron. Go to “Students Companion Site.”

A
s he reread the annual report that he had pre- regularly with him and delegated to him some of the
pared for Phil Jackson, his regional sales man- training of new sales reps, which he found both chal-
ager, John Ziegler, shook his head and kept lenging and rewarding, especially when the new sales
repeating to himself, “What a year!” trainee did well. His selling skills flourished as did
He could not forget the surge of pride he felt when his income and the recognition of his achievements by
his district sales manager asked him to call Phil Jackson Betsy and the regional sales manager. A year later he
to let him know whether he wanted to accept a promo- was selected to attend his company’s leadership train-
tion to district sales manager for the Dallas area. As he ing program, which was a milestone in his career.
remembered, he couldn’t get to the telephone quickly Even before his first trip to Dallas, John was asked
enough, and it was only after Phil had asked him how by Tom Boyle, the general sales manager, to spend
his wife had taken the news that he realized that he had a couple of days at the corporate headquarters in
forgotten to ask her. He immediately telephoned Lynn Philadelphia with him and various department heads
and found that she was thrilled both with his promo- in marketing, legal, and human resources. They were
tion and the move to Dallas, even though neither one all very complimentary about his past performance and
of them had been there before. Lynn was particularly how much he deserved his promotion. However, each
pleased that her company had a sales opening in Dallas, of them in a different way seemed to repeat the same
and she felt that she could obtain a transfer to that city. message: “Managing people is different from selling
John once again expressed his appreciation to his sales products.” How well the events of the past year were
manager, Betsy Warner, for all of the help that she had to bear that out! The thrust of Boyle’s message was
given him so that he could qualify for the promotion. a bit different. He wanted John to realize that he had
John had joined Arapahoe Pharmaceuticals as a full confidence in his ability, that John had earned his
sales rep immediately after graduating from San Fran- promotion, and that although John was a sales rep one
cisco State University. While he had been interested in day and a district sales manager the next, the company
science in high school, and he had taken one course recognized the change wouldn’t take place overnight,
in chemistry and another course in biology at San and it would provide him with further training. In the
Francisco State, he was more interested in market- meantime, Boyle advised John that the Dallas district
ing communications. When Arapahoe Pharmaceuticals was productive, operating efficiently, and staffed with
recruited at the college in his junior year and again well-trained sales reps, and that he was not expecting
in the spring of his senior year, John decided that John to “sweep the district clean” and make radical
he might combine the interests in science and mar- changes. He also emphasized that (1) John should give
keting communications as a sales representative. He the sales reps in Dallas time to get to know him and
was interviewed, hired, and assigned to a territory near he them; (2) he would be surprised and disappointed to
Omaha in Betsy Warner’s district. John’s willingness, discover that all the reps didn’t operate with the same
personality, and communications skills, plus Betsy’s level of efficiency that he did nor use the same meth-
encouragement and guidance, helped him to quickly ods he used when he was a rep; (3) he shouldn’t try to
achieve above-average productivity and allowed him to correct too many deficiencies at one time; (4) telling
win a transfer to a territory in the greater metropolitan someone to do something doesn’t necessarily get it
Denver area. The new territory offered him additional done; (5) everyone doesn’t remember hearing some-
experience in working with food and drug chain head- thing the same way; and (6) it’s better to have three
quarters, large hospitals, and drug wholesalers. John sales reps working with you than ten working for you.
reviewed these experiences with considerable pleasure One year later, John realized that at the time he and
as he recalled the events of the past year. Betsy worked Boyle talked, he didn’t understand or appreciate the full

This case was prepared by Professor Richard C. Leventhal of Regis University in Denver, Colorado. Reproduced by permission.
372 CASES ANALYSIS

meaning of that advice. The legal department wanted all emphasized the great personality he had and what
him to be aware of his increased responsibilities as a a terrific job they thought he would do in sales. Fol-
manager in speaking or acting for the company. The lowing the second interview with Larry Palmer and the
various departments in sales, marketing, and human spouse information session, John completed the com-
resources emphasized the importance of his new role pany’s applicant appraisal reports on both applicants
and his support in administering the company’s promo- and decided that Larry was the better of the two. He
tional programs and gaining the compliance of his sales telephoned his regional sales manager, Phil Jackson,
reps. Increasingly, he realized the duality of his role as to set up a final interview for Larry. Then he faxed
a member of management and of the field sales force. Phil his applicant appraisal reports and wrote the other
The sales management training programs he attended applicant a polite turndown letter.
during the succeeding months reinforced these points The day following Larry’s interview, Phil Jackson
and helped prepare him for the types of problems he called to say that while he had some misgivings, he had
was to encounter. hired Larry to begin training in a class at the regional
His introduction to the ten sales reps in the Dallas office the first of the month. John’s reaction was a sigh
district went quite well. His predecessor, Chuck Mor- of relief because of all of the time he had put into
gan, who was retiring after thirty years with Arapahoe, the screening and the hope that he wouldn’t have to
fully reviewed all of the sales statistics for the district do that too often. The reports that he completed on
and the human resource records of the sales reps. He his first field trips with his reps took longer to prepare
also gave him the benefit of his thoughts for the future than he anticipated. Coupled with the correspondence
and what John’s immediate concerns should be. John and appraisal reports on the applicants, John realized
had inherited a district that was operating on target both that communications were going to be a bigger part of
for sales and expenses and appeared to have no major the job than he had realized. He would have to learn
personnel problems other than one territory that had how to use the computerized information system in a
been open for four weeks. Chuck even had two resumes more effective and efficient manner if he were to have
on promising candidates who needed processing. the necessary time for his other responsibilities.
John telephoned both applicants and scheduled John’s relationship with his sales reps seemed to
interviews for the following week, along with trips go well during the first few months on the job, with
of two days each with two of his sales reps. The the exception of Dick McClure, an above-average pro-
interviews seemed to go well, but they took almost ducer, aged 50, with twelve years experience, and the
a full day. On his first day at his office the following senior man in the district. Dick had been described
week, John called the references and previous employ- by Chuck Morgan as a friendly, outgoing individual
ers of both applicants, scheduled a second interview with a good sense of humor and a highly individual-
several days later with Larry Palmer, the most promis- istic style of selling. As John worked with Dick, he
ing applicant, and, in accordance with the company’s was able to confirm in Dick’s interaction with his cus-
interviewing procedure, set up an information session tomers, the general description Chuck had given him.
with Larry and his wife for the following evening. However, Dick was curt with John, relatively subdued,
Since this was John’s first session of this type, he and at other times almost hostile. For the next several
was pleased that it went well. Jean Palmer, Larry’s working trips, John tried to ignore Dick’s conduct and
wife, had numerous questions about transferring, the concentrated on the calls that they were making and the
amount of travel, and how much extra time that her objectives that they were trying to achieve. At a recent
husband would have to spend responding to e-mail and sales meeting, Dick seemed to take delight in being
other computer-type reports. John was glad that he was argumentative and disruptive until John jokingly asked
able to address her concerns. The telephone conversa- him if he would like to take over the sales meeting.
tions with the other applicant’s references and previ- After that, Dick settled down but made almost no con-
ous employers had been an interesting experience and tribution to the discussions for the rest of the meeting.
tended to confirm what the applicant had said, except in The situation came to a head immediately follow-
two instances. A previous employer and one reference ing a physician call, during which Dick introduced John
were guardedly enthusiastic about the applicant. When without indicating who he was or his purpose for being
John pressed the issue, the reference refused to say there. The physician’s reaction was: “Oh a new rep,
more, while the previous employer provided specifics eh?” and to Dick, “Are you being promoted?” This
that confirmed an earlier impression John had noted forced Dick, somewhat embarrassed, to indicate that
at the initial interview. Comments about Larry Palmer John was his new district sales manager. As they left
ARAPAHOE PHARMACEUTICAL COMPANY 373

the office, it was clear that Dick was furious, as he just barely. The report from the sales training man-
muttered in a sarcastic manner, “Are you being pro- ager was anything but encouraging. Larry had difficulty
moted?” John decided that it was time to take action, acquiring the necessary product knowledge, and his
whereupon he said emphatically, “Dick, I don’t know scientific communication skills were marginal at best.
what is eating you, but I think that it’s time that we get The qualities that saved him from being dropped from
it out in the open. You’ve been complaining from the the sales training class were his desire, his willing-
day that I arrived. You’re sarcastic, uncooperative, and ness to work, and the fact that he was such a great
just as cool as ice. If you and I are going to continue to guy—everybody loved him! Notwithstanding Larry’s
work together, things had better change. I don’t know shortcomings, John was convinced he could turn Larry
what I have done that has upset you, but whatever it around. He worked with him every opportunity he had,
is or whatever I’ve said, it certainly wasn’t intentional quizzed him, coached him, and drilled him in an effort
and I’m sorry. You’re too good a person to go around to improve his knowledge and skills so that Larry could
perpetually angry. What the heck is bothering you?” be able to capitalize on his sincerity and personality.
Dick’s reaction was an angry, somewhat subdued As the months wore on, John became increas-
and embarrassed, “I just guess it’s not really your fault ingly aware that while Larry’s customers liked him,
or anything that you did. I’ve been here twelve years he couldn’t sell, and his sales showed it. It was a
and I’m the best rep in this district. Chuck even told tough decision John had to make to let Larry go, and
me so. And bam—you get promoted and I’m left hung an even tougher decision to implement, but John real-
out to dry. Man, that’s gratitude for you!” ized it really was in everyone’s best interests. As he
Now that the problem was out in the open, John looked back on all the time and effort he had put into
realized how long Dick had been carrying his anger Larry’s ultimate failure, John realized that it was at the
locked up inside himself and felt sorry for him. expense of the time and effort he should have spent
With that, he said, “Dick, I’ve sure been blind. Let’s with his more productive sales reps. He also realized
knock off and sit down somewhere to talk this thing that in spite of the overwhelming evidence, he had car-
out.” Three hours later they shook hands and parted ried Larry much longer than he probably should have
on a much better understanding. Their relationship and was thankful that Phil Jackson did not remind him
improved steadily, and now as John reflected on the of it. Sometimes, however, events have a bright side.
district’s productivity for the past year, he realized that As much as John regretted the amount of time that
Dick’s support had been of paramount importance in it took to recruit Larry’s replacement, he felt that he
terms of the district’s overall success. had lucked out with Peggy Doyle. She seemed to do
Thinking about the successful year reminded him everything right. In the four months since she’d been
of Peggy Doyle, the sales trainee who was doing such in the territory, sales had taken a noticeable increase,
a terrific job. She was the one who had taken Larry and her enthusiasm was infecting the other sales reps
Palmer’s place. When he thought of Larry Palmer, he in the district. John hoped her progress and productiv-
winced thinking about the mistake that he had made. ity would continue on in this manner for a long time to
Larry was the first sales rep that he had recruited. come. Some performance data for Peggy and the other
He had completed the basic sales training class, but reps are shown in Exhibits 1 and 2.

EXHIBIT 1 Performance Data for Sales Reps in the Dallas/Ft. Worth District
Sales Rep Last Year’s Sales This Year’s Sales Sales Quota Current Year
Larry Palmera $ 180,000 $ 181,000 $ 275,000
Dick McClure 450,000 583,000 535,000
Peggy Doyleb - 120,000 150,000
Tom Jones 445,000 555,000 550,000
Bill Morrison 465,000 560,000 550,000
Sam Hanna 435,000 535,000 525,000
Jared Murphy 365,000 370,000 420,000
Marty Nakai 475,000 625,000 575,000
TOTALS $2,815,000 $3,529,000 $3,580,000

a Sales
and quota figures are for eight months.
b PeggyDoyle has been in her territory for only four months; there is no sales figure for the previous year. This year’s sales
and quota are for four months.
374 CASES ANALYSIS

EXHIBIT 2 Input Factors Affecting Territory Coverage in the Dallas/Ft. Worth District
Sales Rep Number of Sales Calls Annual Expenses ($) Physicians in Territory
Larry Palmera 800 $ 6,300 1,600
Dick McClure 1,500 9,300 2,100
Peggy Doyleb 400 2,500 1,650
Tom Jones 1,300 8,000 1,850
Bill Morrison 1,350 8,300 1,800
Sam Hanna 1,350 8,500 1,900
Jared Murphy 1,050 7,800 2,000
Marty Nakai 1,550 9,800 2,200
TOTALS 9,300 $60,500 15,100

a
Number of sales calls and expenses are for an 8-month period.
b Number of sales calls and expenses are for a 4-month period.

Peggy’s performance, however, did not eliminate company and the growth and development of the indi-
the logjam that recruiting her had created in John’s vidual sales reps in the district.
other activities. Her interviews, reference checking, The second appraisal and counseling session of the
early sales orientation, and training, plus the extra time year had its peaks and valleys. It had been a pleasure
he had spent over the last few months helping Larry try to provide several with the recognition their perfor-
to succeed, extended the intervals since he last worked mances merited and to help them to further define the
in the field with his above-average sales reps, to the goals they would achieve for the forthcoming year. The
extent that several were beginning to make humorously case of Jared Murphy was another matter. Jared had
sarcastic comments about being “orphans.” John tried been in the training class at the time John was hired.
to explain that they were practically self-sufficient, He had done reasonably well but hadn’t really lived
while others needed his help more urgently. While they up to his potential. Lately, Jared seemed to have lost
were willing to listen, John could see that they weren’t interest. When John challenged Jared’s own evalua-
buying into his excuse. tion of his performance, Jared sheepishly commented
To further compound the problem, he received an that he “wondered whether you’d let it pass.” When
e-mail that his semiannual appraisal interviews were to John pressed him for an explanation of his performance
in view of the potential in his territory, Jared quickly
begin within 30 days. This would be the second time
replied: “I didn’t know you cared that much.”
he would be holding these performance reviews, but it
John also stated he felt that Jared had sufficient
would be the first time alone since Phil Jackson had
experience and intelligence to exert the necessary
helped him. As John began to review the trip reports
self-discipline to do what was required without a lot
and correspondence in each sales rep’s file, along with
of personal attention from him. At this point, John
sales performance data generated from the company’s
said: “Jared, I think that it’s time to decide whether
computerized database (Exhibits 1 and 2), he realized you really have a future with Arapahoe. You definitely
the files of the above-average producers were relatively have the capabilities to be an above-average performer.
thin. If it hadn’t been for performance data, John would If you really want to do a better job, I’ll make every
have been at a serious loss to justify his appraisal of effort to help you to do a better job, but you will have
their productivity. to help me and really want to work at it. So what I
Preparing for and conducting the performance want you to do is to go home, think about what I said,
reviews took a lot of time, and this was when he really talk it over with your wife, and we will get together
earned his salary. When the reps and John had different next Wednesday and make a plan for your future.”
evaluations, the differences were resolved and then it The problem John faced with Marty Nakai was
became a matter of jointly agreeing on a plan of action almost the opposite. Marty was a young, single sales
to close the gap between actual and desired perfor- rep who had three years’ experience in a territory that
mance. As difficult as it was to achieve the agreement required quite a bit of travel in the Texas panhandle.
at times, and harder still to implement the agreed-upon He had about every good quality anyone could want
plan, John felt that it was at this point that he was in a salesperson, except maturity and self-control. He
making a significant contribution to the success of the was smart, eager, highly motivated, and extremely
ATOMIC COMPANY 375

ambitious. His favorite question of John was: “What have to figure out some kind of action plan to cor-
else do I have to do to get promoted?” and he posed rect that situation. And then there were the territory
that question on every field trip and frequently at sales revisions to be done to take advantage of the growth
meetings. In addition, John could count on Marty call- potential in the Ft. Worth area. Not the least important
ing him at home on weekends. In a way, John wished or urgent matter he needed to address was to evaluate
he had more sales reps who were as productive and his own performance during the past year and to set
as eagerly cooperative, but he also wished that Marty some personal objectives.
would develop more patience and self-discipline. While In addition, John had to prepare some written com-
John certainly didn’t want to do anything to dampen ments on the performance of each of his reps for the
Marty’s enthusiasm, he was running out of ways to past year to put in their personal files. He thought he
help Marty grow up. should calculate some ratios from the data in Exhibits
As he thought about the challenges he had with his 1 and 2 such as sales growth, sales to quota, sales per
reps and the logjam he had created as a result of his call, sales per physician, expenses per call, and selling
recruiting activities, he realized that he had to formal- expenses as a percent of sales to include in his report
ize a set of objectives and specific plans for the coming on each rep. Also he had to decide what to do about
year to discuss with Phil Jackson during his own com- Jared and Marty. Overall, John saw his problems were
ing appraisal session. Although the year had been a really people problems and people opportunities, and
successful one, performance on a couple of major prod- their interaction and interdependence were what made
ucts could have been at a higher level, and he would his job both challenging and fun.

CASE 4 ATOMIC COMPANY

R
oger Post, an executive at Atomic Company, market share in 2000 for the men’s casual and
was humming a happy tune as he reviewed the leisure clothes market. Even though the market share
sales figures for Tiger Pants. Tiger Pants had was small, Atomic had benefited from the trend
already generated a personal $20,000 bonus for him toward business casual clothing in the 1990s. Although
for beating the 2002 sales quota of $5 million in sales. Atomic’s clothes were distributed throughout the
Better yet, it was only March 8, 2002, and there were United States and Canada, sales came primarily from
still three weeks to go in the first quarter. He might the Southeastern part of the United States.
end up getting a total bonus of $80,000 for the year, Atomic had originally owned several textile mills in
which would be the biggest bonus he had ever gotten Alabama, Georgia, and South Carolina, with the first
for the sales of just one product. Beth Clinton, the CEO plant purchased in 1946 just after World War II. By
of Atomic Company, had just purchased a new luxury 1976, Atomic had grown to nine textile mills, which
boat and had invited all of Atomic’s key managers to were all located in rural areas with inexpensive labor.
a party Saturday to show it off. However, rising costs and the influx of lower cost
textiles from Southeast Asia started eroding margins
and greatly harmed Atomic’s profits in the late 1970s.
BACKGROUND
Atomic shifted its manufacturing strategy and opened
The Atomic Company was founded in 1946 with a plants in Taiwan while starting to close plants in the
focus on manufacturing and selling men’s casual and United States. In 1983, the last manufacturing plant in
leisure wear clothing. Although sales were steady, it the United States was sold. Manufacturing operations
remained a very tiny company with only 0.3 percent were eventually shifted from Taiwan to China as China

This case was prepared by Avery Abernethy, Professor of Marketing, Auburn University.
This case is copyright © Avery M. Abernethy, all rights reserved.
376 CASES ANALYSIS

opened its markets to foreign investment and liberal- due to favorable exchange rates, with the strong dol-
ized trade policies. lar in the 1990s coupled with lower manufacturing and
China had a large textile industry and also produced materials costs from the shift in operations from Tai-
large quantities of cotton, the primary raw material wan to China. This was accomplished in spite of a
for Atomic’s line of men’s clothing. Atomic’s head- 10 percent decrease in average prices to retailers
quarters were in Atlanta and consisted of fewer than between 1992 and 2000 caused by competitive pres-
twenty employees. Dolly Green, the vice president sures.
of production and logistics, spent much of her time Atomic Company’s total sales were $14 million in
in China making sure that subcontractors in China 2000. Due to a huge increase in the sales of Tiger
maintained quality manufacturing standards. After the Pants, Atomic’s sales jumped to $22 million in 2001.
Taiwan plants were sold, Atomic no longer owned The profit picture was even brighter. Atomic’s prof-
manufacturing facilities. its were $1,680,000 in the year 2000 but jumped to
Dolly was very good with languages and after a $4,400,000 in 2001, with most of the profit increase
couple of years of hard work had become fluent in coming from Tiger Pants.
Chinese. She also handled the logistics of getting the The profit increases were due to two factors: (1) the
finished clothing collected at Chinese ports and then tremendous increase in sales of Tiger Pants and (2) the
shipped to San Diego in the United States. From San unexpected popularity of Tiger Pants, which allowed
Diego, the clothes were shipped by truck to warehouses Atomic to increase prices to retailers by 15 percent on
in Atlanta. the Tiger Pants line. Although costs increased some-
Ramon Fernandez, the vice president of finance, what for Tiger Pants because of the need to contract
also had his duties split between the United States and for expanded production on short notice and the need
China. Ramon made sure that funds were transferred to pay for expedited shipping from China, the 15 per-
to China to pay for the purchase of raw materials, cent price increase both covered the increase in costs
manufacturing, and the export of clothing by container- and allowed for increased margins.
ized cargo shipped out of Chinese ports. Ramon was
Quarterly Sales of Tiger Pants
an expert in letters of credit. He was also skilled in
2000 2001 2002
using currency options to help protect Atomic from
large swings in the exchange rate between the U.S. Quarter 1 $100,000 $90,000 $5,680,000
and Chinese currencies. Because most of Ramon’s job (3 weeks
mandated working with large banks and the interna- left in the
tional currency markets, he was able to stay in the quarter)
United States most of the time, although a few trips to Quarter 2 120,000 150,000
China were necessary every year. Quarter 3 280,000 2,350,000
The president and CEO of Atomic was Beth Clin- Quarter 4 100,000 4,100,000
ton. Beth is 52 and has an MBA from Yale. She had
worked for an international shipping company in Los
Angeles prior to her employment with Atomic. Atomic SALES STRATEGY FOR TIGER PANTS
hired Beth as vice president of production and logistics Roger Post was promoted to vice president of sales
in 1992. She was the driving force in selling Atomic’s for Atomic Company in 1995. Roger is 55 years
manufacturing plants in Taiwan and using Chinese sub- old. Prior to being named national sales manager,
contractors for all manufacturing. Because of her suc- he was in charge of training, selecting new styles for
cessful manufacturing and logistics strategy, she was the year, and coordinating advertising to the retailers
promoted to CEO of Atomic in 1992 upon the retire- carrying Atomic Company’s product lines. Although
ment of her predecessor. Atomic used trade shows, trade advertising, direct
mail, and independent reps to persuade retailers to
ATOMIC’S FINANCIAL PERFORMANCE carry Atomic’s men’s clothing lines, the company did
not have the funds to engage in direct-to-consumer
Under Beth Clinton’s leadership, sales of Atomic had advertising.
continued to increase, with about 3 percent annual
growth from 1992 to 2000. Atomic’s net profit before Bonus Clothes and Celebrity Clothes
income taxes had increased from 5 percent in 1992 to When faced with little in the way of consumer mar-
12 percent in 2000. Much of the increase in profits was keting funds, Roger tried to use the product itself to
ATOMIC COMPANY 377

market the brand. One of the first things he attempted and Beth seemed to reluctantly agree to Ramon’s idea
upon becoming vice president of sales was to set up just to move the meeting forward.
sales contests for participating retailers. Store managers Beth set up a lunch meeting with Roger two days
whose sales of Atomic’s clothing lines increased by later. Roger told Beth that he felt Ramon was accusing
10 percent over the previous year were given vouch- him of embezzling merchandise at worst or misusing
ers for $200 (in wholesale prices) for Atomic clothing. company money at best. Beth admitted that Ramon
In terms of consumers’ retail price, this worked out to could be blunt about cost control, but she also reminded
about $425 worth of merchandise. If sales increased 25 Roger that all company expenditures were subject to
percent, then $400 in merchandise (in wholesale prices) review by the management team. She also reminded
was awarded. When sales increased 100 percent over Roger that Ramon had convinced the management
the previous year, $1,000 in merchandise was provided. team to audit the new manufacturing contracts when
Although some managers just sold the additional she had just completed switching manufacturing from
free clothing to consumers to increase their store prof- Taiwan to China.
its, most managers either kept the clothing for them- She summed up by saying: “Look, I know that
selves or awarded the clothes to top salespeople within Ramon can be a real jerk sometimes. He really does
their stores. Roger encouraged store managers to give care about company profits, and his financial skills are
at least part of the clothing to top salespeople, but essential to the management team. He is also 60 years
he was also happy when the store managers decided old and approaching retirement. He has told me that
to keep the bonus clothing for themselves. In 2000, company profits could really take off, and points out
the “Bonus Clothes for Bonus Performance” program that most of the increase in profits from the last ten
years were due to cost control and not increasing the
cost about $10,000. However, in 2001 the total cost for
units sold. Remember, Roger, I have confidence in your
“Bonus Clothes” totaled a whopping $75,000.
abilities and feel sure that the review of these two pro-
In addition to the “Bonus Clothes” program, Roger
grams will show that you are running the sales team in
gave free merchandise to celebrities in hopes that they
an outstanding fashion.”
would wear Atomic’s clothing line. In 1999, $8,000
(wholesale value) worth of merchandise was given Personal Selling Strategy for Tiger Pants
away; in 2000, it rose to $9,000 and in 2001 to
All of Atomic’s clothing lines were sold by indepen-
$35,000. The celebrity merchandise was given away to
dent reps, and the Tiger Pants line was no different.
college coaches, television reporters and newscasters,
One rep covered the Southeastern part of the United
and music and movie personalities. Some of the head-
States. The second rep sold to New England, the upper
quarters staff jokingly accused Roger of giving away
Midwest, and Canada. The territory of the third rep
clothes just so he could “schmooze with people he saw was the United States west of the Mississippi.
on TV.” The reps were paid a flat 15 percent commission
During the midyear business meeting of 2001, on all sales. Payments were made quarterly, and the
Ramon Fernandez had asked Roger to justify the pro- checks were issued only after the retailer’s payment
grams to the rest of the management team. Roger got was received. Roger used different independent reps to
angry and asked if the company was going to audit sell each line of clothes to retailers in their region. He
all of Ramon’s submitted expenses to visit banks and thought that using different reps for each line of cloth-
financial companies in New York City. It got down to ing would spark competition and innovation between
the point where Ramon pointedly discussed the need the different sales teams. It also allowed him to reward
to control marketing expenses and the need for far top-selling reps with a more profitable line of clothing
closer oversight of these sales programs by the man- if they turned out to be outstanding salespeople.
agement team. At this point Roger lost his temper and Each independent rep was treated as an indepen-
told Ramon: “You know nothing about marketing. You dent contractor for tax purposes. This allowed each
think that all of this company’s sales are generated with rep unlimited potential for commissions but prevented
a wave of the hand. These clothes don’t sell them- the company from having to pay salaries or benefits. In
selves, and we have to have some way to convince the past, Atomic had never had the financial strength
retailers to stock and push our lines.” that would have allowed it to have an internal company
At Ramon’s urging, the “celebrity clothing” and sales force.
“bonus clothes” projects were audited to ensure that all Two of the salespeople for Tigers had high school
of the expenses were justified. Dolly backed up Ramon, diplomas, while the third rep had never completed high
378 CASES ANALYSIS

school. All three reps had more than fifteen years of Roger could not believe what happened next. On
experience selling clothing to the channel of distribu- July 24, he came home late to find Lonnie more excited
tion. However, all three had been hired in the last five than he had ever seen her. MTV had picked up Punk
years, with the most junior representative hired only Rock Academy’s video for “Fight Song.” Lonnie had
nine months ago. Roger had a lot of confidence in the taped the video from the TV. She was in the video
Tiger sales team. Tigers had been a fairly minor line, for about 20 seconds wearing her beat-up Tiger Pants,
but the current team of independent reps had sales of thrashing around on the dance floor while the band
Tiger Pants growing faster than almost all of the other played.
clothing lines marketed by Atomic in 1999 and 2000. The video for “Fight Song” told a story of the four
The contract with each rep allowed Atomic to can- tattooed, nose-pierced band members going to their first
cel the reps services with two weeks’ notice. Several day of high school and getting a notice that they would
times in the past, Roger had been forced to fire reps have to follow the school dress code (khaki pants and
who failed to produce. However, Atomic’s turnover in a button-down white shirt) or be expelled. Next, the
independent reps averaged about 8 percent annually, band members have Tiger Pants, which they knock the
which was pretty low for the industry. He tended to knees out of and mark up with red eyes and bloody
cancel contracts for poor sales performance more fre- fangs like Lonnie had done. They go back to school
quently when the sales of the clothing line were strong the next day dressed in the ripped up Tigers. The prin-
in the overall market. He had never let a rep go without cipal has a nervous breakdown when the band plays at
first having a replacement sales representative lined up. the high school dance that night dressed in the ripped
This helped to maintain customer relations and avoid up Tigers. The band finishes up by setting the drum kit
gaps in customer service. Roger felt that one of the rea- on fire and throwing their button-down white shirts on
sons he had been able to grow Atomic’s sales was his the flames.
good track record in getting better-than-average reps Roger saw the video for the first time only three
under contract with Atomic. weeks after the ugly midyear business meeting. The
audit of the “bonus clothes” and “celebrity clothes”
Punk Rock Academy programs would start next Monday. After seeing the
In April 2001, Roger Post’s 17-year-old daughter Lon- video, Roger felt sick to his stomach and knew that
nie asked him for four pairs of Tiger Pants for a local Ramon would jump on his giving the band members
band called “Punk Rock Academy.” Lonnie said the four free pairs of pants. Roger was happy that he ended
band was really hot and had just signed a contract up being very, very wrong.
with Epitaph records. One of the band members had “Fight Song” went into MTVs heavy rotation. Punk
seen Lonnie wearing a pair of old, beat-up Tiger Pants Rock Academy opened for the Green Day/Blink 182
at a concert at the Echo Lounge. Lonnie had taken a red summer tour, and the album went gold. Sales exploded.
marker and had given the tiger symbol on the back of More than 2 million Tigers were sold in the third quar-
the pants blood-red eyes and had also drawn on blood ter of 2001. There were $4 million in sales for the
dripping from the tiger’s fangs. fourth quarter of 2001 and a whopping $5,680,000 in
Although Roger thought that Lonnie was a good sales for the first quarter of 2002 alone!
kid who made excellent grades, he knew she was Retailers had great difficulty keeping Tiger Pants
always a little weird and was really interested in music. in stock, especially in the third quarter of 2001. The
Roger and his wife had demanded that Lonnie not get three Tiger Pants reps made a killing and even had
pierced or tattooed, but that agreement did not stop her to prioritize the orders of their old customers since
from wearing some pretty odd clothes and dyeing her it was difficult for enough pants to reach the United
hair strange colors. Roger briefly shuddered when he States from China quickly enough to meet the surging
recalled that horrid purple hair with bright red high- demand. One of the reps even told Roger that “she just
lights that Lonnie came up with one month. Lonnie had to answer her cell phone and write down orders”
did ask really nicely for the pants and showed two instead of really hustling to drum up sales. Roger ended
compact disks and a couple of posters of Punk Rock up getting a $40,000 bonus check for the 2001 sales
Academy to show that they really were an upcoming of Tigers just before Christmas of 2001. In a nod of
band. Although he had more than a few reservations, thanks for Lonnie’s help, Roger flew Lonnie and her
Roger gave Lonnie the four pairs of pants she asked Mom to New York to see Punk Rock Academy play in
for and filled out the paperwork showing who the pants MTV’s New Year’s Eve concert. Even better, that jerk
had been given to. Ramon had been shown that Roger really understood
ATOMIC COMPANY 379

marketing and that there was nothing unprofessional Ramon jumped in stating that “more than $1 million
about the “bonus clothes” and the “celebrity clothes” in sales commissions for 2001 for one line of clothing
programs. is just nuts.” None of the salespeople, he pointed out,
even had a college degree and yet they were “living
like kings.” “You know, for the first quarter those three
THE MARCH 9, 2002, ATOMIC MANAGERS MEETING
have already pulled in $852,000 in commissions that
Beth asked Roger to start the meeting off by giving we will have to cut a check for. This is more than four
actual and projected sales for Tiger Pants for the first times the money that I made in salary and bonus for
quarter. Roger smiled as he reported $5,680,000 in paid all of 2001.”
sales, with an estimate of an additional $400,000 in Ramon followed up by asking Roger if the com-
sales of Tigers for the last three weeks of the quarter. pany could not just fire the three reps and hire company
Roger also reported on the end of the year totals for the salespeople. Roger responded that they could probably
bonus clothing and celebrity clothing programs. Beth get three people to cover the territories for $40,000
asked for a breakdown for the Tiger Pants line alone salary, the standard $15,000 benefits package that all of
for the entire year of 2001. Roger responded that the the headquarters staff received, plus perhaps a 0.5 per-
celebrity clothing costs for Tiger Pants were $25,000; cent sales commission. Roger pointed out that he did
$60,000 in bonus clothes; and sales commissions to the not have anyone lined up and that the company had
three independent reps of $1,003,500. He followed up never fired a rep for performing “way over expecta-
by mentioning that, although these figures might seem tions.” What sort of message would they be sending to
a bit high, they were caused by the huge sales increase the other independent reps who were responsible for
for Tigers. Sales cost as a percentage of total sales, the sales of all of Atomic’s other lines of clothing?
he said, had remained flat in 2001 for the Tiger line Beth spoke up for the first time. “Roger, it is your
despite the huge sales increase.
masterful marketing efforts that gave Atomic this huge
Ramon asked for estimated sales for Tiger Pants
sales boost for Tiger Pants. I promise never to crack
for 2002. Roger admitted that “it was going to be very
a joke about your daughter’s hair ever again,” which
difficult to estimate. Was the boom in sales just a fad?
was followed by warm laughter from all four man-
Would sales plateau at the $10-million level? Sales
agers. Dolly chimed in with “Roger, it is your good
could even be as high as $25 million before expenses.”
idea that got us all of these great results. We could
“I have never seen anything like this sales jump, and I
hire anyone off the street to push Tiger Pants.” Roger
do not think that it will last. Sales will be at a higher
reminded everyone that without the effort of the inde-
level than the $600,000 in 2000, but 2003 sales may
be as low as $3 million. The company has benefited pendent reps, Atomic would not be generating any sales
from the celebrity program, but I do not think current at all.
sales levels will continue when the fad dies down. We At this point, Beth told Roger to prepare a sales
all know that kids go from one new thing to another.” cost comparison between keeping the current sales
Dolly pointed out that “this uncertainty is making structure for Tiger Pants versus going to a company
my job very hard. I don’t know if I should sign long- sales force. She also expressed confidence that Roger
run production contracts for Tigers at the current sales would be able to get some “quality salespeople” in two
level. I can get production discounts of as much as 20 weeks time with the generous compensation package
percent, but I need to give a firm annual sales figure to of $40,000 salary plus benefits and a small commis-
get this kind of discount. The way we have been oper- sion. Besides, people “like the security of a salary,”
ating, with all of the short-run rush orders, has caused and “some bright college kid would jump at the chance
our manufacturing and logistics costs to increase by a to sign up with Atomic and sell Tigers.”
full 10 percent. Roger, surely you can do better than a Beth finished up by taking up a point that Ramon
three-quarter sales estimate for 2002 of between $5 and had made earlier. “You know, these three salespeo-
$20 million. This uncertainty is killing cost control!” ple are not well educated, and all of these sales for
Roger answered: “You know, all of us have made a Tigers basically fell into their laps with their mak-
lot of bonus money, and the value of our stock options ing very little effort. The salespeople basically just sat
has gone sky high. Sure, all of this may not continue. back and let the orders roll in. Atomic paid them more
But even if it does not last, we have all made a lot of than $1 million in commissions last year—far more
money. I’m looking forward to seeing how Beth has than they really deserved. Roger, we all know that
spent some of her money on that new boat!” the core management team is responsible for Atomic’s
380 CASES ANALYSIS

success. According to the contract, we can fire the reps Beth ended the meeting by thanking them for all
with two weeks’ notice. If we fire them and then can- of their great decisions over the last three quarters. “I
cel the orders placed for the quarter, we can get the want everyone to have a great time on my new boat on
retailers who have already paid up for the quarter new Saturday. On Tuesday of next week, we need to meet
purchase orders. This will allow us to take the $852,000 again and decide what direction we want the sales force
in commissions for the first quarter of 2002 and use to take. Roger, we will need the figures from you for
them as a bonus pool for top management. Each of us all of the options at our next meeting. See all of you
would get a bonus of more than $200,000.” and your spouses tomorrow on my new boat!”

CASE 5 CONNER LABS

W
hile at the Chicago airport, I was awaiting a was shocked that JTS had purchased what I believed
flight to Los Angeles. I checked my e-mail to be a substantially inferior surgical system for per-
and there was another message from Bill forming cataract surgery from Bayson Laboratories.
Short, who is vice president of strategic planning. He Bayson Labs is a relative newcomer in the medical
was concerned over the apparent loss of Joysco Tech- supplies field, and JTS always had dealt with vendors
nological Surgeries (JTS). The message was: who have an established reputation. I was given no
“Please call me tomorrow at 7:00 a.m. to discuss indication that any other vendor was being seriously
the loss of JTS. I am extremely disturbed at losing considered for this purchase.
this account. I have reviewed your records on this As I reflected on the situation, I wondered how
account through the last quarter. The records do not much the loss of the JTS sale would affect my division
have third-quarter profiles.” He continued, “Be pre- in the upcoming budget for the year. I also wondered
pared to discuss how you approached this strategic how the loss would impact my own position.
account and why we lost the business. As the most
senior sales representative for Conner, I am discour-
aged that you have not called before now to discuss THE CATARACT SURGERY MARKET
this matter.” The cataract surgery market has grown tremendously
Each quarter, the field sales force downloads all over the last twenty years. Much of this growth
account profiles and sales activities from their laptops occurred as a result of Medicaid and Medicare reim-
to home office computers. Current-quarter records are bursement for the procedure. In 2004, there were 2.7
due next week, containing information that Bill Short million cataract surgeries performed in the United
has not yet examined. I decided it would be a good idea States, of which almost 65 percent were covered
to look over all of the information on this account that by government Medicare and Medicaid programs.
had been logged on my laptop for the last eight months. Cataracts typically occur in patients after 45 years of
If I could discover why this account was lost, obviously age. When patients develop cataracts, the lens of their
I could make some changes in my selling strategy. eye forms an opaque mass and light rays are unable
It was only a week ago that I had caught a flight to pass to the back of the eye. With the diminishing
to Cincinnati on a sales call to JTS, only to be frus- ability of the lens to pass light, patients will eventually
trated by this account. I was certain that prior to my go totally blind. Estimates indicate that 35 percent of
arrival, everything was in order to close this sale. I the population will develop cataracts. Approximately

This case was prepared by John Cheneler and Professor William Cron of Texas Christian University. Neither names nor financial data are intended
to reference anyone or a particular business. All cataract surgery information is accurate; however, competitive and product information has
been modified for reasons of company security.
CONNER LABS 381

40 percent of all Medicare and Medicaid patients can surgeries, rather than going to either hospitals or offsite
be certified as needing cataract surgery.1 surgery centers.
Cataract surgery is a procedure requiring superb
skills, yet it is not time-consuming; the surgery can
be performed in 20 to 30 minutes. Patients feel little, EQUIPMENT
if any, discomfort, and the surgery is usually performed Diagnostic Units
on an outpatient basis. In 2004, the cost for the pro- Diagnostic units are used to determine the relative focal
cedure was typically about $1,500 per eye. Today, ability of an eye. Even though a physician can deter-
surgeons typically operate two days a week, averaging mine that a patient suffers from eye degeneration with
twenty surgeries weekly. a routine examination, there is still a need to quantify
Patients are typically asked to arrive at the surgery eyesight to justify the need for cataract surgery.
center about an hour prior to surgery. Prior to surgery, a While a patient places his or her chin on a leather
number of eye drop medications are applied to the eye strap, a laser beam is projected into the eye. The patient
to prevent pain, to reduce inflammation and the risk of reads a series of randomly generated letters or numbers.
infection, and to fully dilate the pupil. The surgery is The diagnostic unit predicts how much eyesight will
typically performed under local or topical anesthesia. be regained by the patient after surgery. When cataract
With local anesthesia, the entire eye and eye muscles surgery is completed, patients will see as well as they
are numbed to prevent discomfort. With topical anes- did using the diagnostic unit. An examination can be
thesia, just the front of the eye is numbed. The type performed in less than 5 minutes.
of anesthesia chosen depends mostly on the surgeon’s Conner introduced the first diagnostic unit in 1990
preference. and offers the highest priced diagnostic unit on the
During surgery, most patients remain fully awake; market at $20,000. Competitors have attempted either
however, mild sedation may be used depending on to continue to sell the Snellen Chart method, using
the physician and patient wishes. Once the surgery dilation, or to use a variation of the Centrust diag-
is complete the patient is briefly monitored, post-op nostic unit, though with limited success.3 Competitors’
instructions given, and in most cases, the patient is products range in price from $2,500 to $27,000. Sur-
discharged to go home within an hour. geons considered Conner’s diagnostic unit as the only
Cataract surgeons are most commonly general one currently on the market in which they could have
ophthalmologists who specialize in the removal of 100 percent confidence in diagnosis. The U.S. govern-
cataracts and the implantation of intraocular lens ment had ruled only the Conner unit as acceptable in
implants. General ophthalmologists typically treat the confirming the need for cataract surgery for Medicaid
broadest range of eye conditions and may perform and Medicare patients without a second medical opin-
a large variety of procedures in addition to cataract ion. No other competitor is currently able to offer a
surgery. product that can duplicate this process with as much
With increased competition and better equipment, reliability. Conner was quite successful in selling this
many hospitals are fighting to maintain market share unit by emphasizing that it lasts for the life of a med-
by having the latest equipment available. In the early ical practice and, further, that no dilation drops are
stages of the cataract surgery market, all surgery was needed. Conner was the only vendor offering lifetime
performed at hospitals. Soon off-site surgery cen- warranties on diagnostic products for eye care.
ters began to compete actively with hospitals for the
patients of large surgical group practices.2 Now some Surgical Units
large group practices are even soliciting other surgeons The price for a surgical unit used in cataract surgery
to use the group’s facilities for performing cataract varied between $100,000 and $300,000. This price dif-
ferential was due solely to the name recognition of
the vendor and the number of modifications needed
1
Information on the profiles of cataract surgeons and the number of to adapt the unit to other equipment in the operating
procedures supplied by the U.S. Office of Medical Statistics. Wash-
room as opposed to distinguishable product difference.
ington, DC.
2
Off-site surgery centers are conveniently located centers for per-
forming a variety of surgeries in which the patient needs to stay for
less than a day. Surgeries that can be performed at these centers 3 The chart consists of rows of letters or numbers that decrease in
include removal of gallbladders, cosmetic surgery, liposuction, and size with each row. One major concern of a physician is that patients
cataract surgery. will often memorize the letters after repeated examinations.
382 CASES ANALYSIS

E X H I B I T 1 A Diagnostic Unit, a Surgical Unit, and a Disposable Instruments Pack

(clockwise from top left)

Modifications can be as simple as adapting electrical improved, surgeons were less willing to pay higher
outlets or as complex as writing computer programs to prices unless they observed a distinct difference in
link the unit to other surgical units.4 product quality. Hospital surgery management viewed
The surgical unit is a large console, usually 4 feet a surgical unit, however, as much more critical for their
long by 2 feet wide by 5 feet tall. It consists of a success in attracting doctors and patients than a diag-
computer that sends an electric impulse to handheld nostic unit.
cutting tools, tubing for flowing fluid into the surgery
area and suctioning the fluid back, and several aspirat- Disposable Instruments
ing tubes to remove the lens of the eye after incision. Disposable cutting instruments used in cataract surgery
The minuscule pieces of material around the lens must typically cost $125. Every surgical procedure requires
be removed without damaging the surrounding area. a new set of disposable surgical hand pieces each
The surgery site is smaller than the size of a period on time an incision is made. Disposable hand pieces are
a piece of paper. Most units offered by manufacturers plugged into surgical units that supply electrical cur-
appear to have similar capabilities; therefore, surgeons rent, along with proper irrigation and aspiration.5 After
and hospitals often shopped vendors on price. Seldom completion of the surgery, disposable cutting tools
would surgeons be aware of the difference in vendors’ and gauze patches must be discarded. Little differ-
products. In the past, surgeons always purchased the ence exists among the disposable products of vari-
highest priced unit, believing that quality and price ous vendors; therefore, most disposable instruments
were absolutely related. As their surgical techniques were purchased primarily based on the lowest price

4
Conner was not aggressive in requiring the purchaser to share the
costs of modifying surgical units, in which extensive modifications 5 The handheld piece makes a quite thin incision along the lens of

could add up to 50 percent to the cost of the unit. In 1990 Conner the eye, and the surgeon removes the lens and extraneous materials
made major modifications to 11 percent of its units; in 1993 the with suction tubes supplied via the unit. The cleaner the incision, the
percentage of units requiring adjustments soared to 38 percent. quicker the recovery of the patient.
CONNER LABS 383

E X H I B I T 2 Conner Labs: Income Statement and Statement of Retained Earnings

for the Year Ending December 31, 2004 (in Millions)
2001 2002 2003 2004
Sales revenues $436.6 $515.5 $558.5 $456.1
Cost of sales 330.6 372.7 385.4 345.8
Gross margin 106.0 142.8 173.1 110.3
Expenses
Depreciation $24.0 $24.1 $24.4 $24.6
Sales expenses 28.1 30.3 32.5 34.1
Other expenses 10.9 10.7 10.3 10.2
Income taxes 18.9 35.0 48.7 19.1
Total expenses 81.9 100.1 $115.9 88.0
Net Income $24.1 $42.7 $57.2 $22.4
Less: Cash dividends 7.2 12.8 17.2 6.7
Net retained earnings $16.9 $29.9 $40.0 $15.7

available through distributors. Pictures of a diagnostic Conner’s marketing strategy had been to estab-
unit, a surgical unit, and a disposable instruments pack lish its reputation through aggressive promotion of its
are shown in Exhibit 1. high-quality products. The margins on cataract equip-
ment had been high, but with increased competition
and product maturity, they had declined. After 1992,
CONNER LABS numerous competitors for Conner’s digital/laser prod-
ucts appeared. This was not unusual, as typically a
Conner has been a pioneer in the development of dig- break-through product could hold market share for only
ital/laser technology in the medical field. It started three years or less.
almost exclusively as a fledgling medical manufacturer With its reputation and high margins, Conner was
in New York City, with a limited product line. How- able to attract extraordinarily skilled and established
ever, in the last few years with the introduction of new sales representatives plus similarly qualified sales man-
diagnostic products, Conner had grown to a leadership agers. The sales force consisted of six sales represen-
position in medical diagnostics and surgical products tatives, three sales managers, and one national sales
for cataract eye surgery. See Exhibit 2 for financial director. There had been no turnover in the sales force
information on Conner. Few medical companies enjoy in the last two years. The average sales representative
Conner’s reputation for quality. had over ten years’ industry experience and covered a
Although the technology for the diagnostic unit large territory.
is protected by patents, the cataract surgery units and
disposable instruments are not. With its superior manu-
facturing processes, however, R&D was able to modify Market Purchasing Behavior
slightly its line of surgical units to fit the needs of off- Conner had watched its market share dwindle from
site surgery centers and other medical specialities. The 70 percent in 1990 to 22 percent in 2004. Although
delicate aspirating capabilities of the surgical unit, much of the market share loss was due to success-
for instance, have been modified for use by vascu- ful imitation and maturing of the market, some of
lar surgeons in nerve and vascular reattachment. The the market share loss was also felt to be due to the
success of product extensions depends on both quality of selling effort put behind the equipment.
the identification of viable extension opportunities and This is clearly a complex selling process and a New
the manufacturer’s reputation. Most successful vendors Account Planning Program (NAPP) was developed to
develop a strong association with a particular specialty help guide Conner’s sales force through the process and
and use this relationship for product line extensions. to keep management informed of the selling progress
Due to Conner’s success in the cataract area and result- (Exhibit 3).
ing selling time demands, the sales force has not been To complete the selling cycle for a surgical sys-
aggressive in promoting Conner’s products to other tem, sales representatives need to work through several
specialities. layers of approval. Sales representatives typically meet
384 CASES ANALYSIS

EXHIBIT 3 National Account Planning Program (NAPP)

NAPP is an effort by Conner to change the selling behavior of the sales force to a more consultative approach, emphasizing
account relationship building, value-added selling, identification of product line extension opportunities, an account tracking
system, and coordination with management. Following is a brief description of this program.

1. Relationship Building: With all important members of the buying center, build a relationship based on trust, rapport, and
meeting each member’s concerns and expectations. Backgrounds on people who may be involved in the purchase include
the following:

Marketing Manager: Promotes the hospital and is often involved in its strategic planning.
Hospital Administrator: Acts as CEO of the hospital. Concerned with financial matters and the strategic direction of the
hospital. Usually does not have a technical background in medicine.
Purchasing: Establishes and maintains vendor relationships and ensures continuous supply at the lowest
price. Usually a business or liberal arts education.
Reimbursement Officer: Determines and tracks billing of patients and third parties (e.g., insurance and government) to
meet government guidelines. Usually has some medical background.
Head of Nursing: Primary user of many medical supplies; acts as a budget director for surgery and is highly
influential in deciding which products will be used in surgery.
Safety Director: Concerned with government safety regulations compliance and exposure to lawsuits. Frequently a
highly technical individual; often an engineer.
Head of Surgery: Usually a senior, well-respected surgeon who is highly influential in the hospital. Would have
worked solely with one hospital in the past; this is not necessarily the case today.
2. Value-Added Selling: With hospitals’ recent emphasis on low price, emphasis should focus on nonprice benefits, such
as demonstrating technical superiority of equipment and instruments, fewer complications following surgery, lower cost
per surgery due to greater speed, value in hospital’s marketing to doctors, and exceeding government-mandated safety
specifications.

3. Product Line Extension Opportunities: In an effort to expand sales opportunities for current cataract equipment,
salespeople should be on constant alert for opportunities to apply cataract technology to other medical specialties.

4. Opportunity Tracking System: In order to better track the current selling situation, salespeople are to classify all sales
opportunities into one of the following classifications:

“Unqualified” When salesperson thinks there may be an opportunity but has not identified all buying influences.
“Qualified” When a need has been verified, there is a confirmed intention to buy, and funding is available within a
defined time frame.
“Best” All influencers have been identified and concerns addressed, and there is a 90 percent probability of a sale.

5. Management Coordination: Salespeople are to update management quarterly on the status of all opportunities. In
addition, management is to be personally involved in all “Best Opportunities” valued at more than $500,000, must approve
all equipment discounts, and should be notified of all line extension opportunities by completing Form LEO-2000.

with several individuals to identify their needs and to identify potential roadblocks hindering completion
to demonstrate the product’s advantages. This process of the sale. The purchasing agent, for instance, may
becomes quite confusing if the sales representative tries not be the most influential individual in the decision
to sidestep anyone influential in the decision-making process. The head nurse, rather than the surgeon, most
process. The commitment to buy medical products is often purchases disposable surgical products and deter-
seldom impulsive; therefore, sales representatives who mines the budget. Hospital management may desire a
try to complete the sale without total buyer commit- particular surgical unit based on low price, but sur-
ment to the product will become frustrated. A suc- geons in many specialties may influence the decision
cessful sales representative must be prepared to allot in another direction by demonstrating that the slightly
several months to gain the endorsement and commit- higher-priced unit has more applications. Each pur-
ment of everyone involved in the process. chase decision is unique, though multiple people are
To keep the selling process flowing, effective sales always involved.
representatives must find a champion, either inside or The medical community has come under greater
outside the hospital, to help promote their products and scrutiny in the last few years concerning the purchase
CONNER LABS 385

and costs of medical care. With the impending gov- boss, the Vice President of Purchasing, for the morn-
ernment legislation, purchasing agents have been ing of January 22 and the Head of Surgery for the
instructed to acquire products at the lowest possible afternoon of January 22.
price. Often, the value of products and services is not
readily apparent. Very seldom are vendors able to sell January 22
a purchasing agent on any point other than price with- Met with Sandy Adams, who has been the Vice Pres-
out first establishing strong relationships with everyone ident of Purchasing for three years. In the past I had
influential in the decision process. been able to sell at JTS without needing to meet Sandy
Adams. I was informed that all bids must be at the
Laptop Records of Account Activities. The follow- lowest market price. I must find users of the prod-
ing notes appear in their original grammatical form as ucts to champion the full price. Dropped off the proper
copied from laptop notes. The sales representative is brochures to show Sandy Adams the features of our
required to input daily activities on all accounts. products that fit perfectly into their existing surgical
protocols. I have classified JTS as a “Qualified Oppor-
Business Practices at JTS tunity.”
JTS is a rather large surgical hospital that has a solid I met with Dr. Stenz (a leading surgeon who works
business reputation. It performed the most surgical pro- with JTS) to discuss the technical aspects of Conner
cedures in a three-county region that served 7 mil- products. He appeared more comfortable with Conner
lion residents. In an effort to retain the most skilled after understanding the surgical benefits of our prod-
surgeons, JTS had one of the highest compensation ucts over our competitors’ products. He seemed to be
programs in the industry and its turnover rate was impressed by our products.
low throughout the hospital. JTS had published several I asked if any other competitor had established solid
brochures recently that indicated it was establishing relationships with JTS, and I was guaranteed that we
total quality management (TQM) programs this year. I were in the “driver’s seat.” It was even suggested that
thought it might be advantageous to link this to Conner. I stop by the office of Dr. Stenz and speak with his
four associates. We also discussed the delivery process
and training. The order for $10.5 million from JTS
TIMELINE should be coming soon, and we are in a position to
January 6 hold full price. Stenz does not feel that we will need
to discount very much to JTS. He also indicated that
JTS had been targeted as being an account that had
he would be purchasing for his office seven diagnos-
tremendous profit potential by our Strategic Analy-
tic units; an unusually large order for an established
sis Department. During a scheduled appointment with
practice. I wonder?
B. J. Avery, JTS Director of Purchasing, we exam-
ined the new product lines that Conner is offering. I January 24
assessed the potential purchases of this account as 4
Stopped by to see the associates of Dr. Stenz. I was
diagnostic units, 16 surgical units, and around 4,000
surprised that no one was aware that I was coming.
disposable surgical instruments for the first year. The
Stenz had seemed so enthusiastic and promised that he
total potential is $10.5 million.
would arrange my visit with his associates and pass
Spent the day doing informational interviews at the
along the brochures I gave him. Even though I was
JTS facility. Developed a list of people who I think will
disappointed that they were unprepared for my visit,
be influential in the purchasing decision. The buyers
I used this as an opportunity to speak with the office
assured me that Conner had maintained a positive rela-
manager, whom I found was influential in the office’s
tionship in the past with delivery, service, and quality.
buying process.
Spent two hours looking around to obtain information
One interesting development is that I found out dur-
about the business. I noticed that there was a business
ing the meeting with the office manager that there were
services unit that actually marketed medical services
two other competitors who had spoken with the hospi-
and products.6 Made an appointment to see Avery’s
tal and other surgeons during the last month. Dr. Stenz
had assured me that there was no real competition. I am
6 Even though hospitals are traditionally thought of as nonprofit,
not worried too much since I know from the December
they will often have marketing and promotion departments that are Vendors Trade Show in New Orleans that there is no
extremely aggressive. threat for upcoming products from any other vendor.
386 CASES ANALYSIS

February 3 May 15
Called on JTS to check on the Purchasing Department’s Received a phone message from Stenz stating that our
progress concerning the order. Took the Purchasing prices on the diagnostic units for his office are too high,
Vice President’s Assistant to lunch to find new infor- and I need to come down on price immediately. I called
mation. The discussion centered around the politics of and was unable to reach him, but I did speak with an
the organization. Learned that they felt we are being associate who told me that they were actually looking
too aggressive and need to slow down. I took this as an for an order that might be twice as large as my origi-
opportunity to discuss our company and try to estab- nal estimate, but the problem is that we are too high on
lish a rapport rather than focus on selling product. After price. I asked him if they were basing this opinion on
lunch I stopped by surgery to see if any competitors’ a price relative to someone else or if our price was too
products were being used. It seemed like a smorgasbord high in general. They assured me that their business
of products with no one vendor in dominance. could not support our prices. I set an appointment on
Made an appointment to see the Nursing Head of May 18 to speak in person with everyone in their office.
Surgery on the 14th. It’s interesting. When I mentioned
May 18
this to the Purchasing Assistant, he said, “Go ahead and
do that, but remember we are the ones who sign all the I had prepared new proposals in accordance with the
purchasing orders.” practices of Conner. There had been an offer by our
Vice President of Sales to attend the meeting, but I felt
February 14 comfortable that I would finalize this sale in 90 days
It’s Valentines Day so I stopped by with candy and so I rejected the suggestion. I proposed to the Strate-
flowers for the Surgical Nursing Department. This has gic Analysis Department that we offer a new pricing
always paid off well. The atmosphere was light and structure for Dr. Stenz and his associates if they are
everyone was very receptive to listening to benefits of able to help us get the JTS contract. After some arm
our products. They seemed to be pleased with what I twisting, I was given the authority to discount Stenz’s
told them. Looks as though the “ducks are being lined order by 25 percent on the condition that they help
up.” Look for the order soon! us obtain the JTS order. All I need now is the JTS
account. The shipment of diagnostic units to Stenz’s
March 16 office is scheduled for July 1, with some modification
of mounting devices to fit on their examination equip-
Called Stenz to schedule an appointment since I will
ment. Stenz wants this order rushed, but modifications
be in the area in April. He said that I needed to talk
always require a minimum of 30 days from R&D. I am
to H. M. Jones over at JTS. Found out that Jones was
sure he will negotiate on our behalf to JTS. Stenz said
the Head of Safety at JTS. Made an appointment for
he would set an appointment with B. J. Avery at JTS
April 23 and sent a followup letter and brochures on
for June 16.
every product that we could possibly offer. I am not
sure who this individual is, but I am sure his role will June 16
be explained at our meeting.
I was shocked to find that Stenz was not present for
April 23 the meeting at JTS. When I called Stenz’s office, they
said they were nervous about meetings with JTS. For
I arrived at JTS and initiated a discussion with H. M. the first time, I found out that they now compete with
Jones concerning purchases on the original “bid.” I JTS over some surgical business.7 Avery was very
was surprised to find that Jones was rather unsophis- pleasant, but informed us that our prices appeared
ticated and appeared confused by both the literature to be quite high. I explained that this was due to
and our conversation. Conner had hired the finest ad the “state-of-the-art technology” and that the price is
agency in the city to prepare these brochures for a actually reasonable. He asked if I might supply him
high school level education. Jones may actually under- with technology specifications to verify this statement.
stand the material and is simply testing me. I’m sure While this may not be standard protocol, I agreed to
I passed the test. The last question I asked was, “If
this is all clear, do you have any other questions?”
7 It is becoming very competitive for the cataract business, with the
The reply I got was “nope”—another duck lined up!!!!
ability of cataract surgeons to perform surgery in their offices. The
I have moved JTS’s classification up to a “Best Few U.S. Food and Drug Administration has been quite liberal on the
Opportunity.” restrictions of in-office surgery for this field.
CRESTFIELD FURNITURE (A) 387

share the information I had with him. I also stated that and surgical equipment. Again, sorry you lost this busi-
we would share anything else that they needed after the ness. Better luck next time. Sandy Adams
order was delivered. I again mentioned to Avery that I stopped by Adams’ office and found a helpful sec-
in an earlier meeting everyone had agreed that pric- retary who informed me that Bayson Laboratories had
ing would not be an issue. He asked me to return on won the business. They had apparently had a price sim-
July 7 and meet with the purchasing board. I asked ilar to Conner’s.
why it was necessary to meet with this board. He said Next, I proceeded to Avery’s office and had the
that it was a formality that was rarely used; however, following conversation:
with the size of this order he wanted another opinion.
I asked if there was anything else we needed to cover B. J. Avery: Oh Hi! I was unaware that you were stopping
and he said, “No, I am comfortable for now. I am also by today. Did we have an appointment?
looking forward to finalizing this transaction.”
(I didn’t let on that I had read the note and acted as
July 7 morning though all was still in order. I wanted to see if I could
Tried to see Dr. Stenz before heading to JTS. The gain some information as to what had happened.)
delivery of the seven diagnostic units had occurred Me: No, I was in the area and wanted to see if you were
and training was complete. The staff was not using close to arriving at your decision. Is there anything more
the system, and I am concerned about this. I’ll bring that I can supply you with?
this up with Dr. Stenz at the meeting with JTS this B. J.: No, I received the new brochures that you sent and
afternoon. With the discount I had given them, they passed them along to everyone that you indicated in your
must be happy. Normally, this discount is reserved for letter. I believe that everyone was quite impressed with
long-term accounts. All in all everything appeared to them. The videos that you sent were very professional too.
be in control. All in all, I would say that you have done an excellent
July 7 afternoon job of presenting your company and your products.
Me: I am happy that you feel that way, and I hope that we
My meeting with the purchasing board took only will soon be engaging in a long-term relationship. As I
3 minutes. They were totally unaware of what we were indicated to you in one of our last meetings, we will also
to discuss. Since Avery had been so concerned about be able to offer substantial discounts with multiple units
my meeting them, I was frustrated that they were not installed.
prepared for the meeting. Once again, Avery assured B. J.: This was a hard decision, but we have decided to
me that everything was OK and that we will meet on purchase all of our surgical products from Bayson Labo-
August 1 to finalize the sale. ratories. There was no real reason other than that was the
August 1 decision by all parties. We do want to thank you for your
trouble. I have a meeting in 5 minutes, so I hope you will
When I arrived for my scheduled meeting with Sandy
forgive me. Here is a note I was about to send you.
Adams and B. J. Avery, there was a note left for me
at the front desk from Sandy Adams. It read: There was nothing different in this note from the one
Sorry to miss you this time around. We are busy with left by Sandy Adams. It appeared that they both wrote
R&D helping with the installation of new diagnostic these together.

CASE 6 CRESTFIELD FURNITURE (A)

L
ate in the evening of January 6, 2004, Charlton Bates: Hello, Tom. This is Chuck Bates. I’m sorry to call you
Bates, President of Crestfield Furniture, called this late, but I wanted to get your thoughts on the tenta-
Dr. Thomas Berry, a marketing professor at a tive 2004 advertising program proposed by Mike Hervey
private university in the Northeast and a consultant to of Hervey and Bernham, our ad agency.
the company. The conversation went as follows: Berry: No problem, Chuck. What did they propose?
388 CASES ANALYSIS

Bates: The crux of their proposal is that we should increase THE COMPANY
our advertising expenditures by $225,000. They suggested
Crestfield Furniture is a manufacturer of medium- to
that we put the entire amount into our consumer adver-
high-priced wood bedroom, living room, and dining
tising program for ads in several shelter magazines.1
room furniture. The company was formed at the turn
Hervey noted that the National Home Furnishings Foun-
of the century by Charlton Bates’s grandfather. Bates
dation has recommended that furniture manufacturers
assumed the presidency of the company upon his
spend 1 percent of their sales exclusively on consumer
father’s retirement. Year-end net sales in 2003 were
advertising.
$75 million with a before-tax profit of $3.7 million.
Berry: That increase appears to be slightly out of line with
Crestfield sells its furniture through 1,000 high-
your policy of budgeting 5 percent of expected sales for
quality department stores and independent furniture
total promotion expenditures, doesn’t it? Hasn’t John Bott
specialty stores nationwide, but all stores do not carry
[Vice President of Sales] emphasized the need for more
the company’s entire line. The company is very selec-
sales representatives?
tive in choosing retail outlets. According to Bates, “Our
Bates: Yes, John has requested additional funds. You’re right
distribution policy, hence our retailers, should mirror
about the 5 percent figure too, and I’m not sure if our sales
the high quality of our products.” As a matter of pol-
forecast isn’t too optimistic. Your research has shown
icy, Crestfield does not sell to furniture chain stores or
that our sales historically follow industry sales almost
discount outlets.
perfectly, and trade economists are predicting about a 6
The company employs ten full-time salespeople and
percent increase for 2004. Yet, I’m not too sure.
two regional sales managers. Sales personnel receive a
Berry: Well, Chuck, you can’t expect forecasts to be always
base salary and a small commission on sales. A com-
on the button. The money is one thing, but what else
pany sales force is atypical in the furniture industry;
can you tell me about Hervey’s rationale for putting more
most furniture manufacturers use sales agents or repre-
dollars into consumer advertising?
sentatives who carry a wide assortment of noncompet-
Bates: He contends that we can increase our exposure
ing furniture lines and receive a commission on sales.
and tell our quality and styling story to the buying
“Having our own sales group is a policy my father
public—increase brand awareness, enhance our image,
established years ago,” noted Bates, “and we’ve been
that sort of thing. He also cited industry research data that
quite successful in having people who are committed
showed that as baby boomers [consumers born between
to our company. Our people don’t just take furniture
1946 and 1964] age they are becoming more home ori- orders. They are expected to motivate retail salespeople
ented and are replacing older, cheaper furniture with more to sell our line, assist in setting up displays in stores,
expensive, longer lasting pieces. Baby boomers make up and give advice on a variety of matters to our retail-
44 percent of all U.S. households. All I know is that my ers and their salespeople.” He added, “It seems that
contribution margin will fall to 25 percent next year. my father was ahead of his time. I was just reading
Berry: I appreciate your concern. Give me a few days to in the Standard & Poor’s Industry Surveys for house-
think about the proposal. I’ll get back to you soon. hold furniture that the competition for retail floor space
After hanging up, Berry began to think about Bate’s will require even more support, including store person-
summary of the proposal, Crestfield’s present position, nel sales training, innovative merchandising, inventory
and the furniture industry in general. He knew that management, and advertising.”
Bates expected a well-thought-out recommendation on In early 2003, Crestfield allocated $3,675,000 for
such issues and a step-by-step description of the logic total promotional expenditures for the 2002 operat-
used to arrive at that recommendation. ing year, excluding the salary of the Vice President
of Sales. Promotion expenditures were categorized
into four groups: (1) sales expense and administra-
1 Shelter magazines feature home improvement ideas, new ideas tion, (2) cooperative advertising programs with retail-
in home decorating, and so on. Better Homes and Gardens is an ers, (3) trade promotion, and (4) consumer advertis-
example of a shelter magazine. ing. Sales costs included salaries for sales personnel
This case was prepared by Professor Roger A. Kerin, of the Edwin L. and sales managers, selling-expense reimbursements,
Cox School of Business, Southern Methodist University, as a basis fringe benefits, and clerical/office assistance but did not
for class discussion and is not designed to illustrate effective or inef-
include salespersons’ commissions. Commissions were
fective handling of an administrative situation. All names and data
have been disguised. Copyright © 2004 by Roger A. Kerin. No part deducted from sales in the calculation of gross profit.
of this case may be reproduced without written permission of the The cooperative advertising budget is usually spent on
copyright holder. newspaper advertising in a retailer’s city. Cooperative
CRESTFIELD FURNITURE (A) 389

E X H I B I T 1 Allocation of Crestfield about 20 percent of industry sales. These are Furni-

Promotion Dollars, 2002 ture Brands International, Inc. (owner of the Drexel
Heritage, Maitland-Smith, Henredon, Broyhill, Lane,
Sales expense and administration 995,500
Cooperative advertising allowance 1,650,000 and Thomasville brands) and La-Z-Boy, Inc. Other
Trade advertising 467,000 well-known manufacturers include Ethan Allen, Bas-
Consumer advertising 562,500 sett, and Sherrill. The top 25 manufacturers account
$3,675,000 for about 50 percent of U.S. furniture sales. Exports
are not a major factor in the U.S. household wood
Source: Company records. furniture industry.

advertising allowances are matched by funds provided Consumer Expenditures for Furniture
by retailers on a dollar-for-dollar basis. Trade promo- Consumer spending for wood furniture is highly cycli-
tion is directed toward retailers and takes the form of cal and closely linked to the incidence of new housing
catalogs, trade magazine advertisements, booklets for starts, consumer confidence, and disposable personal
consumers, and point-of-purchase materials, such as income. Because wood furniture is expensive and often
displays, for use in retail stores. Also included in this sold in sets, such as a dining room table and chairs,
category is the expense of participating in trade shows. consumers consider these purchases deferrable.
Crestfield is represented at two shows per year. Con- Expenditures for furniture of all kinds have fluctu-
sumer advertising is directed at potential consumers ated as a percentage of consumer disposable personal
through shelter magazines. The typical format used income since 1979. It has been estimated that about
in consumer advertising is to highlight new furniture 1 percent of a U.S. household’s disposable income is
and different bedroom, living room, and dining room spent for household furniture and home furnishings.
arrangements. The dollar allocation for each of these Forecasted retail sales for 2003 are about $70 bil-
programs in 2002 is shown in Exhibit 1. lion. Exhibit 2 shows annual furniture sales at retail
prices from 1992 through 2002.
THE HOUSEHOLD FURNITURE INDUSTRY
Furniture Buying Behavior
The household furniture industry is divided into Even though industry research indicates many con-
three general categories: wood, upholstered, and other sumers consider the furniture shopping process to be
(ready-to-assemble furniture and casual furniture).
enjoyable, consumers acknowledge that they lack the
Total furniture industry sales in 2003 were estimated
confidence to assess furniture construction, make judg-
to be $23.9 billion at manufacturers’ prices.
ments about quality, and accurately evaluate the price
Household wood furniture sales represent 48 per-
of furniture. Consumers also find it difficult to choose
cent of total household furniture sales, followed by
among the many styles available, fearing they will not
upholstered furniture (42 percent) and other forms (10
like their choice several years later or that their selec-
percent), according to the American Furniture Manu-
tion will not be appropriate for their home and they will
facturers Association (AFMA). The principal types of
be unable to return it. According to a recent summary
wood furniture are dressers, tables, and dining room
of furniture-buying behavior published in Standard &
suites. Bedroom and dining room furniture accounts
Poor’s Industry Surveys:
for the majority of wood furniture sales.
In recent years, wood furniture manufacturers have Consumers are quite finicky when it comes to buy-
increased their emphasis on quality by monitoring the ing furniture—a procedure fraught with concerns that
entire production process from the raw materials used, are often not associated with buying other consumer
to construction, finishes, and packaging. In addition durables, such as appliances and cars. With appliances
to improving quality controls, companies also stress and cars, consumers may have a more limited selec-
tion, they can do their own research, and they know
price points and basic styling features, and are trying
what they are buying and what to expect. On the other
to improve shipping schedules. Wood furniture manu- hand, most consumers know little about evaluating the
facturers’ sales rose 5 percent in 2003 but are expected price or quality of furniture. It is also difficult for con-
to rise by 6 percent in 2004, according to the AFMA. sumers to imagine how furniture will look in their
More than 1,000 furniture manufacturers oper- homes, or whether they will still like their purchase in
ate in the United States. Two manufacturers have several years. Furthermore, there are questions about
annual sales of more than $2 billion and represent delivery—as in whether the item will arrive on time
390 CASES ANALYSIS

$70
66.8

65 64.1 64.1

60.0
60
56.7
55 53.8
51.0
50
47.5
45.1
45
41.8
40 39.0

35

30

25

20

0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

E X H I B I T 2 Total Retail Furniture Sales in the United States, 1992–2002 (In billions of dollars at
retail prices)
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

and in good condition and whether it can be returned • 84 percent of the subscribers believe “the higher
for a full refund. the price, the higher the quality” when buying
The furniture industry’s efforts to educate con- home furnishings.
sumers over the past years have failed for the most • 72 percent of the subscribers browse or window-
part. These efforts have included in-depth market stud-
shop furniture stores even if they don’t need fur-
ies to learn what consumers look for when they buy
furniture, improved distribution, and new programs for niture.
training sales personnel. Despite these efforts, con- • 85 percent read furniture ads before they actually
sumers still find the quality of furniture difficult to need furniture.
discern, and tend to base their furniture choice on
price.
• 99 percent of the subscribers agree with the state-
ment “When shopping for furniture and home fur-
nishings, I like the salesperson to show me what
Results of a consumer panel sponsored by Better alternatives are available, answer my questions,
Homes and Gardens and composed of its subscribers and let me alone so I can think about it and maybe
provide the most comprehensive information available browse around.”
on furniture-buying behavior. Selected findings from
• 95 percent of the subscribers say they get redec-
the Better Homes and Gardens survey are reproduced
orating ideas or guidance from magazines.
in the appendix following this case. Other findings aris-
ing from this research are as follows: • 41 percent of the subscribers have requested a
manufacturer’s booklet.
• 94 percent of the subscribers enjoy buying furni- • 63 percent of the subscribers say they need deco-
ture somewhat or very much. rating advice to “put it all together.”
CRESTFIELD FURNITURE (A) 391

Consumer research data have prompted both fur- These costs, plus the limited success of Internet fur-
niture retailers and manufacturers to stress the need niture retailers, has led some larger manufacturers to
for well-informed retail sales personnel to work with instead build and operate promotional Web sites at
customers. For example, many manufacturers have roughly half the cost. These Web sites feature new
established education centers where they train retail styles and list retailer locations that sell their products.
salespersons in the qualitative and construction details Examples of these Web sites are drexelheritage.com
of the furniture they sell. Some manufacturers also and thomasville.com. Ethan Allen is an exception. As
distribute product literature to customers via retail- a vertically integrated furniture manufacturer that sells
ers. Drexel Heritage, for instance, provides a series of exclusively through company-owned and franchised
books, titled Living with Drexel Heritage, to its autho- stores, Ethan Allen sells selected furniture and acces-
rized retailers, who then give them to customers. sories at its ethanallen.com Web site.
A significant trend among furniture retailers is the
movement toward the “gallery concept”—the practice
Distribution
of dedicating an amount of space and sometimes an
Furniture is sold through over 100,000 specialty fur- entire freestanding retail outlet to one furniture man-
niture and home furnishing stores, department stores, ufacturer. There are currently 11,000 galleries, and it
and mass-merchandise stores in the United States. is estimated this number will reach 12,500 by 2004.
Industry trends indicate that the number of indepen- Commenting on the gallery concept, Charlton Bates
dently owned furniture stores has declined while fur- said:
niture store chains have grown. The top ten furniture The gallery concept has great appeal for a furniture
retailers in the United States captured approximately manufacturer, since product is displayed in a unique
19 percent of total U.S. furniture retail sales. Ethan and comfortable setting without the lure of competi-
Allen is the largest furniture retailer in terms of retail tive brands. We have galleries in a small number of
sales. our furniture stores. The fact that we are not getting
Furniture manufacturers have eschewed the Internet our full line in all of our retailers galls me because the
as a sales channel for the most part. Smaller man- opportunity to even discuss the gallery concept with
ufacturers consider the up-front cost to build a Web many of our retailers doesn’t exist.
site coupled with the ongoing cost to maintain a fur- Bates added: “Galleries and upscale furniture and
niture Web site to be prohibitive. Also the costs of department stores attract and serve our target customer,
delivering and returning heavy items are a concern. the 38- to 56-year-old home owner with an annual

58%
Gallery storea 45%
58%
Design center showroom
29%
53%
Furniture store
51%
53%
Department store
41%
43%
Antique store
38%
42% Ideas
Lifestyle storeb 33% Buy

a
Furniture from single company
b
Crate & Barrel, Pottery Barn, Ikea, etc.

E X H I B I T 3 Furniture Retailers That Upscale Shoppers (Household Income $100,000

and Up) Have Used for Ideas and Where They Buy
392 CASES ANALYSIS

household income over $100,000. That’s where our would remain at 2003 levels. Hervey further recom-
customers get ideas and buy the quality furniture we mended that shelter magazines account for the bulk of
sell” (see Exhibit 3). the incremental expenditure for consumer advertising.
The selling of furniture to retail outlets centers John Bott, Crestfield’s Vice President of Sales, dis-
on manufacturers’ expositions held at selected times agreed with the budget allocation and noted that sales
and places around the country. The major expositions expenses and administration costs were expected to rise
occur in High Point, North Carolina, in October and by $65,000 in 2004. Moreover, Bott believed that an
April. Regional expositions are also scheduled during additional sales representative was needed to service
the June-August period in locations such as Los Ange- Crestfield accounts because fifty new accounts were
les, New York, and Boston. At these marts, as they are being added. He estimated that the cost of the addi-
called in the furniture industry, retail buyers view man- tional representative, including salary and expenses,
ufacturers’ lines and often make buying commitments would be at least $70,000 in 2004. That’s about
for their stores. However, Crestfield’s experience has $135,000 in additional sales expenses that have to be
shown that sales efforts in the retail store by company added into our promotional budget for 2004,” Bott
representatives account for as much as one-half of the noted. He continued:
company’s sales in any given year. We recorded sales of $75 million in 2003. If we assume
a 6 percent increase in sales in 2004, that means our
Advertising Practices total budget will be $3,975,000, if my figures are
Manufacturers of household furniture spend approxi- right—a $300,000 increase over our previous bud-
mately 3.5 percent of annual net sales for advertising get. And I need $135,000 of that. In other words,
of all types (consumer, trade, and cooperative advertis- $165,000 is available for other kinds of promotion,
ing). This percentage has remained constant for many some of which should go to trade promotion to assist
our salespeople servicing new accounts.
years. The typical vehicles used for consumer adver-
tising are shelter magazines such as Better Homes Hervey’s reply to Bott noted that the company
and Gardens, House Beautiful, and Southern Living. planned to introduce several new styles of living room
Trade advertising directed primarily toward retailers and dining room furniture in 2004 and that these new
includes brochures, point-of-purchase materials to be items would require consumer advertising in shelter
displayed on a retailer’s sales floor, and technical book- magazines to be launched successfully. He agreed with
lets describing methods of construction and materials. Bott that increased funding of the sales effort might be
Cooperative advertising, shared with retailers, usually necessary and thought that Crestfield might draw funds
appears in newspapers, but there are also some tele- from cooperative advertising allowances and trade pro-
vision and radio spots featuring the brands carried by motion.
retailers. Bates interrupted the dialogue between Bott and
Occasionally, industry groups sponsor advertising Hervey to mention that the $225,000 increase in pro-
designed to stimulate consumer demand for home motion was about $75,000 less than the 5 percent
furnishings in general. Print advertisements spon- percentage-of-sales policy limit. He pointed out, how-
sored by the Home Furnishings Council, for example, ever, that higher material costs plus a recent wage
featured furnishing tips from Kathie Lee Gifford. increase were forecasted to squeeze Crestfield’s gross
(The Home Furnishings Council merged with the profit margin and threaten the company objective of
Home Furnishings International Association in August achieving a 5 percent net profit margin before taxes.
2002.) “Perhaps some juggling of the figures is necessary,”
he concluded. “Both of you have good points. Let me
think about what’s been said and then let’s schedule a
THE BUDGET MEETING
meeting for a week from today.”
At the January 6 meeting attended by Hervey and As Bates reviewed his notes from the meeting, he
Bernham executives and Crestfield executives, Michael realized that the funds allocated to promotion were only
Hervey proposed that the expenditure for consumer part of the question. How the funds would be allocated
advertising be increased by $225,000 in 2003. Coop- within the budget was also crucial. A call to Tom Berry
erative advertising and trade advertising allowances might be helpful in this regard, too.
CRESTFIELD FURNITURE (A) 393

®
APPENDIX: SELECTED FINDINGS FROM THE BETTER HOMES AND GARDENS CONSUMER PANEL REPORT–
HOME FURNISHINGS2
Question: If you were going to buy furniture in the near future, how important would the following factors be in
selecting the store to buy furniture? (Respondents: 449)

Very Somewhat Not Too Not at All No

Factor Important Important Important Important Answer

Sells high-quality furnishings 62.6% 31.0% 3.8% 1.1% 1.5%

Has a wide range of different furniture styles 58.8 29.2 8.2 2.9 0.9
Gives you personal service 60.1 29.9 7.8 0.9 1.3
Is a highly dependable store 85.1 12.7 1.1 — 1.1
Offers decorating help from experienced home planners 26.5 35.9 25.4 10.9 1.3
Lets you “browse” all you want 77.1 17.8 3.3 0.7 1.1
Sells merchandise that’s a good value for the money 82.0 15.6 0.9 0.2 1.3
Displays furniture in individual room settings 36.3 41.2 18.7 2.4 1.3
Has a relaxed, no-pressure atmosphere 80.0 17.1 1.6 — 1.3
Has well-informed salespeople 77.5 19.8 1.6 — 1.1
Has a very friendly atmosphere 68.2 28.1 2.4 — 1.3
Carries the style of furniture you like 88.0 10.0 0.9 — 1.1

Question: Please rate the following factors as to their importance to you when you purchase or shop for case-goods
furniture, such as a dining room or living room suite, 1 being the most important factor, 2 being second most
important, and so on, until all factors have been rated. (Respondents: 449)

Factor 1 2 3 4 5 6 7 8 9 10 No Answer

Construction of item 24.1% 16.0% 18.5% 13.1% 10.5% 6.9% 4.9% 1.6% 0.2% 1.1% 3.1%
Comfort 13.6 14.7 12.9 12.3 12.7 10.9 8.2 4.5 4.0 2.4 3.8
Styling and design 33.6 19.8 11.1 9.6 4.7 7.3 4.5 1.6 2.9 1.6 3.3
Durability of fabric 2.2 7.6 9.8 14.5 15.1 14.7 12.9 5.6 5.8 7.8 4.0
Type and quality of wood 10.9 17.8 16.3 15.8 14.7 5.8 5.3 3.1 4.9 2.0 3.4
Guarantee or warranty 1.6 3.8 1.6 5.3 8.7 10.0 13.8 25.2 14.5 11.1 4.4
Price 9.4 6.2 8.7 8.5 10.0 12.5 14.2 11.8 6.9 8.0 3.8
Reputation of manufacturer or 6.2 3.6 4.7 5.6 6.2 6.2 12.7 17.1 22.7 11.6 3.4
brand name
Reputation of retailer 1.6 1.8 1.6 2.4 4.0 7.3 7.4 13.6 22.0 34.5 3.8
Finish, color of wood 4.7 7.6 10.2 8.0 8.9 13.4 10.7 10.0 10.2 12.7 3.6

Question: Below is a list of 15 criteria that may influence what furniture you buy. Please rate them from 1 as most
important to 5 as least important. (Respondents: 449)

Criterion 1 2 3 4 5 No Answer

Guarantee or warranty 11.4% 11.1% 26.3% 16.9% 5.3% 29.0%

Brand name 9.1 6.5 14.3 25.6 11.6 32.9
Comfort 34.7 27.8 14.5 8.5 4.7 9.8
Decorator suggestion 4.0 2.4 2.7 8.2 44.8 37.9
Material used 14.9 24.1 14.9 13.4 6.2 26.5
Delivery time 0.7 0.5 1.3 2.9 55.2 39.4
Size 7.6 10.7 13.6 30.9 4.0 33.2
Styling and design 33.4 17.8 21.8 13.6 2.2 11.2
Construction 34.3 23.6 13.1 11.4 2.9 14.7
Fabric 4.0 25.6 24.9 14.0 4.5 27.0
(Continued)

2 ®
Reprinted courtesy of the Better Homes and Gardens Consumer Panel.
394 CASES ANALYSIS

Criterion 1 2 3 4 5 No Answer

Durability 37.0 19.4 13.6 6.9 4.9 18.2

Finish on wooden parts 5.8 14.7 16.7 10.7 16.7 35.4
Price 19.4 21.8 16.0 10.9 15.4 16.5
Manufacturer’s reputation 4.2 9.1 15.4 22.9 14.3 34.1
Retailer’s reputation 2.2 4.7 10.5 21.2 26.5 34.9

Question: Listed below are some statements others have made about shopping for furniture. Please indicate how
much you agree or disagree with each one. (Respondents: 449)

Neither
Agree Agree Agree nor Disagree Disagree No
Statement Completely Somewhat Disagree Somewhat Completely Answer

I wish there were some way to be really sure of 61.9% 24.7% 4.7% 4.2% 3.6% 0.9%
getting good quality in furniture
I really enjoy shopping for furniture 49.2 28.3 7.6 9.8 4.2 0.9
I would never buy any furniture without my 47.0 23.0 10.9 9.8 7.1 2.2
husband’s/wife’s approval
I like all pieces in the master bedroom to be 35.9 30.7 12.7 11.1 7.6 2.0
exactly the same style
Once I find something I like in furniture, I wish it 36.8 24.3 10.0 18.9 9.1 0.9
would last forever so I’d never have to buy again
I wish I had more confidence in my ability to 23.1 32.3 12.5 11.6 18.7 1.8
decorate my home attractively
I wish I knew more about furniture styles and 20.0 31.0 17.1 13.4 16.7 1.8
what looks good
My husband/wife doesn’t take much interest and 6.5 18.0 12.3 17.8 41.4 4.0
what looks good
I like to collect a number of different styles in the 3.3 10.5 15.2 29.8 38.3 2.9
dining room
Shopping for furniture is very distressing to me 2.4 11.6 14.3 18.0 51.9 1.8

Question: Listed below are some factors that may influence your choice of furnishings. Please rate them with 1 being
most important, 2 being second most important, and so on, until all factors have been rated. (Respondents: 449)

Factor 1 2 3 4 5 No Answer

Friends and/or neighbors 1.3% 16.9% 15.8% 22.1% 41.7% 2.2%

Family or spouse 62.8 9.4 14.3 9.8 2.0 1.7
Magazine advertising 16.3 30.3 29.6 17.6 4.2 2.0
Television advertising 1.1 6.7 14.7 32.5 42.3 2.7
Store displays 18.9 37.2 22.1 14.0 5.6 2.2

Question: When you go shopping for a major piece of furniture or smaller pieces of furniture, who, if anyone, do
you usually go with? (Respondents: 449—multiple responses)

Person Major Pieces Other Pieces

Husband 82.4% 59.5%

Mother or mother-in-law 6.2 9.1
Friend 12.0 18.9
Decorator 4.2 1.6
Other relative 15.6 15.4
Other person 2.9 3.3
No one else 5.1 22.3
No answer 0.9 3.1
CRESTFIELD FURNITURE, INC. (B) 395

Question: When the time comes to purchase a major item of furniture or other smaller pieces of furniture, who, if
anyone, helps you make the final decision about which piece to buy? (Respondents: 449—multiple responses)

Person Major Pieces Other Pieces

Husband 86.0% 63.5%

Mother or mother-in-law 2.4 4.5
Friend 3.6 8.0
Decorator 3.1 2.7
Other relative 10.0 12.9
Other person 1.6 1.8
No one else 7.1 24.3
No answer 0.9 2.22

CASE 7 CRESTFIELD FURNITURE, INC. (B)

I
n April 2004, Crestfield Furniture, Inc. merged and family rooms. The firm is more than seventy-five
with Lea-Meadows, Inc., a manufacturer of years old. The company uses some of the finest fabrics
upholstered furniture for living and family rooms. and frame construction in the industry, according to
The merger was not planned in a conventional sense. trade sources. Net sales in 2003 were $5 million. Total
Charlton Bates’s father-in-law died suddenly in early industry sales of upholstered furniture manufacturers in
February 2004, leaving his daughter with control- 2002 were $10 billion. Forecasted 2003 industry sales
ling interest in Lea-Meadows. The merger proceeded for upholstered furniture were $10.4 billion. Company
smoothly, since the two firms were located on adja- sales had increased 7 percent annually over the past five
cent properties and the general consensus was that the years, and company executives believed this growth
two firms would maintain as much autonomy as was rate would continue for the foreseeable future.
economically justified. Moreover, the upholstery line Lea-Meadows employed fifteen sales agents to rep-
filled a gap in the Crestfield product mix, even though resent its products. These sales agents also represented
it would retain its own identity and brand names. several manufacturers of noncompeting furniture and
The only real issue that continued to plague Bates home furnishings. Often, a sales agent found it nec-
was merging the selling effort. Crestfield had its own essary to deal with several buyers in a store in order
sales force, but Lea-Meadows relied on sales agents to represent all the lines carried. On a typical sales
to represent it. The question was straightforward, in call, a sales agent first visited buyers to discuss new
his opinion: “Do we give the upholstery line of chairs lines, in addition to any promotions being offered by
and sofas to our sales force, or do we continue using manufacturers. New orders were sought where and
the sales agents?” John Bott, Crestfield’s Vice Presi- when it was appropriate. The sales agent then visited
dent of Sales, said the line should be given to his sales the selling floor to check displays, inspect furniture,
group; Martin Moorman, National Sales Manager at and inform salespeople about furniture styles and con-
Lea-Meadows, said the upholstery line should remain struction. Lea-Meadows paid an agent commission of
with sales agents. 5 percent of net company sales for these services.
Moorman thought sales agents spent 10 to 15 percent
of their instore time on Lea-Meadows products.
LEA-MEADOWS, INC.
The company did not attempt to influence the
Lea-Meadows, Inc. is a small, privately owned man- type of retailers that agents contacted, although it was
ufacturer of upholstered furniture for use in living implicit in the agency agreement that agents would not
This case was prepared by Professor Roger A. Kerin, of the Edwin L. Cox School of Business, Southern Methodist University, as a basis
for class discussion and is not designed to illustrate appropriate or inappropriate handling of administrative situations. All names and data are
disguised. Copyright © 2003 by Roger A. Kerin. No part of this case may be reproduced without permission from the copyright holder.
396 CASES ANALYSIS

sell to discount houses. Sales records indicated that gave for this view were the following. First, Crest-
agents were calling on specialty furniture and depart- field had developed one of the most well-respected,
ment stores. An estimated 1,000 retail accounts were professional sales forces in the industry. The represen-
called on in 2002 and 2003. All agents had established tatives could easily learn the fabric jargon, and they
relationships with their retail accounts and worked already knew personally many of the buyers who were
closely with them. responsible for upholstered furniture. Second, selling
the Lea-Meadows line would require only about 15 per-
CRESTFIELD FURNITURE, INC. cent of present sales call time. Thus, he thought that
the new line would not be a major burden. Third,
Crestfield Furniture,Inc. is a manufacturer of medium- more control over sales efforts was possible. Bott
to high-priced wood bedroom, living room, and dining noted that Charlton Bates’s father had created the sales
room furniture.1 Net sales in 2003 were $75 million; group thirty years earlier because of the commitment
before-tax profit was $3.7 million. Industry sales of it engendered and the service “only our own people
wood furniture in 2003 were $11.5 billion at manufac- are able and willing to give.” Moreover, the company
turers’ prices. Projected industry sales for 2003 were salespeople have the Crestfield “look” and presenta-
$12.2 billion. tion style, which is instilled in every one of them.
The company employed ten full-time sales repre- Fourth, Bott said that it wouldn’t look right if both
sentatives, who called on 1,000 retail accounts. These representatives and agents called on the same stores
individuals performed the same function as sales agents and buyers. He noted that Crestfield and Lea-Meadows
but were paid a salary plus a small commission. In overlapped on all their accounts. He said, “We’d be
2003, the average sales representative received an paying a commission on sales to these accounts when
annual salary of $70,000 (plus expenses) and a com- we would have gotten them anyway. The difference
mission of 0.5 percent on net company sales. Total in commission percentages would not be good for
sales administration costs were $130,000. morale.”
Crestfield’s salespeople were highly regarded in Martin Moorman advocated keeping sales agents
the industry. They were known particularly for their for the Lea-Meadows line. His arguments were as fol-
knowledge of wood furniture and willingness to work lows. First, all sales agents had established contacts
with buyers and retail sales personnel. Despite these and were highly regarded by store buyers, and most
advantages, Bates knew that all retail accounts did not had represented the line in a professional manner for
carry the complete Crestfield furniture line. He had many years. He, too, had a good working relationship
therefore instructed Bott to “push the group a little with all fifteen agents. Second, sales agents repre-
harder.” At present, sales representatives were mak- sented little, if any, cost beyond commissions. Moor-
ing ten sales calls per week, with the average sales man noted, “Agents get paid when we get paid.” Third,
call running three hours. Salespersons’ remaining time sales agents were committed to the Lea-Meadows line:
was accounted for by administrative activities and “The agents earn a part of their living representing us.
travel. Bates recommended that the call frequency be They have to service retail accounts to get the repeat
increased to seven calls per account per year, which business.” Fourth, sales agents were calling on buyers
was consistent with what he thought was the industry not contacted by the Crestfield sales force. Moorman
norm. noted, “If we let Crestfield people handle the line, we
might lose these accounts, have to hire more sales per-
MERGING THE SALES EFFORTS sonnel, or take away 25 percent of the present time
given to Crestfield product lines.” Finally, Moorman
Through separate meetings with Bott and Moorman, took issue with Bott’s view that Crestfield salespeo-
Bates was able to piece together a variety of data ple could easily learn about upholstered furniture. He
and perspectives on the question of merging the sales said, “Lea-Meadows has some 1,000 different frames
efforts. These meetings also made it clear that Bott and for sofas and upholstered chairs. If all combinations of
Moorman differed dramatically in their views. fabric, skirts, pillow, springs, and fringes are consid-
John Bott had no doubts about assigning the line ered, a sales rep would need to be conversant in no
to the Crestfield sales force. Among the reasons he fewer than 1 billion possibilities.”
As Bates reflected on the meetings, he felt that a
1 Additional background information on the company and industry broader perspective was necessary beyond the views
can be found in the case titled “Crestfield Furniture, Inc. (A).” expressed by Bott and Moorman. One factor was
D A V E M AC D O N A L D ’ S E T H I C A L D I L E M M A S 397

profitability. Existing Crestfield furniture lines typi- many years to have its own sales force and not use
cally had gross margins that were 5 percent higher sales agents. In addition, there was the subtle issue of
than those for Lea-Meadows upholstered lines. Another Moorman’s future. Moorman, who was 55 years old,
factor was the “us and them” references apparent in had worked for Lea-Meadows for twenty-five years and
the meetings with Bott and Moorman. Would merging was a family friend and godfather to Bates’s youngest
the sales effort overcome this, or would it cause more child. If the Lea-Meadows line was represented by
problems? The idea of increasing the sales force to the Crestfield sales force, Moorman’s position would
incorporate the Lea-Meadows line did not sit well with be eliminated. Given these circumstances, Bates also
him. Adding new salespeople would require restruc- thought his wife’s views had to be considered. He
turing of sales territories, involve potential loss of could bring up the topic on their way to the High
commissions by existing salespeople, and be “a big Point, North Carolina, furniture exposition early next
headache.” Still, it had been Crestfield’s policy for week.

CASE 8 DAVE MACDONALD’S ETHICAL DILEMMAS

T
he following situations are real events experi- Distributor net cost 4,000.00
enced by the case writer. Only the names have Estimated currency exchange (8%) 320.00
been changed. Estimated duty (22 12 %) 972.00
Estimated freight 245.00
HALCO MANUFACTURING Estimated brokerage 55.00
Estimated distributor cost, F.O.B. 5,592.00
Dave MacDonald was excited when he got the unex- destination
pected phone call from Nicki Steele, a senior buyer Markup (25%) 1,398.00
from Halco Manufacturing. Selling price, F.O.B. destination $6,990.00
“I know it’s a year since we bought that proto-
type reel from you, but we just got a contract from the There were some notes on the file that Dave reviewed.
government to build ten more ‘bear traps’ and we des- The reel was designed as part of a “bear trap” on
perately need to hold our price on these units. Could Canadian navy ships. These bear traps would hook
you possibly sell us ten new reels at the same price onto helicopters in rough weather and haul them safely
you charged last year?” Nicki inquired. onto landing pads on the ship decks. The reel was
“I’ll see what I can do and call you back today,” really a model SM heavy-duty steel mill reel, except
Dave replied. that some of the exposed parts were to be made of
Dave immediately retrieved the file from the pre- stainless steel to provide longer life in the saltwater
vious year and saw that they had supplied the reel for atmosphere. There was a special engineering charge
$6,990.00 F.O.B. the customer’s warehouse. There was on the reel, as it was a nonstandard item that had to
a breakdown of the pricing on the file: be specially engineered. The manufacturer had sug-
gested at the time it quoted that Dave could keep the
Manufacturer’s list price $4,000.00 full 20 percent discount, as the person thought there
Special engineering charge (25%) 1,000.00 was only one other manufacturer capable of build-
Total list price 5,000.00 ing this unit, and its price would likely be much
Distributor discount (20%) 1,000.00 higher.
This case was prepared by H. F. MacKenzie of Memorial University of Newfoundland, St. John’s, Canada. The case was prepared as a basis
for class discussion and is not intended to illustrate effective or ineffective handling of a management situation. All names in the case have
been disguised. Copyright © 1994 by H. F. MacKenzie, Memorial University of Newfoundland, Faculty of Business Administration, St. John’s,
Newfoundland A1B 3X5. Reproduced by permission.
398 CASES ANALYSIS

When Dave got a price from the manufacturer on myself. He gave us the order over two weeks ago.
the ten new units, he was surprised that the quoted price He can’t change suppliers now because he needs the
was only $3,200.00 each, less 40/10 percent. When he material next week, and I don’t want to put him on
asked that the price be verified, the order desk clarified the spot now because it would be unfair. Since this is
the pricing. First, there had been a 20 percent reduction our first order, I would like to supply it without any
in all SM series reels. That made the manufacturer’s problems. We’ll get back the money we lost on this
list price only $3,200.00. Then, because there was a order many times if we can get their future business.
large quantity, the distributor discount was increased This material is needed for a small construction job,
to less 40/10 percent instead of the 20 percent that was and they haven’t even started to consider their stores
given on the original reel. inventory yet.”
As Dave estimated his cost, things got better. The After much discussion, it was agreed that the order
original reel was imported from the United States at would stand, but Dave would call the fitting manufac-
22 12 percent duty as “not otherwise provided for man- turer’s sales manager, Chuck Knowles, as the two men
ufacturers of iron or steel, tariff item 44603-1.” In were good friends.
the interim, the company Dave worked for had got- “We need some help on that last order we placed
ten a duty remission on series SM steel mill reels as with you. Bill sold it at 40 percent below our cost,”
“machinery of a class or kind not manufactured in said Dave.
Canada, tariff item 42700-1,” and the duty was remit- “How could that happen?” Chuck seemed amazed.
ted (and the savings supposedly passed on to the end “Well,” replied Dave, “you give us a 25-percent
customer). The currency exchange rate also improved distributor discount, and we gave 10 percent to the cus-
in Dave’s favor, and the estimated freight and broker- tomer due to the size of the order. What we forgot was
age charges per unit dropped considerably because of to double the list price because the customer wanted
the increased shipment size. Dave estimated his new schedule 80 wall thickness on the fittings instead of
cost as follows:
standard schedule 40. This was Bill’s first large inquiry,
Manufacturer’s list price $3,200.00 and he made an honest mistake. He doesn’t want me
Distributor discount (40/10%) 1,472.00 to get involved with the customer, and I don’t want to
Distributor net cost 1,728.00 force the issue with him, so I’m hoping you can help
Estimated currency exchange (2%) 35.00 us on this one order. We expect to get a lot of business
Estimated duty (remitted) 0.00 from this account over the next few years.”
Estimated freight 85.00 “I’ll split the difference with you. What you’re sell-
Estimated brokerage 14.50 ing now for $0.90, you’re paying $1.50 for, and if I
Estimated distributor cost, F.O.B. $1,862.50 give you an additional 20 percent discount, your cost
destination
will come down to $1.20. Can you live with that?”
Now that he had all the figures, Dave had to decide Chuck asked.
what the selling price should be to his customer. “It’s a help. We appreciate it. We’ll see you on your
next trip to our territory, and I’ll buy lunch.”
“A deal. See you next month.” The conversation
CROWN PULP AND PAPER LTD. ended.
Bill Siddall had been promoted to the position of sales- When it was over, Dave was feeling reasonably sat-
person, and he was pleased when he received an order isfied with himself, but he still felt somewhat uneasy.
for nearly $10,000 for stainless steel fittings from the He promised not to call Rory, and he promised not to
new pulp mill being built in his territory. Unfortu- interfere with the account, but he still thought some-
nately, he quoted a price that was 40 percent below thing could be done.
his cost. On Saturday morning, Dave went to the Brae Shore
“We have to honor the price quoted,” Bill insisted. Golf Club. He was confident that Rory would be there.
“I know if you let me talk to Rory, he’ll let us raise Sure enough, at 8:00 a.m., Rory was scheduled to tee
the price,” replied Dave MacDonald, the Sales Man- off. Dave sat on the bench at the first tee and waited
ager. “Rory used to be the purchasing agent at one of for Rory to appear. Promptly, Rory arrived with Bob
my best accounts before he came to the mill.” Arnold, one of his senior buyers. The three men greeted
“No. You gave me responsibility for this account, each other pleasantly, and Rory asked who Dave was
and I want to build a good relationship with Rory waiting for.
D A V E M AC D O N A L D ’ S E T H I C A L D I L E M M A S 399

“Just one of my neighbors. He was supposed to be line of fans and negotiated a discount from the manu-
here an hour ago, but I guess he won’t show.” facturer, along with an agreement to discuss the further
“Join us. We don’t mind. Besides, we might need a possibility of representing the fan manufacturer on a
donation this fall when we have our company golf tour- national basis.
nament. We’ll invite you, of course, and we’ll invite When Stan gave the order to Dave for the fans,
Bill if he plays golf.” the two men discussed other products that Dave sold.
“He doesn’t play often, but he’s pretty good. Beat Dave sold products for a company that was both a
me the last time we played. How is he doing at your general-line and specialty-line industrial distributor.
mill? Is everything okay?” Dave asked. Included in the general-line products were such items
“Checking up on him? Sure. He’s fine. He made as hand and power tools, cutting tools (drills, taps,
a mistake the other day when he went to see our dies), safety equipment, wire rope and slings, fasten-
mill-wright foreman without clearing it through my ers (nuts, bolts), and fittings (stainless steel, bronze,
office first, but he’ll learn. He’ll do a lot of business and carbon steel flanges, elbows, tees). Included in
with us because we want to buy locally where possi- the specialty-line products were such items as electric
ble, and you have a lot of good product lines. I think motors and generators, motor controls, hydraulic and
he’ll get along well with all of us as well. He seems a pneumatic valves and cylinders, rubber dock fenders,
bit serious, but we’ll break him in before long. We just and overhead cranes. When the men finally met, they
gave him a big order for stainless fittings a few weeks were almost instantly friends, and it was obvious that
ago, but we told him to visit at ten o’clock next time the opportunities for them to do further business were
and to bring the doughnuts.” great. “One item that really interests me,” said Stan,
“I know,” replied Dave. “Unfortunately, we lost a “is PTFE tape. We need some, and we will be using a
lot of money on that order.” lot of it.”
“Your price was very low. I couldn’t understand “We have the largest stock of PTFE tape in the
it because I knew your material wasn’t manufactured country,” replied Dave. “We import it directly from
offshore. Did you quote the cheaper T304 grade of Italy, but it’s high quality and is the same standard
stainless instead of the T316 we use?” size as all others on the market; 12 inch wide, .003
“No. We quoted schedule 40 prices instead of inch thick, and 480 inches long. How much are you
schedule 80. The wall thickness for schedule 80 is interested in?”
twice as thick, and the price should have been double “Let’s start with 400 rolls,” Stan suggested.
as well.” PTFE tape was a white, nonadhesive tape that was
“Heck. Double the price. We’ll pay it. I’ll make used as a pipe thread sealant. It was wrapped around
a note on the file Monday. I know you’re not trying the threads of pipe or fittings before they were screwed
to take us, and I can appreciate an honest mistake. At together to make a leakproof seal. The tape first came
double the price, you might be a bit high, but you know on the market in the late 1960s at prices as high as
we want to place the order with you anyway because $3.60 per roll, but since then prices had dropped con-
you’re local. Eventually, we’ll want you to carry some siderably. North American manufacturers were still
inventory for us, so we might just as well make sure selling the tape for list prices near $1.80 and were
we’re both happy with this business.” offering dealer discounts of between 25 and 50 per-
cent, depending on the quantities that dealers bought.
Dave was importing the tape from Italy at a landed
STRAIT STRUCTURAL STEEL LTD.
cost of $0.17 per roll.
Dave MacDonald was sitting in the outer office wait- “We have a standard price of $1.00 per roll as long
ing to see Stan Hope, the purchasing agent for Strait as you buy 200 rolls,” Dave offered.
Structural Steel, a new account that had just begun “No question. You have an excellent price. How
operations in a remote coastal location about 40 miles much would you charge M H Sales?”
from the nearest city. Stan had telephoned Dave the “I don’t know. Who is M H Sales?” asked Dave.
previous week and had an urgent request for four large “A small industrial supply company located in my
exhaust fans that were required to exhaust welding basement. The ‘H’ is for Hope. I share the company
fumes from enclosed spaces where welders were at with Bruce Malcolm, the ‘M,’ and he’s in purchasing
work. The union had threatened to stop the project at Central Power Corporation. M H Sales is a small
unless working conditions were improved quickly, and company, and we are looking for additional products
although Dave didn’t sell fans at the time, he found a to sell. Between Strait Structural and Central Power,
400 CASES ANALYSIS

we could sell several thousand rolls of PTFE tape each “out-of-the-basement” operation that bought Lufkin
year.” tapes as a jobber, not as a distributor, could match
his price.
MCCORMICK GLEASON LIMITED That afternoon, while waiting to see Ken MacKay,
the store’s manager, Dave noticed a carton from
Dave MacDonald telephoned Clarey Stanley, a Senior Stafford Industrial Sales being unloaded from a local
Buyer at McCormick Gleason Limited. “Clarey, I’m delivery van. Although he knew that Stafford supplied
calling about that quote we made on Lufkin tapes. Can quite a few maintenance, repair, and operating (MRO)
we have your order?” supplies to this customer, Dave decided to play igno-
“Sorry. Your price was high. I gave the order to
rant.
Ken Stafford. You need a sharper pencil.”
“What do you buy from Stafford Industrial?” he
“How much sharper?” Dave asked.
asked the young stores clerk who was handling the
“I can’t tell you that. But you were close,” Clarey
package.
replied. “By the way, Kenny called me from the stores
Opening the carton, the clerk read the packing slip.
department this morning, and he has a large shipment
“It says here we ordered 144 measuring tapes, 34 inches
of electric relays that was delivered yesterday. They
wide by 25 feet long.”
weren’t properly marked, and he can’t identify the ones
with normally open contacts from the ones with nor- “Are those things expensive?” Dave asked.
mally closed contacts. Do you want them returned, or “Don’t know. There’s no price on the packing slip.
can someone see him and straighten it out here?” Clarey Stanley in purchasing ordered them. You could
“Tell him I’ll see him immediately after lunch. I talk to him.” The clerk continued to unpack the ship-
can tell them apart, and I’ll see they get properly iden- ment. As he did, Dave noticed that the tapes were
tified.” manufactured offshore and were poor in quality com-
When the conversation ended, Dave made a note pared to the Lufkin tapes that he sold and that he quoted
to see Clarey about the tapes. There was a problem to Clarey Stanley the previous day.
somewhere. Dave knew his cost on Lufkin tapes was “Aren’t those supposed to be Lufkin tapes?” Dave
the lowest available, and he quoted 12 percent on asked.
cost because he really wanted the order. The order “Not that I know. The packing slip just says tapes.
was less than $1,500, but it meant that Dave could Wait, and I’ll haul our copy of the purchase order.”
place a multiple-case order on the manufacture and get The clerk went to a filing cabinet next to his desk and
the lowest possible cost for all replacement inventory. returned with a carbon copy of the purchase order. “No,
That would increase the margin on sales to other cus- it just says tapes. It doesn’t specify any brand.”
tomers who bought smaller quantities. There was no There was something wrong, and Dave was deter-
possibility that Stafford Industrial, a local, one-person, mined to get an answer.

CASE 9 EREKSON INDUSTRIAL SUPPLY

Note: An Excel file with the data for this case is available at www.wiley.com/college/cron. Go to “Students Companion Site.”

P
hil Harper had been recently appointed mar- sales force and was in charge of reordering stock for
keting manager for Erekson Industrial Supply. the warehouse. Recently, the company had been having
Bates was a regional wholesaler of industrial trouble balancing orders against inventory. Customers
cleaners and related chemicals. Phil directed the field were complaining about late shipments and items being

This case was prepared by Douglas J. Dalrymple of Indiana University.

EREKSON INDUSTRIAL SUPPLY 401

EXHIBIT 1 Monthly Sales of Four Industrial Cleansers

Time Time
Period SH60 PN25 SX80 TL75 Period SH60 PN25 SX80 TL75
1 3848 362 5666 885 19 4667 1132 6104 884
2 4024 346 5405 870 20 3555 1360 6812 878
3 3416 382 5001 866 21 3101 1589 8367 874
4 3671 526 4688 859 22 3507 1137 8130 865
5 3762 675 5492 862 23 3131 1739 7525 868
6 4444 440 5231 855 24 3639 1380 6918 855
7 5375 547 4813 857 25 2762 1366 6737 857
8 3752 655 4780 839 26 2929 915 6900 865
9 2884 313 4611 847 27 3137 1651 6112 861
10 3324 555 5201 836 28 2975 1282 6717 853
11 3133 806 5136 876 29 3274 1128 7937 860
12 3048 678 5124 873 30 3422 1397 7647 863
13 3163 568 6149 865 31 4507 1102 6993 882
14 3217 741 6202 860 32 4054 769 8089 876
15 3106 631 5808 846 33 4426 1412 9279 883
16 3196 1006 5572 839 34 4083 1161 9547 875
17 3118 1216 7069 852 35 3924 1210 8064 861
18 3305 862 6839 864 36 4274 1133 8188 864

short on delivery. The company president asked Harper would make it simpler to calculate MAPEs to see
to look into the problem and come up with some rec- which techniques worked best. Computers were fast,
ommendations. and they would allow Phil to try out more forecasting
Phil realized that establishing direct computer links procedures.
with manufacturers who supplied them with chemicals Phil thought he should run naive, moving average,
could reduce their out-of-stock problem. However, it exponential smoothing, and simple regression forecast-
would take months to buy the necessary equipment ing techniques on his four time series. Since regression
and debug the programs. Anticipated costs for direct required five periods of data to get started, forecasts
computer links would be several hundred thousand for all of his methods should start in period 6 and
dollars. A simpler approach would be to study the vari- run through period 36. This would make it easier to
ations in sales of inventoried items to see if improved compare the MAPE values for each method because
demand forecasts would help. Phil decided to call up they would all be based on forecasts for the same time
some sales figures for four popular industrial cleaners periods.
on his desktop computer (Exhibit 1). The numbers on Phil decided to start with the sales data from SH60
the screen represented three years of monthly sales for to see if he could find the best forecasting technique for
the four items. Several series seemed to exhibit sea- this series. Then the computer could be used to project
sonal patterns, and others were dominated by trends sales for periods 37 through 48. One issue Phil was not
and unknown components. Bates normally prepared sure about was whether the technique that worked best
forecasts for each inventoried item twelve months into for SH60 could be used to forecast sales of the other
the future so that purchase discounts could be taken chemicals. Certainly, it would save him a lot of time if
and delivery charges minimized. The usual procedure he used the same forecasting procedure for all the prod-
was to use simple projection methods to obtain the ucts. He also wondered whether seasonal adjustments
forecasts. were worth the bother. Once he had some results for
Computer forecasting offered several advantages the four chemicals, he would be in a better position to
over the current methods. First, the computer would decide whether improved forecasting procedures would
make it easier to seasonally adjust the data to help solve the out-of-stock problem. Since it was getting
improve forecasting accuracy. Also the computer late, Phil decided he better get started.
402 CASES ANALYSIS

CASE 10 FIRST NATIONAL BANK

I
’m concerned about Karen,” said Margaret junior college with an associate in arts degree three and
Costanzo to David Reeves. The two bank offi- a half years earlier. She had applied for the position of
cers were seated in Costanzo’s office at the First what had then been called head teller a year earlier, but
National Bank’s branch in Federal Square. the job had gone to a candidate with more seniority.
Costanzo was a vice president of the bank and man- Now that individual was leaving—his wife had been
ager of the Federal Square branch, the third largest in transferred to a new job in another city—and the posi-
First National’s 92-branch network. She was having an tion was once again open. Two other candidates had
employee appraisal meeting with Reeves, customer ser- applied for the job.
vice director at the branch. Reeves was responsible for Both Costanzo and Reeves were agreed that, against
the Customer Service Department, which coordinated all criteria used in the past, Karen Mitchell would have
the activities of the customer service representatives been the obvious choice for head teller. She was both
(CSRs, formerly known as tellers) and the customer fast and accurate in her work, presented a smart and
assistance representatives (CARs, formerly known as professional appearance, and was well liked by cus-
new accounts assistants). tomers and her fellow CSRs.
Costanzo and Reeves were discussing Karen However, the nature of the teller’s job had been sig-
Mitchell, a 24-year-old customer service rep, who had nificantly revised nine months earlier to add a stronger
applied for the soon-to-be-vacant position of head CSR. marketing component. (Exhibit 1 shows the previous
Mitchell had been with the bank since graduating from job description for teller; Exhibit 2 shows the new job

EXHIBIT 1 First National Bank: Position Description for Teller

FUNCTION
Provides customer services by receiving, paying out, and keeping accurate records of all monies involved in paying and receiving
transactions. Promotes the Bank’s services.
RESPONSIBILITIES
1. Serves customers
Accepts deposits, verifies cash and endorsements, and gives customers their receipts.
Cashes checks within the limits assigned or refers customers to supervisor for authorization.
Accepts savings deposits and withdrawals, verifies signatures, posts interest, and balances as necessary.
Accepts loan, credit card, utility, and other payments.
Issues money orders, cashier’s checks, traveler’s checks, and foreign currency and issues or redeems U.S. savings bonds.
Reconciles customer statements and confers with bookkeeping personnel regarding the discrepancies in balances or other
problems.
Issues credit card advances.
2. Prepares individual daily settlement of teller cash and proof transactions.
3. Prepares branch daily journal and general ledger.
4. Promotes the Bank’s services:
Cross-sells other bank services appropriate to customers’ needs.
Answers inquiries regarding bank matters.
Directs customers to other departments for specialized services.
5. Assists with other branch duties:
Receipts night and mail deposits.
Reconciles ATM transactions.
Provides safe deposit services.
Performs secretarial duties.

This case was prepared by Christopher H. Lovelock. Copyright © by Christopher H. Lovelock. Reproduced by permission.
FIRST NATIONAL BANK 403

description for customer service representative.) CSRs As the automation program proceeded, the mix of
were now expected to offer polite suggestions that cus- activities performed by the tellers started to change. A
tomers use automatic teller machines for simple trans- growing number of customers began to use automatic
actions. They were also required to stimulate customer teller machines for cash withdrawals and deposits, as
interest in the broadening array of financial services well as for requesting account balances. The ATMs at
offered by the bank. “The problem with Karen,” as the Federal Square branch had the highest utilization of
Reeves put it, “is that she simply refuses to sell.” any of the First’s branches, reflecting the large number
of students and young professionals served at that loca-
tion. Costanzo noted that customers who were older or
THE NEW FOCUS ON CUSTOMER SERVICE
less well educated seemed to prefer being served by “a
AT THE FIRST
real person, rather than a machine.”
Although it was the largest bank in the state, the A year earlier, the head office had selected three
“First” had historically focused on corporate business, branches, including Federal Square, as test sites for
and its share of the retail consumer banking business a new customer service program. The Federal Square
had declined in the face of aggressive competition branch was in a busy urban location, about one mile
from other financial institutions. Three years earlier, from the central business district and three blocks from
the Board of Directors had appointed a new CEO and the campus of the state university. The branch was
given him the mandate of developing a stronger con- surrounded by retail stores and close to commercial
sumer orientation at the retail level. The goal was to and professional offices. The other two branches were
seize the initiative in marketing the ever-increasing among the bank’s larger suburban offices and were
array of financial services now available to retail cus- located in a shopping center and next to a big hos-
tomers. The new CEO’s strategy, after putting in place pital, respectively. As part of the branch renovation
a new management team, was to begin by ordering an program, each of these three branches had previously
expansion and speed-up of the First’s investment in been remodeled to include no fewer than four ATMs
electronic delivery systems. The bank had tripled the (Federal Square had five), a customer service desk near
number of automatic teller machines in its branches the entrance, and two electronic information terminals
during the past eighteen months and was engaged in that customers could activate to obtain information on
an active branch renovation program. One year ago, the a variety of bank services. The teller stations were
First had also joined a regional ATM network, which redesigned to provide two levels of service: an express
boasted freestanding 24-hour booths at shopping cen- station for simple deposits and for cashing of approved
ters, airports, and other high-traffic locations. checks, and regular stations for the full array of ser-
These actions seemed to be bearing fruit. In the vices provided by tellers. The number of stations open
most recent six months, the First had seen a signifi- at a given time was varied to reflect the volume of
cant increase in the number of new accounts opened, anticipated business. Finally, the platform area in each
as compared to the same period of the previous year. branch was reconstructed to create what the architect
And quarterly data released by the Federal Reserve described as “a friendly, yet professional, appearance.”
Bank showed that the First was steadily increasing its
share of new deposits in the state.
HUMAN RESOURCES
Customer Service Issues With the new environment came new training pro-
New financial products had been introduced at a grams for the staff of these three branches and new
rapid rate. But the bank found that existing plat- job descriptions and job titles: customer assistance rep-
form staff—known as new accounts assistants—were resentatives (for the platform staff), customer service
ill-equipped to sell these services because of lack of representatives (for the tellers), and customer service
product knowledge and inadequate training in selling director (instead of assistant branch manager). The
skills. Recalled Costanzo: head teller position was renamed head CSR. Posi-
tion descriptions for all these jobs are reproduced in
The problem was that they were so used to waiting for
a customer to approach them with a specific request, Exhibits 2, 3, 4, and 5. The training programs for each
such as a mortgage or car loan, that it was hard to get group included sessions designed to develop improved
them to take a more proactive approach that involved knowledge of both new and existing retail products.
actively probing for customer needs. Their whole job (CARs received more extensive training in this area
seemed to revolve around filling out forms. than did CSRs.) The CARs also attended a 15-hour
404 CASES ANALYSIS

EXHIBIT 2 First National Bank: Position Description for Customer Service Representative
FUNCTION
Provides customers with the highest quality services, with special emphasis on recognizing customer needs and cross-selling
appropriate bank services. Plays an active role in developing and maintaining good customer relations.
RESPONSIBILITIES
1. Presents and communicates the best possible customer service.
Greets all customers with a courteous, friendly attitude.
Provides fast, accurate, friendly service.
Uses customer’s name whenever possible.
2. Sells bank services and maintains customer relations.
Cross-sells retail services by identifying and referring valid prospects to the customer assistance representative or
customer service director. When time permits (no other customers waiting in line), should actively cross-sell retail
services.
Develops new business by acquainting noncustomers with bank services and existing customers with additional services
that they are not currently using.
3. Provides a prompt and efficient operation on a professional level.
Receives cash and/or checks for checking accounts, saving accounts, taxes withheld, loan payments, Master Card/Visa,
mortgage payments, Christmas clubs, money orders, traveler’s checks, cashier’s checks, premium promotions.
Verifies amount of cash and/or checks received, being alert for counterfeit or fraudulent items.
Accepts deposits and withdrawals, verifying signatures where required by policy.
Cashes checks in accordance with bank policy. Identifies payees; verifies signatures; checks dates and endorsements;
compares written dollar and figure amounts; ensures that numbers are included on all counter checks, deposit slips
and savings withdrawal and deposit slips; watches for stop payments and holds funds per bank policy.
Where applicable, pays credit card cash advances and savings withdrawals. Accepts credit merchant deposits. Receives
payment for collection items, safe deposit rentals, and other miscellaneous items.
Confers with head CSR or customer service director on nonroutine situations.
Sells traveler’s checks, money orders, and cashier’s checks and may redeem coupons and sell or redeem foreign
currency.
Handles sale and redemption of U.S. savings bonds.
Sells monthly transit passes.
Ensures timely batching and preparation of work for transmittal to proof department.
Prepares coin and currency orders as necessary.
Services, maintains, and settles automatic teller machines as required.
Ensures that only minimum cash exposure necessary for efficient operation is kept in cash drawer; removes excess
cash immediately to secured location. Ensures maximum control over cash drawers and other valuables on hand
throughout daily operation.
Prepares accurate and timely daily settlement of work.
Performs bookkeeping and operational functions as assigned by customer service director.

course, offered in three separate sessions, on basic sell- rise from their seats and shake hands with customers.
ing skills. This program covered key steps in the sales Both CARs and CSRs were given exercises designed
process, including building a relationship, exploring to improve their listening skills and their powers of
customer needs, determining a solution, and overcom- observation. All employees working where they could
ing objections. The sales training program for CSRs, by be seen by customers were ordered to refrain from
contrast, consisted of just two 2-hour sessions designed smoking, drinking soda, and chewing gum on the job.
to develop skills in recognizing and probing customer Although First National management anticipated
needs, presenting product features and benefits, over- that most of the increased emphasis on selling would
coming objections, and referring customers to CARs. fall to the CARs, they also foresaw a limited sell-
All staff members in customer service positions ing role for the customer service reps, who would
participated in sessions designed to improve their com- be expected to mention various products and facili-
munication skills and professional image: clothing and ties offered by the bank as they served customers at
personal grooming and interactions with customers the teller window.
were all discussed. Said the trainer, “Remember, peo- For instance, if a customer happened to mention a
ple’s money is too important to entrust to someone who vacation, the CSR was supposed to mention traveler’s
doesn’t look and act the part!” CARs were instructed to checks; if the customer complained about bounced
FIRST NATIONAL BANK 405

EXHIBIT 3 First National Bank: Position Description for Head Customer Service Representative
FUNCTION
Supervises the customer service representatives in the designated branch office, ensuring efficient operations and the highest
quality service to customers. Plays an active role in developing and maintaining good customer relations. Assists other branch
personnel on request.
RESPONSIBILITIES

1. Supervises the CSRs in the branch.

Allocates work, coordinates work flow, reviews and revises work procedures.
Ensures that teller area is adequately and efficiently staffed with well-trained, qualified personnel.
Assists CSRs with more complex transactions.
Resolves routine personnel problems, referring more complex situations to the customer service director.
Participates in decisions concerning performance appraisal, promotions, wage changes, transfers, and terminations of
subordinate CSR staff.
2. Assumes responsibility for CSRs’ money.
Buys and sells money in the vault, ensuring adequacy of branch currency and coin supply.
Ensures that CSRs and cash sheets are in balance.
Maintains necessary records, including daily branch journal and general ledger.
3. Accepts deposits and withdrawals by business customers at commercial window.
4. Operates teller window to provide customer services (see Responsibilities for Customer Service Representative).

EXHIBIT 4 First National Bank: Position Description for Customer Assistance Representative
FUNCTION
Provides services and guidance to customers/prospects seeking banking relationships or related information. Promotes and
sells needed products and responds to special requests by existing customers.
RESPONSIBILITIES
1. Provides prompt, efficient, and friendly service to all customers and prospective customers.
Describes and sells bank services to customers/prospects who approach directly or via referral from customer service
reps or other bank personnel.
Answers customers’ questions regarding bank services, hours, etc.
2. Identifies and responds to customers’ needs.
Promotes and sells retail services and identifies any existing cross-sell opportunities.
Opens new accounts for individuals, businesses, and private organizations.
Prepares temporary checks and deposit slips for new checking/NOW accounts.
Sells checks and deposit slips.
Interviews and takes applications for and pays out on installment/charge card accounts and other credit-related
products.
Certifies checks.
Handles stop payment requests.
Responds to telephone mail inquiries from customers or bank personnel.
Receives notification of name or address changes and takes necessary action.
Takes action on notification of lost passbooks, credit cards, ATM cards, collateral, and all other lost or stolen valuables.
Demonstrates automatic teller machines to customers and assists with problems.
Coordinates closing of accounts and ascertains reasons.
3. Sells and services all retail products.
Advises customers and processes their applications for all products covered in CAR training programs and updates.
Initiates referrals to the appropriate department when a trust or corporate business need is identified.

checks, the CSR should suggest speaking to a CAR market accounts, certificates of deposit, or the First’s
about opening a personal line of credit that would pro- discount brokerage service. All CSRs were supplied
vide automatic overdraft protection; or if the customer with their own business cards. When making a referral,
mentioned investments, the CSR should refer him or they were expected to write the customer’s name and
her to a CAR who could provide information on money the product of interest on the back of a card, give it to
406 CASES ANALYSIS

EXHIBIT 5 First National Bank: Position Description for Customer Service Director
FUNCTION
Supervises customer service representatives, customer assistance representatives, and other staff as assigned to provide the most
effective and profitable retail banking delivery system in the local marketplace. Supervises sales efforts and provides feedback to
management concerning response to products and services by current and prospective banking customers. Communicates goals
and results to those supervised and ensures operational standards are met in order to achieve outstanding customer service.
RESPONSIBILITIES
1. Supervises effective delivery of retail products.
Selects, trains, and manages the customer service representatives and customer assistance representatives.
Assigns duties and work schedules.
Completes performance reviews.
2. Personally, and through those supervised, renders the highest level of professional and efficient customer service available in
the local marketplace.
Provides high level of service while implementing most efficient and customer-sensitive staffing schedules.
Supervises all on-the-job programs within office.
Ensures that outstanding customer service standards are achieved.
Directs remedial programs for CSRs and CARs as necessary.
3. Develops retail sales effectiveness to the degree necessary to achieve market share objectives.
Ensures that all CSRs and CARs possess comprehensive product knowledge.
Directs coordinated cross-sell program within office at all times.
Reports staff training needs to branch manager and/or regional training director.
4. Maintains operational adherence to standards.
Oversees preparation of daily and monthly operational and sales reports.
Estimates, approves, and coordinates branch cash needs in advance.
Oversees ATM processing function.
Handles or consults with CSRs/CARs on more complex transactions.
Ensures clean and businesslike appearance of the branch facility.
5. Informs branch manager of customer response to products.
Reports customer complaints and types of sales resistance encountered.
Describes and summarizes reasons for account closings.
6. Communicates effectively the goals and results of the bank to those under supervision.
Reduces office goals into format that translates to goals for each CSR or CAR.
Reports sales and cross-sell results to all CSRs and CARs.
Conducts sales- and service-oriented staff meetings with CSRs/CARs on a regular basis.
Attends all scheduled customer service management meetings organized by regional office.

the customer, and send that individual to the customer this product. In addition, Reeves, the customer service
assistance desks. director, had reason to believe that Bruce Greenfield
In an effort to motivate CSRs at the three test had colluded with one of the CARs, his girlfriend, to
branches to sell specific financial products, the bank claim referrals that he had not, in fact, made. Another
experimented with various incentive programs. The test branch reported similar suspicions of two of its
first involved cash bonuses for referrals to CARs that CSRs.
resulted in the sale of specific products. During a A second promotion followed and was based upon
one-month period, CSRs were offered a $50 bonus for allocating credits to the CSRs for successful refer-
each referral leading to a customer’s opening a personal rals. The value of the credit varied according to the
line of credit account: the CARs received a $20 bonus nature of the product—for instance, a cash machine
for each account they opened, regardless of whether card was worth 500 credits—and accumulated credits
it came as a referral or simply a walk-in. Eight such could be exchanged for merchandise gifts. This pro-
bonuses were paid to CSRs at Federal Square, with gram was deemed ineffective and discontinued after
three each going to just two of the seven full-time three months. The basic problem seemed to be that the
CSRs, Jean Warshawksi and Bruce Greenfield. Karen value of the gifts was too low in relation to the amount
Mitchell was not among the recipients. However, this of effort required.
program was not renewed, since it was felt that there Other problems with these promotional schemes
were other, more cost-effective means of marketing included lack of product knowledge on the part of the
FIRST NATIONAL BANK 407

CSRs and time pressures when many customers were Costanzo and Reeves had spoken to Mitchell
waiting in line to be served. about her performance and expressed disappointment.
The bank had next turned to an approach that, Mitchell had told them, respectfully but firmly, that
in David Reeves’ words, “used the stick rather than she saw the most important aspect of her job as giving
the carrot.” All CSRs had traditionally been evaluated customers fast, accurate, and courteous service.
half-yearly on a variety of criteria, including accuracy, I did try this selling thing [she told the two bank
speed, quality of interactions with customers, punctu- officers], but it seemed to annoy people. Some said
ality of arrival for work, job attitudes, cooperation with they were in a hurry and couldn’t talk now; others
other employees, and professional image. The eval- looked at me as if I were slightly crazy to bring up
uation process assigned a number of points to each the subject of a different bank service than the one
criterion, with accuracy and speed being the most heav- they were currently transacting. And then, when you
ily weighted. In addition to appraisals by the customer got the odd person who seemed interested, you could
service director and the branch manager, with input hear the other customers in the line grumbling about
the slow service.
from the head CSR, the First had recently instituted
Really, the last straw was when I noticed on the
a program of anonymous visits by what was popularly
computer that this woman had several thousand in her
known as the “mystery client.” Each CSR was visited at savings account, so I suggested to her, just as the
least once a quarter by a professional evaluator posing trainer had told us, that she could earn more inter-
as a customer. This individual’s appraisal of the CSR’s est if she opened a money market account. Well, she
appearance, performance, and attitude was included in told me it was none of my business what she did with
the overall evaluation. The number of points scored by her money and stomped off. Don’t get me wrong, I
each CSR had a direct impact on merit pay raises and love being able to help customers, and if they ask for
on selection for promotion to the head CSR position my advice, I’ll gladly tell them about what the bank
or to platform jobs. has to offer.
To encourage improved product knowledge and
“consultative selling” by CSRs, the evaluation process Selecting a New Head CSR
was revised to include points assigned for each individ- Two weeks after this meeting, it was announced that the
ual’s success in sales referrals. Under the new evalua- head CSR was leaving. The job entailed some super-
tion scheme, the maximum number of points assignable vision of the other CSRs (including allocation of work
for effectiveness in making sales—directly or through assignments and scheduling of part-time CSRs at busy
referrals to CARs—amounted to 30 percent of the periods or during employee vacations), consultation
potential total score. Although CSR-initiated sales had on—and, where possible, resolution of—any problems
risen significantly in the most recent half-year, Reeves occurring at the teller stations, and handling of large
sensed that morale had dropped among this group, in cash deposits and withdrawals by local retailers (see
contrast to the CARs, whose enthusiasm and commit- position description in Exhibit 3). When not engaged
ment had risen significantly. He had also noticed an in such tasks, the head CSR was expected to operate a
increase in CSR errors. One CSR had quit, complain- regular teller window.
ing about too much pressure. The pay scale for a head CSR ranged from $12.00
to $17.00 per hour, depending on qualifications, senior-
Karen Mitchell ity, and branch size, as compared to a range of $8.00
Under the old scoring system, Karen Mitchell had to $13.00 per hour for CSRs. The pay scale for CARs
been the highest scoring teller/CSR for four consec- ranged from $7.50 to $14.00. Full-time employees
utive half-years. But after two half-years under the (who were not unionized) worked a 40-hour week,
new system, her ranking had dropped to fourth out including some evenings until 6:00 p.m. and certain
of the seven full-time tellers. The top-ranking CSR, Saturday mornings. Costanzo indicated that the pay
Mary Bell, had been with First for sixteen years but had scales were typical for banks in the Midwest, although
declined repeated invitations to apply for a head teller the average CSR at the First was better qualified than
position, saying that she was happy where she was, those at smaller banks and therefore higher on the scale.
earning at the top of the CSR scale and did not want Karen Mitchell was currently earning $7.80 per hour,
“the extra worry and responsibility.” Mitchell ranked reflecting her associate’s degree, 3 12 years’ experience,
first on all but one of the operationally related criteria and significant past merit increases. If promoted to head
(interactions with customers, where she ranked second) CSR, she would qualify for an initial rate of $5.00 an
but sixth on selling effectiveness (Exhibit 6). hour.
408 CASES ANALYSIS

E X H I B I T 6 First National Bank: Summary of Performance Evaluation Scores for Customer Service
Representatives at Federal Square Branch for Two Half-Year Periods

Operational Criteriab Selling Effectivenessc

(max: 70 points) (max: 30 points) Total Score
Length of Full-Time
CSR Namea Bank Service 1st Half 2nd Half 1st Half 2nd Half 1st Half 2nd Half
Mary Bell 16 years, 10 mos. 65 64 16 20 81 84
Richard Dubois 2 years, 3 mos. 63 61 15 19 78 80
Bruce Greenfield 1 year, 0 mos. 48 42 20 26 68 68
Karen Mitchell 3 years, 7 mos. 67 67 13 12 80 79
Sharon Ronsky 1 year, 4 mos. 53 55 8 9 61 64
Naomi Rubin 7 mos. – 50 – 22 – 72
Jean Warshawski 2 years, 1 mo. 57 55 21 28 79 83

a Full-time CSRs only (part-time CSRs were evaluated separately).

b Totals
based on sum of ratings against various criteria, including accuracy, work production, attendance and punctually, personal appearance,
organization of work, initiative, cooperation with others, problem-solving ability, and quality of interaction with customers.
c Points awarded for both direct sales by CSR (e.g., traveler’s checks) and referral selling by CSR to CAR (e.g., ATM card, certificates of deposit,

personal line of credit).

When applications for the positions closed, Mitchell prospects for a quick sales pitch on a specific finan-
was one of three candidates. The other two candidates cial product. Although slightly untidy in her personal
were Jean Warshawski, 42, another CSR at the Federal appearance, she was very well organized in her work
Square branch, and Curtis Richter, 24, the head CSR and was quick to help her fellow CSRs, especially new
of one of the First National Bank’s smaller suburban hires. She was currently earning $10.00 per hour as a
branches, who was seeking more responsibility. CSR and would qualify for a rate of $14.50 as head
Warshawski was married and had two sons in high CSR. In the most recent six months, Warshawski had
school. She had started working as a part-time teller ranked ahead of Mitchell as a result of being very suc-
at Federal Square three years previously, switching to cessful in consultative selling (Exhibit 6).
full-time work a year later in order, as she said, to Richter, the third candidate, was not working in
put away some money for her boys’ college education. one of the three test branches and so had not been
Warshawski was a cheerful woman with a jolly laugh. exposed to the consultative selling program and its
She had a wonderful memory for people’s names, and corresponding evaluation scheme. However, he had
Reeves had often seen her greeting customers on the received excellent evaluations for his work in the
street or in a restaurant during the lunch hour. Review-
First’s small Longmeadow branch, where he had been
ing her evaluations over the past three years, Reeves
employed for three years. A move to Federal Square
noted that she had initially performed poorly on accu-
would increase his earnings from $11.00 to $14.50 per
racy and at one point, while still a part-timer, had
hour. Reeves and Costanzo had interviewed Richter
been put on probation because of frequent inaccura-
and considered him intelligent and personable. He had
cies in the balance in her cash drawer at the end of the
day. Although Reeves considered her much improved joined the bank after dropping out of college midway
on this score, he still saw room for improvement. through his junior year but had recently started taking
The customer service director had also had occasion evening courses in order to complete his degree. The
to reprimand her for tardiness during the past year. Longmeadow branch was located in an older part of
Warshawski attributed this to health problems with town, where commercial and retail activity was rather
her elder son who, she said, was now responding to stagnant. The branch had not yet been renovated and
treatment. had no ATMs, although there was an ATM accessible
Both Reeves and Costanzo had observed War- to First National customers one block away. Richter
shawski at work and agreed that her interactions supervised three CSRs and reported directly to the
with customers were exceptionally good, although she branch manager, who spoke very highly of him. Since
tended to be overly chatty and was not as fast as Karen there were no CARs in this branch, Richter and another
Mitchell. She seemed to have a natural ability to size experienced CSR took turns handling new accounts and
up customers and to decide which ones were good loan or mortgage applications.
GENERAL ELECTRIC APPLIANCES 409

Costanzo and Reeves were troubled by the deci- in banking and that she was eager to take on further
sion that faced them. Prior to the bank’s shift in focus, responsibilities.
Mitchell would have been the natural choice for the Compounding the problem was the fact that the
head CSR job, which, in turn, could be a stepping three branches testing the new customer service pro-
gram had just completed a full year of the test.
stone to further promotions, including customer assis-
Costanzo knew that sales and profits were up sig-
tance representative, customer service director, and, nificantly at all three branches relative to the bank’s
eventually, manager of a small branch or a manage- performance as a whole. She anticipated that top man-
ment position in the head office. Mitchell had told her agement would want to extend the program systemwide
superiors that she was interested in making a career after making any modifications that seemed desirable.

CASE 11 GENERAL ELECTRIC APPLIANCES

L
arry Barr had recently been promoted to the There his duties included development of sales strate-
position of District Sales Manager (B.C.) for gies, supervision of salespeople, and budgeting.
G.E. Appliances, a division of Canadian Appli-
ance Manufacturing Co. Ltd. (CAMCO). One of his
BACKGROUND
more important duties in that position was the allo-
cation of his district’s sales quota among his five Canadian Appliance Manufacturing Co. Ltd. (CAMCO)
salespeople. Barr received his quota for next year in was created under the joint ownership of Canadian
October of the previous year. His immediate task was General Electric Ltd. and General Steel Wares Ltd.
to determine an equitable allocation of that quota. (G.S.W.). CAMCO then purchased the production facil-
This was important because the company’s incentive ities of Westinghouse Canada Ltd. Under the purchase
pay plan was based on the salespeople’s attainment agreement the Westinghouse brand name was trans-
of quota. A portion of Barr’s remuneration was also ferred to White Consolidated Industries Ltd., where it
based on the degree to which his sales force met their became White-Westinghouse. Appliances manufactured
quotas. by CAMCO in the former Westinghouse plant were
Barr graduated from the University of British branded Hotpoint.
Columbia with the degree of Bachelor of Commerce. The G.E., G.S.W., and Hotpoint major appliance
He was immediately hired as a product manager for a plants became divisions of CAMCO. These divisions
mining equipment manufacturing firm because of his operated independently and had their own separate
summer job experience with that firm. Three years later management staff, although they were all ultimately
he joined Canadian General Electric (C.G.E.) in Mon- accountable to CAMCO management. The divisions
treal as a product manager for refrigerators. There he competed for sales, although not directly, because they
was responsible for creating and merchandising a prod- each produced product lines for different price seg-
uct line, as well as developing product and marketing ments (Exhibit 1).
plans. Two years later he was transferred to Coburg,
Ontario, as a sales manager for industrial plastics. The
COMPETITION
next year he became Administrative Manager (West-
ern Region) and when the position of District Sales Competition in the appliance industry was vigorous.
Manager became available, Barr was promoted to it. CAMCO was the largest firm in the industry, with

This case was prepared by Richard W. Pollay, John D. Claxton, and Rick Jenkner. Copyright © by Richard W. Pollay, John D. Claxton, and
Rick Jenkner. Reproduced by permission.
410 CASES ANALYSIS

THE BUDGETING PROCESS

General Electric Ltd.
G.E. Appliances was one of the most advanced firms
in the consumer goods industry in terms of sales bud-
General Canadian
Steel General
geting. Budgeting received careful analysis at all levels
Wares Electric of management.
Ltd. Ltd. The budgetary process began in June of each year.
The management of G.E. Appliances division assessed
the economic outlook, growth trends in the industry,
Camco Ltd.
competitive activity, population growth, and so forth in
order to determine a reasonable sales target for the next
G.S.W. Hotpoint year. The president of CAMCO received this estimate,
Appliances Appliances
checked and revised it as necessary, and submitted it
Division Division
to the president of G.E. Canada. Final authorization
rested with G.E. Ltd., which had a definite minimum
G.E. Appliances Division growth target for the G.E. branch of CAMCO. G.E.
Appliances was considered an “invest and grow” divi-
Production Accounting Etc. sion, which meant that it was expected to produce a
Marketing
healthy sales growth each year, regardless of the state
of the economy. As Barr observed. “This is difficult,
National manager
but meeting challenges is the job of management.”
The approved budget was expressed as a desired
percentage increase in sales. Once the figure had been
Marketing Regional Regional Regional
manager sales sales sales decided, it was not subject to change. The quota
manager manager manager was communicated back through G.E. Canada Ltd.,
Four product Western Central Eastern
managers Canada CAMCO, and G.E. Appliances, where it was avail-
able to the District Sales Managers in October. Each
District District District district was then required to meet an overall growth
sales manager sales sales figure (quota) but each sales territory was not automat-
British manager manager
Columbia Alberta Midwest ically expected to achieve that same growth. Barr was
required to assess the situation in each territory, deter-
Five salespeople
mine where growth potential was highest, and allocate
E X H I B I T 1 Organization Chart his quota accordingly.

approximately 45 percent market share, split between THE SALES INCENTIVE PLAN
G.E., G.S.W. (Moffatt & McClary brands), and Hot-
point. The following three firms each had 10 to 15 per- The sales incentive plan was a critical part of General
cent market shares: Inglis (washers and dryers only), Electric’s sales force plan and an important considera-
W.C.I. (makers of White-Westinghouse, Kelvinator, tion in the quota allocation of Barr. Each salesperson
and Gibson), and Admiral. These firms also produced had a portion of earnings dependent upon performance
appliances under department store brand names such as with respect to quota. Also, Barr was awarded a bonus
Viking, Baycrest, and Kenmore, which accounted for based on the sales performance of his district, making
an additional 15 percent of the market. The remainder it advantageous to Barr and good for staff morale for
of the market was divided among brands such as May- all his salespeople to attain their quotas.
tag, Roper Dishwasher, Gurney, Tappan, and Danby. The sales force incentive plan was relatively sim-
G.E. marketed a full major appliance product line, ple. A bonus system is fairly typical for salespeople
including refrigerators, ranges, washers, dryers, dish- in any field. With G.E., each salesperson agreed to
washers, and television sets. G.E. appliances generally a basic salary figure called “planned earnings.” The
had many features and were priced at the upper end planned salary varied according to experience, edu-
of the price range. Their major competition came from cation, past performance, and competitive salaries. A
Maytag and Westinghouse. salesperson was paid 75 percent of planned earnings
GENERAL ELECTRIC APPLIANCES 411

E X H I B I T 2 Sales Incentive Earnings Schedule: required to pay back a previously earned bonus by rea-
Major Appliances and son of a poor quarter. Because of this system, it was
Home Entertainment Products critical that each salesperson’s quota be fair in relation
Sales Incentive Sales Incentive to those of the other salespeople. Nothing was worse
Quota Percent of Quota Percent of for morale than one person earning large bonuses while
Realization Base Salary Realization Base Salary the others struggled.
Percent Total Percent Total Quota attainment was not the sole basis for eval-
70 0 106 37.00 uating the salespeople. They were required to fulfill a
71 0.75 107 39.00 wide range of duties including service, franchising of
72 1.50 108 41.00 new dealers, maintaining good relations with dealers,
73 2.25 109 43.00
and maintaining a balance of sales among the different
74 3.00 110 45.00
75 3.75 111 46.00 product lines. Because the bonus system was based on
76 4.50 112 47.00 sales only, Barr had to ensure that the salespeople did
77 5.25 113 48.00 not neglect their other duties.
78 6.00 114 49.00 A formal salary review was held each year for each
79 6.75 115 50.00
salesperson. However, Barr preferred to give his sales-
80 7.50 116 51.00
81 8.25 117 52.00 people continuous feedback on their performances.
82 9.00 118 53.00 Through human relations skills, he hoped to avoid
83 9.75 119 54.00 problems that could lead to dismissal of a salesperson
84 10.50 120 55.00 and loss of sales for the company.
85 11.25 121 56.00
Barr’s incentive bonus plan was more complex than
86 12.00 122 57.00
87 12.75 123 58.00 the salespeople’s. He was awarded a maximum of
88 13.50 124 59.00 75 annual bonus points broken down as follows: market
89 14.25 125 60.00 share, 15; total sales performance, 30; sales representa-
90 15.00 126 61.00 tive balance, 30. Each point had a specific money value.
91 16.00 127 62.00
The system ensured that Barr allocated his quota care-
92 17.00 128 63.00
93 18.00 129 64.00 fully. For instance, if one quota was so difficult that
94 19.00 130 65.00 the salesperson sold only 80 percent of it, while the
95 20.00 131 66.00 other salespeople exceeded quota, Barr’s bonus would
96 21.00 132 67.00 be reduced, even if the overall area sales exceeded the
97 22.00 133 68.00
quota (Exhibit 3).
98 23.00 134 69.00
99 24.00 135 70.00
100 25.00 136 71.00
101 27.00 137 72.00
QUOTA ALLOCATION
102 29.00 138 73.00 The total sales budget for G.E. Appliances division for
103 31.00 139 74.00
104 33.00 140 75.00
next year was about $100 million, a 14 percent sales
105 35.00 increase over the current year. Barr’s share of the $33
million Western region quota was $13.3 million, also
a 14 percent increase over the previous year. Barr had
two weeks to allocate the quota among his five terri-
on a guaranteed regular basis. The remaining 25 per- tories. He needed to consider factors such as historical
cent of salary was at risk, dependent upon the person’s allocation, economic outlook, dealer changes, person-
nel changes, untapped potential, new franchises or store
sales record. There was also the possibility of earning
openings, and buying group activity (volume purchases
substantially more money by selling more than quota
by associations of independent dealers).
(Exhibit 2).
The bonus was awarded such that total salary (base
plus bonus) equaled planned earnings when the quota SALES FORCE
was just met. The greatest increase in bonus came There were five sales territories within British
between 101 and 110 percent of quota. The bonus Columbia (Exhibit 4). Territories were determined on
was paid quarterly on the cumulative total quota. A the basis of number of customers, sales volume of
holdback system ensured that a salesperson was never customers, geographic size, and experience of the
412 CASES ANALYSIS

EXHIBIT 3 Development of a Sales Commission Plan

A series of steps are required to establish the foundation If more than one performance measurement is to be
upon which a sales commission plan can be built. These used, the relative weighting of each measurement must be
steps are as follows: determined. If a measure is to be effective, it must carry
enough weight to have at least some noticeable effect on
Determine Specific Sales Objectives of the commission earnings of an individual.
Positions to Be Included in Plan As a general guide, it would be unusual for a plan to
include more than two or three quantitative measures with
For a sales commission plan to succeed, it must be a minimum weighting of 15 to 20 percent of planned com-
designed to encourage the attainment of the business missions for any one measurement.
objectives of the component division. Before deciding on
the dimensions of a commission plan, you have to decide Establish Commission Payment Schedule for
on which of the following objectives are important. Each Performance Measure
1. Increase sales volume
Determine Appropriate Range of Performance for Each
2. Do an effective, balanced selling job in a variety of Measurement. The performance range for a measurement
product lines defines the percent of standard performance (R%) at which
3. Improve market share commission earnings start to the point where they reach
4. Reduce selling expense to sales ratios maximum.
5. Develop new accounts or territories The minimum point of the performance range for a given
measurement should be set so that a majority of the partici-
6. Introduce new products
pants can earn at least some incentive pay, and the maxi-
Although it is probably neither desirable nor necessary to mum set at a point that is possible for some participants to
include all such objectives as specific measures of perfor- obtain. These points will vary with the type of measure used
mance in the plan, they should be kept in mind, at least to and with the degree of predictability of individual budgets or
the extent that the performance measures chosen for the other forms of measurement. In a period where overall per-
plan are compatible with and do not work against the over- formance is close to standard, 90 to 95 percent of the partic-
all accomplishment of the component's business objectives. ipants should fall within the performance range.
Also, the relative current importance or ranking of these For the commission plan to be effective, most of the
objectives will provide guidance in selecting the number participants should be operating within the performance
and type of performance measures to be included in the range most of the time. If a participant is either far below
plan. the minimum of this range or has reached the maximum,
further improvement will not affect his commission earn-
Determine Quantitative Performance Measures ings, and the plan will be largely inoperative as far as he is
to Be Used concerned.
Actual past experience of R%'s attained by participants
Although it may be possible to include a number of mea- is obviously the best indicator of what this range should be
sures in a particular plan, there is a drawback to using so for each measure used. Lacking this, it is better to err on
many as to overly complicate it and fragment the impact of the side of having a wider range than one that proves to
any one measure on the participants. A plan that is difficult be too narrow. If some form of group measure is used, the
to understand will lose a great deal of its motivating force, variation from standard performance is likely to be less for
as well as being costly to administer properly. the group in total than for individuals within it. For exam-
For components that currently have a variable sales ple, the performance range for total district performance
compensation plan(s) for their sales, a good starting point would probably be narrower than the range established for
would be to consider the measures used in those plans. individual sales within a district.
Although the measurements used for sales managers need Determine Appropriate Reward:Risk Ratio for Com-
not be identical, they should at least be compatible with mission Earnings. This refers to the relationship of com-
those used to determine commissions. mission earned at standard performance, to maximum
However, keep in mind that a performance measure commission earnings available under the plan. A plan that
that may not be appropriate for individual salespeople may pays 10 percent of base salary for normal or standard per-
be a good one to apply to their manager. Measurements formance and pays 30 percent as a maximum commission
involving attainment of a share of a defined market, bal- would have a 2:1 ratio. In other words, participants can
anced selling for a variety of products, and control of district earn twice as much (20 percent) for above-standard perfor-
or region expenses might well fall into this category. mance as they stand to lose for below-standard perfor-
The accompanying table lists a variety of measurements mance (10 percent).
that might be used to emphasize specific sales objectives. Reward under a sales commission plan should be
For most components, all or most of these objectives will be related to the effort involved to produce a given result. To
desirable to some extent. The point is to select those of adequately encourage above-standard results, the
greatest importance where it will be possible to establish reward:risk ratio should generally be at least 2:1. The
measures of standard or normal performance for individuals, proper control of incentive plan payments lies in the proper
or at least small groups of individuals working as a team. setting of performance standards, not in the setting of a
GENERAL ELECTRIC APPLIANCES 413

EXHIBIT 3 (Continued)

low maximum payment for outstanding results that pro- of a sales commission plan on the part of salespeople
vides a minimum variation in individual earnings. Generally, correlates closely with how well they understood the
a higher percentage of base salary should be paid for each plan and its effect on their compensation. The salespeo-
1%R above 100 percent than has been paid for each 1%R ple must be convinced that the measurements used are
up to 100%R to reflect the relative difficulty involved in pro- factors which they can control by their selling efforts.
ducing above-standard results. 3. Be sure the measurements used in the commission
Once the performance range and reward:risk ratios have plan encourage the salespeople to achieve the mar-
been determined, the schedule of payments for each per- keting goals of your operation. For example, if sales
formance measure can then be calculated. This will show volume is the only performance measure, the sales-
the percentage of the participant's base salary earned for people will concentrate on producing as much dollar
various performance results (R%) from the point at which volume as possible by spending most of their time on
commissions start to maximum performance. products with high volume potential. It will be difficult
Example: For measurement paying 20 percent of to get them to spend much time on introducing new
salary for standard performance: products with relatively low volume, handling customer
complaints, etc. Even though a good portion of their
Percent of Base Salary Earned
compensation may still be in salary, you can be sure
1% of base salary for each + 1%R 0% they will wind up doing the things they feel will maxi-
20% mize their commission earnings.
1.33% of base salary for each + 1%R 60% 4. One solution to maintaining good sales direction is to
put at least a portion of the commission earnings in an
Percent of Sales Quota ''incentive pool'' to be distributed by the sales manager
80% or below according to his judgment. This ''pool'' can vary in size
100% (standard performance) according to some qualitative measure of the sales
130% or above group's performance, but the manager can set individ-
ual measurements for each salesperson and reward
Prepare Draft of Sales Commission Plan people according to how well they fulfill their goals.
5. If at all possible, you should test the plan for a period
After completing the above steps, a draft of a sales commis-
of time, perhaps in one or two sales areas or districts.
sion plan should be prepared using the accompanying out-
To make it a real test, you should actually pay commis-
line as a guide.
sion earnings to the participants, but the potential risk
and rewards can be limited. No matter how well a plan
Keys to Effective Commission Plans has been conceived, not all the potential pitfalls will be
1. Get the understanding and acceptance of the commis- apparent until you've actually operated the plan for a
sion plan by the managers who will be involved in car- period of time. The test period is a relatively painless
rying it out. They must be convinced of its effectiveness way to get some experience.
in order to properly explain and ''sell'' the plan to the 6. Finally, after the plan is in operation, take time to ana-
salespeople. lyze the results. Is the plan accomplishing what you
2. In turn, be sure the plan is presented clearly to the want it to do, both in terms of business results pro-
salespeople so that they have a good understanding of duced and in realistically compensating salespeople for
how the plan will work. We find that good acceptance their efforts?

Tailoring Commission Plan Measurements to Fit Component Objectives

Objectives Possible Plan Measurements
1. Increase sales/order volume Net sales billed or orders received against quota
2. Increase sales of particular lines Sales against product line quotas with weighted sales credits on individual lines
3. Increase market share Percent realization (%R) of shares bogey
4. Do balanced selling job %R of product line quotas, with commissions increasing in proportion to number of
lines up to quota
5. Increase profitability Margin realized from sales
Vary sales credits to emphasize profitable product lines
Vary sales credit in relation to amount of price discount
6. Increase dealer sales Pay distributor salespeople or sales manager in relation to realization of sales
quotas of assigned dealers
7. Increase sales calls %R of targeted calls per district or region
8. Introduce new product Additional sales credits on new line for limited period
9. Control expense %R of expense to sales or margin ratio
Adjust sales credit in proportion to variance from expense budget
10. Sales teamwork Share of incentive based upon group results
414 CASES ANALYSIS

EXHIBIT 4 G.E. Appliances–Sales Territories

Territory Designation Description
9961 Greater Vancouver (Garth Rizzuto) Hudson’s Bay, Firestone, K-Mart, McDonald Supply, plus seven independent
dealers
9962 Interior (Dan Seguin) All customers from Quesnel to Nelson, including contract sales (50
customers)
9963 Coastal (Ken Block) Eatons, Woodwards, plus Vancouver Island north of Duncan and upper
Fraser Valley (east of Clearbrook) (20 customers)
9964 Independent and Northern (Fred Speck) All independents in lower mainland and South Vancouver Island, plus
northern B.C. and Yukon (30 customers)
9967 Contract (Jim Wiste) Contract sales Vancouver, Victoria. All contract sales outside 9962 (50–60
customers)

salesperson. Territories were altered periodically in allocation seemed fair on the surface, it did not take
order to deal with changed circumstances. into account the differing situations in the territories or
One territory was composed entirely of contract the difficulty of attaining such an increase.
customers. Contract sales were sales in bulk lots to The next step was examination of the sales data
builders and developers who used the appliances in compiled by G.E. weekly sales reports from all regions
housing units. Because the appliances were not resold were fed into a central computer, which compiled them
at retail, G.E. took a lower profit margin on such sales. and printed out sales totals by product line for each cus-
G.E. Appliances recruited M.B.A. graduates for its tomer, as well as other information. This information
sales force. It sought bright, educated people who were enabled the sales manager to check the reasonableness
willing to relocate anywhere in Canada. The com- of his initial allocation through a careful analysis of
pany intended that these people would ultimately be the growth potential for each customer.
promoted to managerial positions. The company also The analysis began with the largest accounts
hired experienced career salespeople in order to get a such as Firestone, Hudson’s Bay, and Eatons, which
blend of experience in the sales force. However, the each bought over $1 million in appliances annually.
typical salesperson was under age 30, aggressive, and Accounts that size were expected to achieve at least
upwardly mobile. G.E.’s sales training program cov- the budgeted growth. The main reason for this was
ered only product knowledge. It was not felt necessary that a shortfall of a few percentage points on such a
to train recruits in sales techniques. large account would be difficult to make up elsewhere.
Next, the growth potential for medium-sized
Allocation Procedure accounts was estimated. These accounts included
At the time Barr assumed the job of DSM, he had a McDonald Supply, K-Mart, Federated Cooperative,
meeting with the former sales manager, Ken Philips. and buying groups such as Volume Independent Pur-
Philips described to Barr the method he had used in chasers (V.I.P.). Management expected the majority of
the past to allocate the quota. As Barr understood it, sales growth to come from such accounts, which had
the procedure was as follows: annual sales of between $150,000 and $1 million.
The quota was received in October in the form of At that point, about 70 percent of the accounts had
a desired percentage sales increase. The first step was been analyzed. The small accounts were estimated last.
to project current sales to the end of the year. This These had generally lower growth potential but were
gave a base to which the increase was added for an an important part of the company’s distribution system.
estimation of the next year’s quota. From this quota, Once all the accounts had been analyzed, the growth
the value of contract sales was allocated. Contract sales estimates were summed and the total compared to the
were allocated first because the market was considered budget. Usually, the growth estimates were well below
the easiest to forecast. The amount of contract sales the budget.
in the sales mix was constrained by the lower profit The next step was to gather more information.
margin on such sales. The salespeople were usually consulted to ensure that
The next step was to make a preliminary allocation no potential trouble areas or good opportunities had
by simply adding the budgeted percentage increase to been overlooked. The manager continued to revise
the year-end estimates for each territory. Although this and adjust the figures until the total estimate matched
GENERAL ELECTRIC APPLIANCES 415

EXHIBIT 5 Sales Results

Previous Budget Percent of Previous Actual Variance from
Territory ( × 1,000) Total Budget ( × 1,000) Quota (V%)
9967 (Contract) $2,440 26.5 $ 2,267 (7)
9961 (Greater Vancouver) 1,790 19.4 1,824 2
9962 (Interior) 1,624 17.7 1,433 (11)
9963 (Coastal) 2,111 23.0 2,364 12
9965 (Independent dealers) 1,131 12.3 1,176 4
House 84 1.1 235 -
Total $9,180 100.0 $ 9,299 1

Following Year Percent of Following Year Variance from

Territory Budget ( × 1,000) Total Budget Actual ( × 1,000) Quota (V%)
9967 (Contract) $2,587 26.2 $ 2,845 10
9961 (Greater Vancouver) 2,005 20.3 2,165 8
9962 (Interior) 1,465 14.8 1,450 (1)
9963 (Coastal) 2,405 24.4 2,358 (2)
9965 (Independent dealers) 1,334 13.5 1,494 12
House 52 .8 86 -
Total $9,848 100.0 $10,398 5

the budget. These projections were then summed by Current Situation

territory and compared to the preliminary territorial Barr recognized that he faced a difficult task. He felt
allocation.
that he was too new to the job and the area to confi-
Frequently, there were substantial differences
dently undertake an account by account growth analy-
between the two allocations. Historical allocations were
sis. However, due to his previous experience with sales
then examined, and the manager used his or her judg-
budgets, he did have some sound general ideas. He also
ment in adjusting the figures until he was satisfied that
had the records of past allocation and quota attain-
the allocation was both equitable and attainable. Some
ment (Exhibit 5), as well as the assistance of the RSM,
factors that were considered at this stage included expe-
Anthony Foyt.
rience of the salesperson, competitive activities, poten-
Barr’s first step was to project the current sales
tial store closures or openings, potential labor disputes
in areas, and so forth. figures to end-of-year totals. This task was facilitated
The completed allocation was passed on to the because the former manager, Philips, had been making
Regional Sales Manager for his approval. The process successive projections monthly since June. Barr then
had usually taken one week or longer by this stage. made a preliminary quota allocation by adding the bud-
Once the allocations had been approved, the district geted sales increase of 14 percent to each territory’s
Sales Manager then divided them into sales quotas total (Exhibit 6).
by product line. Often, the resulting average price did Barr then began to assess circumstances which
not match the expected mix between higher and lower could cause him to alter that allocation. One major
priced units. Therefore, some additional adjusting of problem was the resignation, effective at the end of
figures was necessary. The house account (used for the year, of one of the company’s top salesmen, Ken
sales to employees of the company) was used as the Block. His territory had traditionally been one of the
adjustment factor. most difficult, and Barr felt that it would be unwise to
Once this breakdown had been completed, the num- replace Block with a novice salesperson.
bers were printed on a budget sheet, and given to the Barr considered shifting one of the more experi-
Regional Sales Manager (RSM). He or she forwarded enced salespeople into that area. However, that would
all the sheets for the region to the central computer, have involved a disruption of service in an additional
which printed out sales numbers for each product line territory, which was undesirable because it took sev-
by salesperson by month. These figures were used as eral months for a salesperson to build up a good rapport
the salesperson’s quotas for the next year. with customers. Barr’s decision would affect his quota
416 CASES ANALYSIS

EXHIBIT 6 Sales Projections and Quotas

Projected Sales Results, Current Year
Current Year
October Current Projected Projected
Year to Date Total Current Budget % of Total Variance from
Territory (× 1000 ) (× 1000 ) (× 1000 ) Budget Quota (V%)
9967 $2,447 $3,002 $2,859 25.0 5
9961 2,057 2,545 2,401 21.0 6
9962 1,318 1,623 1,727 15.1 (6)
9963 2,124 2,625 2,734 23.9 (4)
9965 1,394 1,720 1,578 13.8 9
House 132 162 139 1.2 −
Total $9,474 $11,677 $11,438 100.0 2

Preliminary Allocation, Next Year

Territory Current Projection (× 1000 ) Next Year Budget a (× 1000 ) % of Total Budget
9967 $ 3,002 $ 3,422 25.7
9961 2,545 2,901 21.8
9962 1,623 1,854 13.9
9963 2,625 2,992 22.5
9965 1,720 1,961 14.7
House 162 185 1.4
Total $11,677 $13,315 100.0

a Next budget = current territory projections + 14% = $13,315.

allocation because a salesperson new to a territory ployment was about 8 percent. The government’s
could not be expected to sell immediately as well as anti-inflation program, which was scheduled to end
the incumbent, and a novice salesperson would require next year, had managed to keep inflation to the 8 per-
an even longer period of adaptation. cent level, but economists expected higher inflation and
Barr was also concerned about territory 9961. The increased labor unrest during the postcontrol period.
territory comprised two large national accounts and The economic outlook was not the same in all
seven major independent dealers. The buying decisions areas. For instance, the Okanagan (9962) was a very
for the national accounts were made at their head depressed area. Tourism was down, and fruit farm-
offices, where G.E.’s regional sales had no control ers were doing poorly despite good weather and
over the decisions. Recently, Barr had heard rumors record prices. Vancouver Island was still recovering
that one of the national accounts was reviewing its from a 200 percent increase in ferry fares, while the
purchase of G.E. appliances. If they were to delist lower mainland appeared to be in a relatively better
even some product lines, it would be a major blow to position.
the salesman, Rizzuto, whose potential sales would be In the contract segment, construction had shown an
greatly reduced. Barr was unsure how to deal with that increase recently. However, labor unrest was common.
situation. There had been a crippling eight-week strike recently,
Another concern for Barr was the wide variance and there was a strong possibility of another strike next
in buying of some accounts. Woodwards, Eatons, and year.
McDonald Supply had large fluctuations from year to With all of this in mind, Barr was very concerned
year. Also, Eatons, Hudson’s Bay, and Woodwards had that he allocate the quota properly because of the bonus
plans to open new stores in the Vancouver area some- system implications. How should he proceed? To help
time during the year. The sales increase to be generated him in his decision, he reviewed a note on development
by these events was hard to estimate. of a sales commission plan that he had obtained while
The general economic outlook was poor. The Cana- attending a seminar on sales management the previous
dian dollar had fallen to 92 cents U.S., and unem- year (Exhibit 3).
H A N O V E R -B A T E S C H E M I C A L C O R P O R A T I O N 417

CASE 12 HANOVER-BATES CHEMICAL CORPORATION

Note: An Excel file with the data for this case is available at www.wiley.com/college/cron. Go to “Students Companion Site.”

As Jim reflected on the scene that had just occurred,

J
ames Sprague, newly appointed Northeast dis-
trict sales manager for Hanover-Bates Chemi- he wondered what he should do. It had been made clear
cal Corporation, leaned back in his chair as the to him when he had been promoted to manager of the
door to his office slammed shut. “Great beginning,” he Northeast sales district that one of his top priorities
thought. “Three days in my new job and the district’s should be improvement of the district’s performance.
most experienced sales representative is threatening to As the national sales manager had said, “The Northeast
quit.” sales district may rank third in dollar sales but it’s our
On the previous night, James Sprague, Hank Carver worst district in terms of profit performance.”
(the district’s most experienced sales representative), Prior to assuming his new position, Jim had assem-
and John Follett, another senior member of the dis- bled the data presented in Exhibits 1 through 7 to
trict sales staff, had met for dinner at Jim’s sugges- assist him in his work. The data had been compiled
tion. During dinner, Jim had mentioned that one of his from records maintained in the national sales man-
top priorities would be to conduct a sales and profit ager’s office. Although he believed that the data would
analysis of the district’s business in order to iden- provide a sound basis for a preliminary analysis of dis-
tify opportunities to improve the district’s performance. trict performance. Jim had recognized that additional
Jim had stated that he was confident that the analy- data would probably have to be collected when he
sis would indicate opportunities to reallocate district arrived in the Northeast district (District 3). To pro-
sales efforts in a manner that would increase profits. vide himself with a frame of reference, Jim had also
As Jim had indicated during the conversation, “My requested data on the north-central sales district (Dis-
experience in analyzing district sales performance data trict 7). This district was generally considered to be one
of the best, if not the best, in the company. Further-
for the national sales manager has convinced me that
more, the north-central district sales manager, who was
any district’s allocation of sales effort to products and
only three years older than Jim, was highly regarded
customer categories can be improved.” Both Carver
by the national sales manager.
and Follett had nodded as Jim discussed his plans.
Hank Carver was waiting when Jim arrived at the
district sales office the next morning. It soon became THE COMPANY AND INDUSTRY
apparent that Carver was very upset by what he per-
The Hanover-Bates Chemical Corporation was a
ceived as Jim’s criticism of how he and the other dis-
leading producer of processing chemicals for the
trict sales representatives were doing their jobs—and
chemical plating industry. The company’s production
more particularly, how they were allocating their time
process was, in essence, a mixing operation. Chem-
in terms of customers and products. As he concluded
icals purchased from a broad range of suppliers
his heated comments, Carver had said:
were mixed according to a variety of user-based
This company has made it damned clear that formulas. Company sales in 2003 had reached a
thirty-four years of experience don’t count for any- new high of $47,780,000, up from $43,780,000
thing. . . and now someone with not much more than in 2002. Net pretax profit in 2003 had been
two years of selling experience and two years of push- $7,644,000, up from $6,338,000 in 2002. Hanover-
ing paper for the national sales manager at corporate Bates had a strong balance sheet and the company
headquarters tells me I’m not doing my job. . . . Maybe
enjoyed a favorable price-earnings ratio on its stock,
it’s time for me to look for a new job. . . and since
which was traded on the over-the-counter market.
Trumbull Chemical (Hanover-Bates’s major competi-
tor) is hiring, maybe that’s where I should start look- Although Hanover-Bates did not produce
ing. . . and I’m not the only one who feels this way. commodity-type chemicals (e.g., sulfuric acid and

This case was prepared by Professor Robert W. Witt of the University of Texas, Austin. Reproduced by permission.
418 CASES ANALYSIS

EXHIBIT 1 Summary Income Statements (thousands), 1999 to 2003

1999 2000 2001 2002 2003
Sales $39,780 $43,420 $38,120 $43,960 $47,780
Production expenses 23,868 26,994 24,396 27,224 29,126
Gross profit 15,912 16,426 13,724 16,736 18,654
Administrative expenses 5,212 5,774 5,584 5,850 6,212
Selling expenses 4,048 4,482 4,268 4,548 4,798
Pretax profit 6,652 6,170 3,872 6,338 7,644
Taxes 3,024 2,776 1,580 2,852 3,436
Net profit $ 3,628 $ 3,394 $ 2,292 $ 3,486 $ 4,208

EXHIBIT 2 District Sales and Gross Profit Quota Performance (thousands), 2003
Number of Gross Profit
District Sales Reps Sales Quota Sales Actual Quotaa Gross Profit Actual
1 7 $ 7,661 $ 7,812 $ 3,104 $ 3,178
2 6 7,500 7,480 3,000 3,058
3 6 7,300 6,812 2,920 2,478
4 6 6,740 6,636 2,696 2,590
5 5 6,600 6,420 2,620 2,372
6 5 6,240 6,410 2,504 2,358
7 5 5,440 6,210 2,176 2,260
$47,600 $47,780 $19,040 $18,654

a District gross profit quotas were developed by the national sales manager in consultation with the district managers and took into account price

competition in the respective districts.

EXHIBIT 3 District Selling Expenses, 2003

District District Total
Sales Rep Sales Rep Sales Rep District Manager’s Manager’s Sales Selling
District Salariesa Commissions Expenses Office Salary Expenses Support Expenses
1 $354,200 $38,852 $112,560 $42,300 $67,000 $22,920 $139,000 $ 776,832
2 286,440 37,400 101,520 42,624 68,000 24,068 142,640 702,692
3 314,760 34,060 108,872 44,246 70,000b 24,764 140,000 736,722
4 300,960 33,180 98,208 44,008 65,000 22,010 132,940 696,306
5 251,900 32,100 85,440 42,230 66,000 22,246 153,200 653,116
6 249,700 32,530 83,040 41,984 67,000 22,856 134,200 631,310
7 229,700 35,060 89,400 44,970 63,000 23,286 117,500 602,916
$4,797,830

a Includes cost of fringe benefit program, which was 10 percent of base salary.
b
Salary of Jim Sprague’s predecessor.

EXHIBIT 4 District Contribution to Corporate Administrative Expenses and Profit, 2003

District Sales (thousands) Gross Profit (thousands) Selling Expenses Contribution
1 $ 7,812 3,178 $ 776,832 $ 2,401,168
2 7,480 3,058 702,692 2,355,308
3 6,812 2,478 737,058 1,740,942
4 6,636 2,590 696,306 1,893,694
5 6,420 2,372 653,116 1,718,884
6 6,410 2,358 630,752 1,727,248
7 6,210 2,620 600,516 2,019,484
$47,780 $18,654 4,797,272 $13,856,648
H A N O V E R -B A T E S C H E M I C A L C O R P O R A T I O N 419

EXHIBIT 5 District Sales and Gross Profit Performance by Account Category, 2003
Sales by Account Category (thousands)
District (A) (B) (C) Total
Northeast $1,830 $3,362 $1,620 $6,812
North-Central 1,502 3,404 1,304 6,210

Gross Profit by Account Category (thousands)

District (A) (B) (C) Total
Northeast $712 $1,246 $520 $2,478
North-Central 660 1,450 510 2,620

EXHIBIT 6 Potential Accounts, Active Accounts, and Account Call Coverage, 2003
Potential Accounts Active Accounts Account Coverage (total calls)
District (A) (B) (C) (A) (B) (C) (A) (B) (C)
Northeast 90 381 635 53 210 313 1297 3051 2118
North-Central 60 286 499 42 182 216 1030 2618 1299

EXHIBIT 7 Product Line Data

Product Container List Price Gross Margin Sales (000)
SPX 400 lb drum $160 $56 $7,128
ZBX 50 lb drum 152 68 8,244
CBX 50 lb drum 152 68 7,576
NBX 50 lb drum 160 70 9,060
CHX 100 lb drum 440 180 8,820
BUX 400 lb drum 240 88 6,952

others), industry customers tended to perceive min- Regardless of the degree of plating precision
imal quality differences among the products pro- involved, quality control is of critical concern to all
duced by Hanover-Bates and its competitors. Given chemical platers. Extensive variation in the condition
the lack of a variation in product quality and the of materials received for plating requires a high level of
industry-wide practice of limited advertising expen- service from the firms supplying chemicals to platers.
ditures, field sales efforts were of major impor- This service is normally provided by the sales repre-
tance in the marketing programs of all firms in the sentatives of the firm(s) which supply the plater with
industry.
processing chemicals.
Hanover-Bates’s market consisted of several thou-
Hanover-Bates and the majority of the firms in
sand job-shop and captive (i.e., in-house) plating oper-
its industry produced the same line of basic process-
ations. Chemical platers process a wide variety of
materials including industrial fasteners (e.g., screws, ing chemicals for the chemical plating industry. The
rivets, bolts, washers), industrial components (e.g., line consisted of a trisodium phosphate cleaner (SPX),
clamps, casings, couplings), and miscellaneous items anesic aldehyde brightening agents for zinc plating
(e.g., umbrella frames, eyelets, decorative items). The (ZBX), cadmium plating (CBX), and nickel plating
chemical plating process involves the electrolytic appli- (NBX), a protective postplating chromate dip (CHX),
cation of metallic coatings such as zinc, cadmium, and a protective burnishing compound (BUX). The
nickel, and brass. company’s product line is detailed in Exhibit 7.
420 CASES ANALYSIS

COMPANY SALES ORGANIZATION been concerned about the optimum allocation of sales
efforts to accounts and felt that the guidelines would
The sales organization consisted of forty sales repre-
increase the efficiency of the company’s sales force,
sentatives operating in seven sales districts. Sales rep-
although not all of the district sales managers agreed
resentatives’ salaries ranged from $28,000 to $48,000
with this conclusion.
with fringe-benefit costs amounting to an additional 10
It was common knowledge in Hanover-Bates’ cor-
percent of salary. In addition to their salaries, Han-
porate sales office that Jim Sprague’s predecessor as
over-Bates’s representatives received commissions of
Northeast district sales manager had not been one of the
0.5 percent of their dollar sales volume on all sales
up to their sales quotas. The commission on sales in company’s better district sales managers. His attitude
excess of quota was 1 percent. toward the sales plans and programs of the national
In 2002, the national sales manager of Han- sales manager had been one of reluctant compliance
over-Bates had developed a sales program based on rather than acceptance and support. When the national
selling the full line of Hanover-Bates products. Antici- sales manager succeeded in persuading Jim Sprague’s
pated benefits included the following: (1) Sales volume predecessor to take early retirement, he had been faced
per account would be greater and selling costs as a per- with the lack of an available qualified replacement.
centage of sales would decrease; (2) a Hanover-Bates Hank Carver, who most of the sales representatives
sales representative could justify spending more time had assumed would get the district manager’s job, had
with such an account, thus becoming more knowl- been passed over in part because he would be 65 in
edgeable about the account’s business and better three years. The national sales manager had not wanted
able to provide technical assistance and identify sell- to face the same replacement problem again in three
ing opportunities; (3) full-line sales would strengthen years and had wanted someone in the position who
Hanover-Bates’s competitive position by reducing the would be more likely to be responsive to the com-
likelihood of account loss to other plating chemical pany’s sales plans and policies. The appointment of
suppliers (a problem that existed in multiple-supplier Jim Sprague as district manager had caused consider-
situations). able talk, not only in the district but also at corporate
The national sales manager’s 2002 sales program headquarters. In fact, the national sales manager had
had also included the following account call fre- warned Jim that “a lot of people are expecting you
quency guidelines: A accounts (major accounts gen- to fall on your face. They don’t think you have the
erating $24,000 or more in yearly sales)—two calls experience to handle the job, in particular, and to man-
per month; B accounts (medium-size accounts gener- age and motivate a group of sales representatives most
ating $12,000 to $23,999 in yearly sales)—one call per of whom are considerably older and more experienced
month; C accounts (small accounts generating less than than you.” The national sales manager had concluded
$12,000 yearly in sales)—one call every two months. by saying, “I think you can handle the job, Jim. I think
The account call frequency guidelines were developed you can manage those sales reps and improve the dis-
by the national sales manager after discussions with trict’s profit performance, and I’m depending on you
the district managers. The national sales manager had to do both.”

CASE 13 HYDE-PHILLIP APPLIANCES

Note: An Excel file with the data for this case is available at www.wiley.com/college/cron. Go to “Students Companion Site.”

T
wo engineers, Bill Parks and Anne Smith, outdoor kitchen appliances. Bill was chairman of
founded Hyde-Phillip in 1990. The company the board, and Anne was director of research and
specialized in the manufacture of high-end development. For the first ten years of its life,

This case was prepared by Douglas J. Dalrymple of Indiana University.

H Y D E -P H I L L I P A P P L I A N C E S 421

EXHIBIT 1 Quarterly Sales for the PC220 and PC440

2001 2002 2003
Quarter PC220 PC440 PC220 PC440 PC220 PC440
1 1950 770 3150 545 2924 350
2 2920 620 2600 450 3380 420
3 2560 623 3002 400 2554 310
4 3330 830 4250 639 2800 775

Hyde-Phillip enjoyed steady growth in sales and prof- As a first step in analyzing the data, Jane thought
its. Hyde-Phillip’s success was based on providing she would plot the sales figures to see what trends were
customers with superior performance at prices slightly evident. Sales were placed on the Y axis and time was
above average. However, in 2000 aggressive price cut- plotted on the X axis. Next she decided to calculate
ting by large competitors began to erode sales growth. some quarterly seasonal indexes for the two products
Hyde-Phillip’s revenue peaked in 2002 at $75 million. to see if seasonal adjustments were needed.

SOLVING HYDE-PHILLIP’S PROBLEMS SELECTING FORECASTING METHODS

Although customers were willing to pay for high- The first method Jane tried with the outdoor grill sales
quality outdoor appliances in the 1990s, this strat- data was the naive approach. Sales in quarter 1 were
egy did not attract many buyers in the cost-conscious used to predict sales in quarter 2, then sales in quarter
2000s. Bill Parks realized that the company had to do 2 were used to predict sales in quarter 3 and so on
a better job of both marketing and cost reduction. The until all the periods had been predicted. Once she had
company currently employed a small sales force but forecasts for 11 periods, she could calculate the aver-
relied primarily on a network of local dealers to sell age forecasting error for the naive method using the
its appliances. Bill knew that the company needed a formula for MAPE.
stronger customer focus, so he hired a CEO with a mar- The second method Jane decided to use was the
keting background. As a result, the company started to moving average. With this technique, sales in several
pay more attention to marketing activities and began to periods are averaged to give a forecast of sales in the
prepare detailed marketing plans for each product line. next period. To use this method, she had to decide how
Jane Austin, a recent business graduate, was hired as many periods to include in her forecast. She decided
a marketing assistant to help with the planning. to start with a two-period moving average and com-
Part of Jane’s responsibility was to estimate sales pare her results with those from three- and four-period
for the PC220 and PC440 outdoor grills for the next moving averages. Her decision on the length of moving
year. In the past, these forecasts had been developed average would then be made on which method pro-
using judgmental procedures. Jane knew that the CEO duced the lowest average forecasting error.
expected a more thorough analysis of sales trends for Jane knew that a variation of the moving aver-
the 2004 marketing plan. When she was in school, Jane age known as exponential smoothing would sometimes
had become familiar with the use of computers to pre- produce lower forecasting errors than the moving aver-
dict future sales. This seemed to be a good time to age procedure. However, with this method she would
make use of her computer expertise. have to select an appropriate value for the smoothing
constant. These constants could vary in size from 0.01
to 1.0 with low values giving forecasts that lagged the
ENTERING THE DATA
data and high values that were similar to naive fore-
Jane entered the quarterly sales data for PC220 casts. She decided to try out smoothing constants of
from Exhibit 1 in the first twelve spaces on her spread- different sizes to see which one gave the lowest MAPE.
sheet. Sales for 2001 were entered as observations 1 The fourth method Jane selected was simple regres-
through 4, sales for 2002 were entered as observations sion. This approach calculates a trend line equation that
5 through 8, and sales for 2003 were entered as obser- can be used to forecast the four quarters of 2004. While
vations 9 through 12. Sales figures for PC440 were this method does well when there is a trend in the sales
entered in a separate column. data, it can lead to large forecasting errors when there
422 CASES ANALYSIS

are changes of direction. The R statistic printed out seasonally adjust the sales data for either the PC220
by her computer program would give her some idea of or PC440 grills.
how well the regression equation fit the computer sales Another issue that Jane was concerned about was
data. whether to report one set of quarterly forecasts for 2004
Once Jane had run her four methods through the for each grill line or to average the forecasts of the best
historical sales data in Exhibit 1, the MAPE values two methods. Although her software program allowed
that she had calculated would help her select a method Jane to try many different forecasting techniques, it
to predict outdoor grill sales in 2004. This choice did not tell her which forecasts to include in her
was complicated by the need to decide whether to report.

CASE 14 INJECT PLASTICS

Note: An Excel file with the data for this case is available at www.wiley.com/college/cron. Go to “Students Companion Site.”

R
oger Zelazny, the sales manager for the South- accounts. Because of the huge number of applications
east District of Inject Plastics, was shaken after of plastic parts in the U.S. economy, the individual
attending the December sales executive meet- salespeople called on a wide variety of manufacturers
ing in Louisiana. Although Inject Plastics had increased across many industries.
sales 12 percent last year compared to 2 percent indus- Last year Inject Plastics generated $200 million in
try sales growth, Mr. Brand, Vice President of Mar- sales, a 12 percent increase from last year. The plastics
keting, had ordered every district sales manager to cut molding and manufacturing industry was quite mature.
staff by 30 percent on January 16th! The notice to the Because of the huge number of plastics applications,
fired employees would have to go out on January 2nd. industry sales tended to follow the trends in the over-
Roger would have to determine who was going to be all U.S. economy. Although Inject Plastics was rel-
fired and then let them know they were without a job. atively small for the industry, its manufacturing and
Thinking about having to notify three people on his sales expertise had generated sales growth higher than
staff that they were terminated was going to make the industry averages as well as higher profit margins over
holidays very grim indeed. the last ten years.
The plastics molding and manufacturing business
was highly competitive. Sales were generated by hav-
INJECT PLASTICS
ing the lowest unit costs along with flexible delivery.
Inject Plastics is a plastics molding and manufacturing Most large purchasers used just-in-time inventory sys-
company with plants in Louisiana, Texas, and New tems, which meant that Inject Plastics had to have
Jersey. One of the company’s unique advantages is highly flexible manufacturing and logistics systems.
its flexibility in manufacturing; it can shape every- Even small cost savings could shave prices, which
thing from delicate medical devices to car parts and could mean the difference between getting and losing
toothbrush handles. Inject Plastics created molds, made an order.
plastic of the appropriate strength and flexibility out of
petroleum products, and then created the plastic part for
THE CUSTOM WEB SITE INITIATIVE
its buyers. The finished parts are shipped to customers,
who handle final product assembly and sales. Nine months ago the logistics manager suggested that
Due to raw material needs, Inject Plastic’s manu- Inject develop a customized Web strategy. Inject would
facturing plants are located near major oil refineries. build an individual, password-protected Web site for
The sales staff had to discover customers, coordi- each customer. An individual site was necessary to pro-
nate manufacturing and logistics needs, and service tect customer trade secrets. The customer could log into

This case was prepared by Avery Abernethy, Professor of Marketing, Auburn University. Copyright © by Avery Abernethy.
INJECT PLASTICS 423

the site and check the status of orders and shipments. Overall, manufacturing and logistics costs per dollar
The customer would also be able to make new orders, of sales had declined, which had padded Inject’s profit
adjust previous orders, and ask questions of the man- margins. After answering a few questions, Mr. Caine
ufacturing, logistics, or sales staff. Each salesperson left the meeting.
would be responsible for answering the customer sales Mr. Brand then started a new PowerPoint presen-
questions from the Web site for customers in his or tation. The presentation focused on salesperson effi-
her territory. The manufacturing and logistics manager ciency. Because the customized Web program had
would answer other questions. improved customer communication and handled an
Inject accepted this proposal and spent $200,000 increasing amount of routine sales tasks, the efficiency
setting up the customized customer Web strategy. Inject of the sales staff had decreased. “Our new technology
also hired a new technology staffer to maintain the has improved productivity everywhere but the sales
site, coordinate customer questions, and ensure that a staff. Salespeople continue to get large commissions,
prompt and accurate response is given to each customer even though an ever larger proportion of sales efforts
question. The new technology staffer’s pay is $60,000, are being automated through the custom web initiative.
including benefits. I think that by this time next year 50 percent of routine
The district sales managers were concerned that the orders and customer contacts will be through the Web.”
customized Web strategy would be resisted by the sales “We need to change our sales incentive program,”
force, if change lowered commissions. After thinking it Brand continued, “and make the sales force more effi-
through, Mr. Brand decided that the 1 percent commis- cient. Inject is going to do this through a number of
sion would apply to both Web sales and sales processed changes. First, the commission rate for sales to existing
by the salesperson for firms located in their territory. customers would be cut from 1 percent to 0.1 per-
The salespeople were very enthusiastic about the cent. Second, the commission rate for the first twelve
customized Web site initiative when it started on July 1.
months of sales to new customers would be 2 percent.
Because a lot of routine order taking, inventory man-
We really want the salespeople to generate new busi-
agement, and logistics issues would be communicated
ness. With all of the sales time freed up with the Web
directly to the relevant Inject manager, the customized
program, the salespeople can concentrate on getting
Web initiative freed up a lot of salesperson time. The
new customers. Third, the annual salary of salespeo-
salespeople used this time to generate a record num-
ple would increase from $25,000 to $60,000. We are
ber of new customers. Sales to new customers were a
doing this to retain our best salespeople. Average total
major factor behind the 12 percent increase in sales.
compensation in the industry is $75,000 per salesper-
Existing customers were also impressed with the ser-
son, we want to remain competitive in retaining our
vice improvements and increased their orders.
By December, approximately 25 percent of all best salespeople. Fourth, each district will terminate
orders were being placed through the individual cus- three salespeople. This would cut the total number of
tomer Web sites. Much of the routine communication salespeople from 40 to 28.”
between customers and Impact no longer went through Brand went on to inform them that salespeople
the salespeople and instead often went directly to logis- being laid off would be notified on January 2nd and
tics and manufacturing. that their last day of work would be January 16th.
“Before we make any final decisions and notify the
salespeople,” Brand stated, “each district sales manager
DECEMBER MEETING WITH MR. BRAND needs to get some information to me. First, identify
Mr. Brand started off the sales executive meeting the three salespeople that will be laid off. I also need
by lavishing praise on the four sales managers. He the criteria you used to select the salespeople for ter-
noted that average sales per district had increased to mination. Second, estimate the total sales costs in your
$50 million. Customer complaints were down and the district next year. I don’t think that the number of new
sales growth for Inject greatly exceeded the industry customers or sales generated from new customers will
average. drop. The two-week salary of the fired salespeople
Mr. Caine, the logistics manager, added additional can also be disregarded because it is not a reoccurring
good news. Raw materials and work-in-process inven- cost.”
tory levels were down. Turnaround on orders had “Third, send a copy of your draft letter terminating
improved. The number of manufacturing mistakes each employee. I want to review them before they are
were also down, primarily due to cutting down on sent. Last, let me know how you are going to com-
miscommunication between Inject and its customers. municate the changes in the compensation plan to the
424 CASES ANALYSIS

EXHIBIT 1 Salesperson Performance and Compensation Last Year: Southeast District

Years with Total Sales New Customers Total Sales By
Salesperson Sex Age Company Last Year Salary Commission Generated New Customers
Bret M 62 32 $6,000,000 $25,000 $60,000 9 $700,000
Cathy F 35 7 $6,250,000 $25,000 $62,500 6 $500,000
Ethan M 42 15 $4,900,000 $25,000 $49,000 5 $300,000
Gretchen F 28 2 $4,300,000 $25,000 $43,000 5 $330,000
Mark M 63 41 $4,850,000 $25,000 $48,500 4 $220,000
Matthew M 50 5 $4,900,000 $25,000 $49,000 4 $600,000
Sam M 45 10 $4,750,000 $25,000 $47,000 6 $270,000
Susan F 48 22 $5,300,000 $25,000 $53,000 5 $300,000
Trey M 48 17 $5,000,000 $25,000 $50,000 5 $340,000
Wally M 26 1 $3,700,000 $25,000 $37,000 2 $75,000

Note: New customers and sales generated by new customers is for the entire year. Sales by new customers is part of the total sales last year. For
example, Bret had sales of $5,300,000 from existing customers and $700,000 from new customers.

salespeople we are retaining. We want to maintain a Roger was in a state of shock. Since sales perfor-
high morale level with the people who are the future mance had been so good last year, he was expecting
of the company.” to be able to tell his salespeople that the senior execu-
At this point, Jeff Corwin pointed out that both he tives were proud of them and supported all of their hard
and the company had promised the salespeople that work. Exhibit 1 provides information on the ten people
the custom Web site initiative would not affect sales in Roger’s district, along with their sales performance
pay. “How do we know that these staffing changes will and compensation last year. Instead of praise, he had
not harm the growth in sales. If it is not broke, why to fire three salespeople and tell the rest that their com-
fix it?” pensation package had been radically changed. Roger
Mr. Brand seemed a bit taken back by Jeff’s com- wondered if the new plan would cut the pay of his
ment. Brand off-handedly said that, “If you think that remaining staff. If that happened, he might lose his
my strategic change will hurt sales, put your objec- best people. He would also have to restructure the
tions in writing along with specific estimates of how sales territories to cover the customers from the laid
you think your suggestion will affect both sales costs off salespeople. This would add further turmoil to his
and revenue generation. Remember, we are in a highly sales staff.
competitive industry. We must keep striving to lower Roger wondered if Mr. Oberon, the company pres-
costs if we want to survive.” ident, was aware of Brand’s plan to fire one-third of
Brand then wrapped up the meeting. He said, “Each the sales force. Oberon has an “open-door policy,”
of you has a week to get all of the information to me. so it would be possible to drop in and alert him to
After I get your reports, I will make a final decision the proposed strategy. As his stomach churned, Roger
on Inject’s sales strategy. You are not to communicate wondered if he should follow up on that job feeler for
any information about this potential strategic change to a sales management position he got from a competitor
anyone on your staff.” two weeks ago.

CASE 15 MILLIGAN PHARMACEUTICALS

O
n February 1, 2008 Mark Reid celebrated the board of Milligan Pharmaceuticals, a global phar-
twenty years as CEO and chairman of maceutical company. The company’s major revenue

This case was prepared by Gouri Gupte, Ph.D. student in Health Professions, and Thomas E. DeCarlo of the University of Alabama at
Birmingham. Copyright © by Thomas E. DeCarlo and William L. Cron.
MILLIGAN PHARMACEUTICALS 425

streams come from the development of pharmaceutical Director of Marketing for LifeCare Pharmaceuticals,
drugs and biotechnology products. Milligan is orga- with specialization in marketing at the physician level.
nized into four business units: branded drugs, generics, Graham subsequently asked Candice Griffin, who had
“me-too” drugs, and over-the-counter (OTC) drugs. worked with her at LifeCare, to join Milligan as Direc-
The company has a strong reputation as a leader in tor of Marketing. Griffin had eight years’ experience
the pharmaceutical industry. in marketing and field sales management. Roper also
Over the past twenty years, Reid’s leadership style promoted Kimberly Lathan to Associate Director of
has been described as a benevolent dictator. His struc- Marketing; they would manage the regional directors.
tured, top-down management style has given Reid an Lathan had been with Milligan since 1995 and had
unusually high level of control over the company rel- overseen the sales recruiting function for the On-Call
ative to other firms in the industry. His vision and agency since 1998. The On-Call agency had consis-
uncanny ability to recognize underdeveloped opportu- tently been the most profitable unit in the company.
nities have produced some very profitable years for
Milligan. However, the last five years (2003–2007), A STRATEGIC REVIEW
Milligan’s revenue growth has not met expectations.
While some of the blame can be attributed to Reid’s Mark Reid had high expectations for this new team
recent misses in developing the next big drug, other because his concern for the flat revenues demanded
factors such as recent drug legislation, the accelera- quick action. Roper, after assembling the team, asked
tion in generic drug introductions, and new blockbuster for a complete strategic marketing review from an
drugs by other companies have also contributed to the independent marketing research company that special-
company’s lackluster growth in revenues and earn- ized in working with pharmaceutical companies. In
September 2008, the team met at a conference room
ings. In addition, Milligan’s organizational culture has
at Pinehurst, North Carolina, away from the com-
evolved from one of innovation to maintaining the sta-
pany’s offices, to hear and analyze the consultants’
tus quo. This has resulted in a slow down of innovation
report. This report would provide a foundation for
and research and development initiatives.
the strategic change in direction needed to meet the
Board’s, Reid’s, and the shareholders’ expectations.
A NEW MANAGEMENT TEAM The managers were aware that crucial discussions
would revolve around the development of a new sales
At the Annual Meeting held in March 2007, Reid
force strategy because only a sharp growth in pharma-
expressed his concerns about the change in culture and
ceutical sales would result in a significant increase in
stagnant growth to the Board and his decision of adding
corporate-wide revenues.
new marketing personnel. The Board agreed there was
a need for a new aggressive style of marketing and
embraced Reid’s decision to make changes to its man- MILLIGAN’S SALES FORCE
agement team. The first hire was Christopher Roper, Similar to many pharmaceutical companies, Milligan
the new Executive Vice President of Marketing. Prior distributed its drugs primarily through independent
to joining Milligan in June 2007, Roper had been the medical representatives (MR). At the beginning of
Vice President of Wellcare Pharmaceuticals for eight 2007, there were approximately 2,000 independent
years. He had also served as the Vice President of medical representatives distributing Milligan products.
Cure-All and Vice President of Georgia Pharmaceuti- These MRs typically represented two to three pharma-
cals, the parent company of both Cure-All and Wellcare ceutical companies, and although the MRs did not work
Pharmaceuticals. directly for Milligan, they were given extensive train-
Roper was known for his efficient organizational ing and support and were responsible for selling the
and leadership skills, as well as his leadership abil- entire line of Milligan products. In addition to provid-
ities in growing sales revenues. Roper knew that he ing widespread geographic market coverage throughout
needed to adopt some aggressive marketing strategies the United States, MRs managed all hospital contracts
to grow sales and marketshare and the only way to do in their territory. Hospitals liked working with the MRs
that was to surround himself with outstanding manage- because they represented a variety of other pharma-
ment talent. With that in mind, he appointed the first ceutical companies, which enabled them the flexibility
team member, Katrina Graham, as the Vice President to provide better deals to physicians and pharmacies.
of Marketing. She had more than fifteen years of mar- First-year gross margin commission rates for the drugs
keting and executive management experience as the sold by the MRs were in the 50 to 60 percent range.
426 CASES ANALYSIS

The MRs are managed by independent sales compa- Seven of these we refer to as ‘indirect competitors’
nies specializing in the pharmaceutical industry. Mil- and six of them are what we call ‘direct competi-
ligan’s policy is that any sales company employing tors.’ As the name implies, direct competitors are those
Milligan MRs must have one sales manager for every you compete with on a day-to-day basis for drug
ten MRs it has on staff. Thus, there are approximately sales and new agents. In other words, these compa-
200 sales managers who oversee the 2,000 “Milligan” nies directly compete with Milligan on strategically
MRs. Not only do the managers motivate and lead the important drugs. And then we also have the ‘indirect
MRs in their sales tasks, but they work directly with competitors,’ which are pharmaceutical companies that
the twenty Milligan Regional Directors who oversee sell drugs but do not have a strong brand presence in
the sales and distribution function of these independent Milligan’s strategic focal areas. All of the rating ser-
companies. Because of the unique requirements of Mil- vices we have cited rate Milligan’s MRs as the highest
ligan, the managers are provided specialized training in terms of product selling ability. Only five of the thir-
and administrative support. The managers are paid a teen peer companies in our report had similar ratings.
small salary subsidy during the training period, but then Financial strength of the company is considered as the
it is converted to a commission-only basis. The man- competitive advantage by a few, while the others com-
agers earn commission overrides based on the sales of mented about the conservativeness of the company’s
Milligan products by their MRs in their territory. Milli- approach.”
gan has always paid competitive commission rates and,
as a result, the sales companies have many long-time
loyal MRs and managers. One of the negatives of the PERFORMANCE ANALYSIS
position was a lack of upward career potential as an “This slide (Exhibit 1) is a comparison of your operat-
MR and, more important, the high commission rate ing performance over the 2002–2007 periods with the
made it an expensive strategy for Milligan. other thirteen peer pharmaceutical companies. We can
clearly see in the annual percent change data that drug
THE CONSULTANTS’ PRESENTATION sales have grown more slowly than the direct and indi-
rect competitors. The low growth in the productivity
Christopher Roper convened the meeting in one of
of your MRs as compared to competitors appears to
the conference rooms at Pinehurst with his new team
be a strong reason. We’ll discuss the possible reasons
members. Never one to waste time, he started, “Well,
for this later in our presentation. However, it’s not all
team, I am pleased to introduce to you Jocelyn Stew-
bad news. As you can see from the same annual percent
art and Tony Pirom from Austin Notes, the marketing
change data, the net gain before pharmacy contract dis-
research company assisting us in our project.”
counts is greater than the indirect competitors but less
Pirom began, “Ladies and gentleman, last week we
than your direct competitors. On further analysis, we
emailed you the documents and the complete report. I
found that your revenue stream from North and South
am sure you have them in front of you on your lap-
Carolina and Virginia is larger than any other states.”
tops. But we are here today to give a summary of
“So, why do you think our drug sales are lower
the key points and issues and answer any questions
than those of the competitors?” Katrina Graham asked.
you may have. As you are aware, apart from conduct-
“Katrina, that is a good question,” Jocelyn Stewart
ing an overall market analysis and survey, we also
interviewed several Milligan executives. This helped replied. “Our analysis validates our earlier assumptions
us better understand the major issues that need to be that Milligan has been concentrating too much in the
addressed. The number one concern has been the mod- Southeast, where the physician number can be lower
est annual revenue growth for the past five years, as than in the Northeast. A number of peer companies
compared to your competitors. Milligan has always have a strong footprint in the Northeast. Also, we have
been among the top pharmaceutical companies and a feeling that some of the agents have not capitalized
has an excellent workforce. But, there are areas where on the opportunities in their markets, but the regional
immediate action needs to be taken. These have been difference remains the most important concern.”
highlighted in our analysis.”
PRODUCT COMPARISON
COMPETITIVE ANALYSIS
“Katrina, I hope we answered your question. We
“While conducting the analysis, we compared your now move on to discuss the sales trends of Mil-
company to thirteen other pharmaceutical companies. ligan products.” Tony Pirom resumed, “The next
MILLIGAN PHARMACEUTICALS 427

EXHIBIT 1 Milligan’s Summary of Operations 2003–2007 (Dollar Amounts in Millions)

2003 2004 2005 2006 2007
Drug Sales $648.1 $718.0 $716.3 $727.2 $768.9
Net investment income 250.1 295.3 313.0 326.6 338.7
Other income 32.0 25.8 24.1 28.0 26.8
Total income 930.2 1039.1 1053.4 1081.8 1134.4
Total expenses 802.3 916.8 890.0 896.9 930.6
Net gain before pharmacy contract discounts 127.9 122.3 163.4 184.9 203.8
Discounts to pharmacy contracts 18.8 25.3 24.7 23.8 22.5
Net gain after discounts 109.1 97.0 138.7 161.1 181.3

Change from 2003–2007 Average Annual Percent Change

Direct Indirect Direct Indirect
Competitor Competitor Competitor Competitor
MP Average Average MP Average Average
Drug Sales $120.8 $850.9 $3,182.0 4.4% 7.5% 11.7%
Net investment income 88.6 3717.7 723.4 7.9% 9.1% 6.2%
Total income 204.2 796.5 3,590.10 5.1% 4.7% 8.6%
Total expenses (128.3) (528.9) (3337.8) −3.8% −3.5% −8.8%
Net gain before pharmacy contract discounts 75.9 267.6 252.30 12.4% 14.4% 6.3%

E X H I B I T 2 Product Mix Trends The other pharmaceutical companies have shown a

(Percent of First-Year Commission) relative consistency over the same time period. The
MRs are selling more generic drugs, OTC drugs, and
2005 2006 2007
“me-too” drugs.”
MILLIGAN PHARMACEUTICALS “That’s interesting. Why would do you think our
Branded drugs 76% 70% 63%
MRs are selling more generics and OTC?” Chris Roper
Generics 7 11 12
Me-too drugs 13 14 17 asked.
OTC 4 5 7 “Our consultants have always observed that selling
Group 0 0 0 these drugs is easier than selling branded drugs,” Tony
Total 100% 100% 100% Pirom answered. “Because of the new review systems
DIRECT COMPETITORS by managed care organizations, physicians buy these
Branded drugs 78% 75% 75% easily, and the salespeople find them easier to explain.
Generics 7 6 6 As a result, generic drugs are more supported in the
Me-too drugs 4 6 7 general market even by the sales force and, since gener-
OTC 5 6 8
Group 7 7 5
ics never have expiring patent issues, the contracts can
Total 100% 100% 100%
be renewed more easily. Thus, at the end of the day,
the easier job gets done.”
INDIRECT COMPETITORS
Branded drugs 76% 78% 77%
Generics 5 5 5
Me-too drugs 8 9 9 SALES FORCE COMPARISON
OTC 3 3 4
Group 7 6 4 “How do our MRs feel about the products we give
Total 100% 100% 100% them to sell?” Kimberly Lathan questioned.
Jocelyn Stewart explained, “If we move to the next
slide (Exhibit 3), I think it would help answer your
question. As you can see, in comparison with other
slide (Exhibit 2) presents a competitive analysis of Mil- companies, Milligan’s MRs had a lower satisfaction
ligan’s product mix, based on first-year commissions. level with the variety of drugs you have to offer and
As the exhibit illustrates, Milligan has had a steady also a lower satisfaction level with new drugs being
decline in drug sales, down from 76 percent, based on developed. They felt that the company was not as mar-
the first-year commissions, to 63 percent since 2005. ket driven as it should be.”
428 CASES ANALYSIS

EXHIBIT 3 Sales Force Ratings of Milligan’s Products (Percent of Agents Agreeing)

Agents’ Overall Assessment of Company’s Products Milligan Pharmaceuticals Norm
I am pleased with the variety of products our company offers 68% 79%
I am satisfied with our company’s development of new products 34 67
Our company is market driven, responding to the needs of its target market with 27 68
appropriate products and services

“Jocelyn, as we are discussing the subject of how “Were you able to confirm why our productivity is
MRs feel, how has Milligan stacked up in relation to lower, Tony?”
the recruitment and retention level of the sales force “Yes, Chris. Although there are many factors that
as compared to our competitors?” Candice Griffin pon- affect productivity, our team felt that Milligan’s prod-
dered. “I know that we don’t technically hire our MRs, uct variety was lower than the competitors. This may
but we play a big role in helping to recruit and train have resulted in fewer productive senior MRs selling
them. So in a sense, our performance here can be fewer of your products. It seems that the MRs may
attributed to our efforts.” be meeting their performance goals with you, but they
“Well, another important question, Candice. Our
then place other business with other pharmaceuticals
study demonstrates that only 35 percent of new MRs
in order to meet goals there.
whom you helped recruit and train made it through
“We did not find any evidence that the managers
the first year, which is 15 percentage points below the
overseeing the MRs consider the sales levels of Milli-
direct competitor’s average. At the same time, only
15 percent are making it through the first two years. gan as being too low. In fact, the managers believe that
And those who stay for more than four years comprise they have been setting high but attainable goals for the
only 5 percent. MRs. However, while studying the performance stan-
“The next slide (Exhibit 4) summarizes the situation dards the first-year MRs must meet, 69 percent of the
pretty well. The first part of the overhead shows that in MRs believed they were modest or too low. Finally, we
2007, recruits represented 48 percent of the base sales noted that the managers had considerably fewer rela-
force, as compared with 29 percent and 38 percent for tionship management activities with physicians than
the two peer groups. At the same time, an important the managers of other peer companies. It is no sur-
point worth noticing is the declining Milligan’s MR prise that many managers, while very capable, seemed
numbers and the stable or increasing competitor’s num- to be too busy to perform these important relationship
bers. Likewise, Milligan’s MR turnover rates have been management activities.”
higher than other competitors. Finally, the slide shows “Milligan’s Regional Directors and managers also
that only 35 percent of your MR sales reps have been seem to have a contrasting opinion on what is required
with you more than five years as compared with 40 of MRs. We’ve determined that over 90 percent of your
percent and 46 percent for the two comparison groups. managers felt that they give a realistic preview of the
And this is a serious issue when we consider that in job activities to a recruit, yet only 32 percent of the
most marketing cycles, salespeople are most productive
new MRs agreed with it. Moreover, when the managers
after five years.”
were questioned about the activities that they expected
“Tony, what is your analysis on Milligan’s MR pro-
from an MR prior to signing a contract with them, we
ductivity compared with the peer groups?” Chris Roper
received a contrary response from the new MRs who
asked.
“We did analyze the issue of productivity closely. were asked the same question. Seventy-three percent of
We found that Milligan MRs earned, on average, lower your new hires have not worked as full-time MRs pre-
first-year commissions (not including renewal commis- viously, so it is likely that they may not be completely
sions) in each year as compared with their peers. Your aware of the requirements of being a pharmaceutical
base sales force had average first-year commissions of industry rep.”
about $44,000 versus $49,000 for the direct competi- “Chris, I think that we have covered all the points
tors and almost $45,000 for the indirect competitor peer that we thought would be relevant to your planning
group. process. We will, of course, be available to answer
MILLIGAN PHARMACEUTICALS 429

EXHIBIT 4 Sales Force Recruitment and Retention

RECRUITS AS A PERCENT OF BASE FORCE
Milligan Pharmaceuticals
Rate No. of Recruits Direct Competitors Indirect Competitors
2007 48% 280 29% 38%
2006 58 378 31 41
2005 34 316 30 40
2004 40 459 30 45
2003 42 501 33 41

PERCENT CHANGE IN BASE FORCE

Milligan Pharmaceuticals Direct Competitors Indirect Competitors
2007 −6% −1% −1%
2006 −11 −2 2
2005 −31 −3 1
2004 −2 1 9
2003 −2 1 6

TURNOVER RATE
2007 36% 24% 28%
2006 44 24 28
2005 48 23 28
2004 30 23 25
2003 31 24 25

DISTRIBUTION OF SALES AGENTS BY YEARS OF SERVICE

Years of Service
1 35% 50% 53%
2 15 14 15
3 10 9 9
4 5 7 7
5+ 35 46 40

additional questions you have as you proceed with your ineffective sale force means less business, less growth,
planning,” Tony concluded. and less profits. As a result, we have fewer resources
“Thank you, Jocelyn and Tony. We appreciate all to innovate and develop new competitive drugs. It is
the assistance you have provided us. We’ll let you go a vicious cycle. . . . I am sure, Candice, that you have
now and continue with our discussion. But we’ll be in something to say.”
touch if we need more information.” “I absolutely agree,” Candice joined in. “We are
aware that our MRs and managers are very important
to the whole system. Our core base of customers, physi-
OPTIONS cians and pharmacists, has been acquired through this
“Well, I think we would all agree that all these findings channel. We have many long-term, loyal managers. As
were certainly very sobering.” Chris began, “Obvi- you all know, my father worked here too and helped
ously, there is a lot of work to be done. The Board oversee the agencies that recruited the managers and
and Mark Reid expect us to achieve substantial growth MRs. The appropriate strategy at this point would be
and profitability within a few years. The target is to to improve the quality of new recruits, provide bet-
grow earnings per share by 10 percent per annum and ter training, and enhance their loyalty and commitment
achieve above average returns on capital. Katrina, what to selling our products. If we can do these things,
do you think our strategy should be?” we will grow faster and there will be an increase in
“Chris, at this point, we need a change in our mar- profitability.”
keting efforts. We have been focused on using MRs to “I second that, Candice,” Kim agreed, “but as we
sell our products, but there seems to be some clarifica- look to the future I think we need to make more dras-
tion needed of what we expect from them. Having an tic changes. The report very clearly shows that the
430 CASES ANALYSIS

independent MRs are not as productive as we would same drug to a physician or pharmacist! However, I
like. I propose a new idea. We should contract with also know the MRs don’t have enough of an incentive
the best of the 200 managers to sell exclusively for to be loyal to our products. I am also worried about
us. In other words, we should consider hiring the top the lack of control we currently have over what they
managers to become exclusive Milligan sales repre- sell and over the quality of their work with physicians.
sentatives, which is something we’ve never had. Also, Something needs to be changed.”
since we will be hiring experienced people, it would “Chris, you asked about various options,” Katrina
provide us dedicated reps who would make an imme- continued. “I guess this discussion highlights that both
diate impact on our bottom line. We would continue of the options, maintaining status quo or making the
with our current strategy of using MRs to sell our changes Kim suggested, carry concerns that we will
products, but we supplement this effort with enough have to address. A final growth option is acquisition
of our dedicated reps to cover the largest markets. of some other small drug company. We definitely have
This would ensure that we have adequate market cov-
the financial strength to do that, but even then we are
erage. Instead of using all twenty regional directors in
going to have to address the issue of how we distribute,
the oversight and recruiting capacity as we do now,
how we sell our products to our customers.”
we could outsource the recruiting function to indepen-
“Yes, Katrina, distribution is the primary issue,”
dent marketing organizations and have the directors
oversee the managers. We could provide the directors Chris responded. “We would all agree that before mak-
with an override commission on sales made in their ing a decision, we will have to deal with a number of
territory.” issues. Here’s what I would like you all to do. I’d
“Candice, I know you used this kind of system at like each of you to individually analyze our situation
LifeCare, but wouldn’t this be a radical transition for and develop recommendations as to how we should
Milligan?” Katrina responded, “My experience makes proceed. We could all meet in two weeks with your
me feel that the MRs would be terribly threatened. presentations. I will check my calendar and send you
And imagine the problems that might arise if our man- all an e-mail to confirm the specific time and venue for
agers run into the independent MR trying to sell the our discussions.”

NATIONAL MUTUAL FUNDS:

CASE 16 RETAIL SERVICES DIVISION

H
arry Smallwood, president of National that the stock market would bounce back in 2002. So
Mutual Funds (NMF) Retail Services, pon- instead of laying off people, as many competitors had
dered the future of his department and operat- done, senior executives chose to invest in the com-
ing unit. NMF had spent most of the 1990s building its pany’s future. One directive was to reorganize the call
brokerage stock trading business to accompany its core centers in the Retail Services Division in an effort to
mutual fund business. However, because of the market grow its asset base in the face of a tough market.
slowdown of 2001, trading volume at its call centers The reorganization called for traders, people responsi-
had substantially slowed and profit margins were being ble for placing the more complex transactions, to take
squeezed. on more of a selling function by proactively calling
Top management at NMF responded to this busi- current clients to determine their interest in purchasing
ness challenge with a set of directives. NMF had built a additional stock instruments. If they detected suffi-
culture of strong commitment to its people and believed cient buying interest, the client would be forwarded

Brian Robb, Professor Daniel Goebel, and Professor William Cron prepared this case as the basis for class discussion rather than to illustrate
either effective or ineffective handling of an administrative situation. Certain names and numbers have been disguised. Copyright © by Daniel
Goebel and William L. Cron.
NATIONAL MUTUAL FUNDS: RETAIL SERVICES DIVISION 431

to sales representatives. To generate increased busi- the information, and attention to the needs of individual
ness, it would be very important that the clients were investors.
“hot” prospects for an immediate selling effort. This Mutual funds allow individuals to buy shares in a
change in the trader’s job description would require fund, which a fund manager in turn invests in various
more interaction and cooperation between traders and types of securities. This allows individual investors to
sales representatives at NMF’s call centers. diversify their risk across a number of securities with-
Smallwood had just come from a planning meet- out spending the time to investigate individual stocks.
ing with his vice presidents. It was obvious from While the Massachusetts Investors Trust introduced the
the meeting that there were a lot of issues involved first modern mutual fund in March 1924, mutual funds
in implementing the reorganization directive. Training really began to grow in popularity in the 1940s and
and retraining would be needed. Team building and 1950s. In 1940, there were fewer than 80 funds with
change management would be critical. The success of total assets of $500 million. Twenty years later, there
the program would depend on a smooth handoff of the were 160 funds with $17 billion in assets. Today there
selling process between traders and sales representa- are more mutual funds available than individual stocks,
tives. and fund assets exceed $4 trillion.1 A typical sales
It was also clear from the meeting that the reor- charge, or load, on a mutual fund transaction could
ganization would be an emotionally charged situation. be anywhere from 0 to 7.0 percent of the amount
Traders would be concerned about being subservient invested. This is a one-time charge either when a fund
to the salespeople. Salespeople would be concerned is purchased or sold, depending on the type of load.
about traders becoming too involved in the selling In addition to this one-time load, mutual funds also
process and potentially costing them sales and, more carry a management fee, which is typically a 0.5 to
important, bonus money. In short, Smallwood knew 1.5 percent charge on the entire assets of the mutual
the program for implementing the reorganization direc- fund, usually assessed yearly. While investors directly
tive would need to foster coordination, trust, and team see loads that are charged, they don’t see management
spirit. To add more pressure, Smallwood’s management fees because they are incorporated into the share price.
team needed to design and implement a successful reor- Equity funds were particularly profitable as most of
ganization plan within two months. One thing of which these funds carry a 1 percent management fee. There
he was now fully aware was that the whole program is a much smaller management fee on money market
would be much more involved and complex than it first funds, which generate very little profit for the invest-
appeared. ment firm. In addition to NMF, other major mutual
fund companies in the United States include Janus,
Putnam, Schwab, and Vanguard.
THE BROKERAGE SERVICE INDUSTRY One of the newest and fastest growing segments
in the financial services industry today is the discount
Brokerage service firms can be distinguished from each broker segment.2 This sector’s growth is closely tied
other based on their participation in three key industry to the development of the Internet. Investors can now
sectors: full-service trading of stocks and bonds, mutual access information and analytical tools on a variety of
funds, and discount trading. Merrill Lynch, one of the Web sites that help them make their own investment
largest financial services firms in the world, focuses decisions without the need to pay high commissions for
primarily on full-service trading of stocks and bonds. a full-service broker. As a result, broker commissions
Merrill does not offer its own line of mutual funds, range from $5 to $75. Schwab is one of the biggest
as does NMF, but makes the majority of its profits players in this arena.
from actively managing customer accounts and charg- The Internet has also led to a number of spe-
ing commissions. Commissions at Merrill run from $75 cialty boutiques in the discount trade business, such
to $150 on average because of the additional services
offered to investors. Brokers at Merrill can place dis-
cretionary trades in customer accounts, for instance, 1
Robert C. Pozen, The Mutual Fund Business (Cambridge, MA:
as market conditions dictate. The value proposition of MIT Press, 2000).
2
a full-service broker is that the extra money paid in A discount broker is referred to in the industry as a “directed bro-
ker,” meaning that he will only move money (e.g., take money one
commissions will generate higher returns because the mutual fund to another, from one stock to another, or from a cash
broker is armed with exceptional market information, account to either a mutual fund or a stock, etc.) as directed by the
the skills to understand the meaning and significance of customer.
432 CASES ANALYSIS

EXHIBIT 1 Summary of Options for Customer Financial Stability

Product/Service Description Potential Benefit
Mutual Fund An actively managed account • Reduced risk due to the
where clients pool their assets, investments being spread over
which are invested in a financial a large number of financial
vehicles depending on the vehicles
objective of the fund • Active management by an
expert
Stock Share of ownership in a company • Appreciation in value
• Dividend payouts

Bond Debt vehicle where a company • More stability than stocks

borrows from you and promises • A steady stream of interest
to pay back the amount, plus payments
interest, at some point in the
future
Insurance product Contract to pay a stated • Income to heirs
beneficiary a certain value in the • Tax benefits to the account
case of the account holder’s holder
death
Planning tools Calculators and worksheets that • Easy to use and self-paced
can help investors determine the • Valuable information on
right amount to save for major financial planning
life needs, such as college or
retirement

as E-trade and Ameritrade. In exchange for extremely 1999 alone. Some would argue that NMF is more
low commissions, less than $10 per trade in some investment than marketing focused.
cases, customers conduct trades on-line with little or Though still primarily known for its mutual funds,
no human interaction. While enormously successful in NMF has developed a strategy of diversification in an
attracting customers, these companies have found it effort to satisfy all the investment needs of its clients.
increasingly difficult to keep customers. In relying on In the words of NMF’s chairman, “NMF has shifted
technology to handle most of the business, these com- from a mutual fund company to a supermarket of
panies offer very little in the way of customer service. financial services products where investors can meet
Many customers are discovering that it is worth the a multitude of financial needs in one place.” NMF is
price to pay a little more for the opportunity to interact now fully diversified into all major market segments
when necessary with well-trained representatives. offering mutual funds, brokerage products including
stocks and bonds, insurance products, and a variety
of planning tools to help customers save for major
NATIONAL MUTUAL FUNDS life needs (see Exhibit 1). More recently, NMF has
Company Background become an important player in the discount brokerage
NMF has built an enviable track record of performance, business.
becoming one of the most important mutual fund com-
panies in the United States. It has created over 220
MARKETING PROGRAM
mutual funds. Founded in the 1940s, NMF has suc-
ceeded through its emphasis on excellence and people. NMF’s marketing program has evolved as a major
Its managers believe that how people are treated—and presence in the company. A variety of media and mar-
how they treat each other and the customer—are crit- keting tools are used to communicate to prospective
ical to their success. It has built a reputation of being customers. For instance, databases with investor infor-
unwilling to compromise on these principles. To sup- mation are purchased so that direct mail can be sent
port its people and to provide exceptional customer to prospective clients. Service offerings are tailored to
service, NMF has invested heavily in information tech- their unique investment needs based on the database
nology, having spent $1.5 billion on technology in information.
NATIONAL MUTUAL FUNDS: RETAIL SERVICES DIVISION 433

Television advertising takes up a large percentage of not receive specialized services offered to other
the advertising budget. Most of it is targeted to cable customers.
networks such as MSNBC and CNBC airing during • The frequent investor segment. These clients
shows discussing the market, such as CNBC’s Squawk trade securities often and receive discounts on
Box and CNNFN’s Market Call. The ads focus on get- trading commissions. They make up approxi-
ting prospects to call AMF to place a trade or request mately 9 percent of clients.
additional information. • The high net worth segment. These more afflu-
Technology is playing a bigger role in reaching ent clients, 17 percent of NMF’s customers, are
and communicating with prospective investors. Promo- offered personalized services such as estate plan-
tional e-mails or banner ads are sent to people who ning, tax planning, and a dedicated representative.
have recently conducted a Web search on financial ser-
vice providers. Referral programs using the Internet • The high-value segment. This segment, 22 per-
allow people who have Palm or other PDAs to receive cent of all customers, consists of very active
“push messages” consisting of promotional offers that traders, regardless of asset level. These clients
are sent via e-mail. Partnerships with pager providers, typically pay the lowest commissions and receive
such as Skytel, are creating customized quote lists that customized market information such as a monthly
can be automatically sent to clients throughout the day. newsletter that tracks individual company perfor-
One of the cornerstones of NMF’s new marketing mance.
strategy is to increase its share of customer spending
on financial services (i.e., “share of wallet”). The typ-
ical household in the United States has relationships NMF RETAIL SERVICES
with three or more financial institutions. They place The retail services division of NMF is responsible for
their money in an average of ten financial accounts, selling mutual funds and providing customer service
ranging from mutual fund investments to credit cards. to individual investors. NMF retail services is orga-
As a result, the potential lifetime value of a cus- nized into four call centers as shown in Exhibit 2.
tomer is quite high—certainly much higher than most Each call center included approximately 200 traders
broker-age houses had estimated in the past. Based on reporting to 10 trading managers and 90 sales repre-
the logic that the more relationships you have with sentatives reporting to 10 sales managers. Customers
a customer, the more secure is the relationship, firms may call a variety of 800 numbers to have financial
are adding more services to their offerings. NMF, for questions and transactions handled. For instance, a cus-
instance, added estate planning and private banking ser- tomer who wished to place a trade would speak with
vices to retain its wealthier clients. It also started pro- a phone trader. Approximately 42 percent of all trades
grams designed to encourage people to think of NMF are initiated by a phone call to a call center, while the
for all their financial and investing needs. Funds Uni- rest are conducted over the Internet. A new customer
verse, for instance, allows investors to choose among who wanted to open an account or learn more about
more than 4,400 mutual funds managed by hundreds mutual funds would speak with a sales representative.
of different companies. This program has the added Typical of the questions people might ask included:
advantage for customers of consolidating their funds What is the yield on your money-market fund? What is
statements. The average mutual fund investor owns five the average annual return on your most popular equity
funds; this program allows them to consolidate their growth fund? What is the best vehicle for me to invest
statements to one account. Assets in this program have my IRA account in? What is the average maturity of
tripled since its inception. the bonds in your GNMA fund?
To help direct their resources and provide the best
mix of products and services to their customers, NMF
segments their customer base according to investment SALES DEPARTMENT OVERVIEW
behavior and value. Clients are identified as being in The sales department is responsible for developing and
one of four segments: retaining assets. An important part of the job is assist-
• The basic segment. This segment makes up ing current and prospective customers in determining
approximately 52 percent of NMF’s clients and the best mix of investment products to meet their own
includes less affluent customers who trade infre- unique needs. Unlike full-service brokers, however,
quently, typically two to three times a year. NMF’s sales representatives do not cold call prospec-
Because these clients are less profitable, they do tive clients. They respond to only inbound calls. A
434 CASES ANALYSIS

Harry Smallwood
President
retail services

Donald Lang Jim Schultz Phyllis Knight

Vice President Vice President Vice President
trading services administrative services sales

Trading director Trading director Trading director Trading director Sales director Sales director Sales director Sales director
Los Angeles Detroit Dallas Atlanta Los Angeles Detroit Dallas Atlanta
call center call center call center call center call center call center call center call center

10 Trading 10 Trading 10 Trading 10 Trading 10 Sales 10 Sales 10 Sales 10 Sales

managers managers managers managers managers managers managers managers

90 Sales 90 Sales 90 Sales 90 Sales

200 Traders 200 Traders 200 Traders 200 Traders
representatives representatives representatives representatives

E X H I B I T 2 NMF Retail Services

typical sales representative-client conversation is found EXHIBIT 3 Initial Interview: Sample Questions
in Appendix A.
Sales representatives are recruited by placing ads
1. Tell me about a time when you set a specific perfor-
in local papers, the Internet, and an extensive referral mance goal for yourself? What was the goal, and what
program. A typical applicant is a recent college gradu- steps did you take to accomplish it?
ate looking for a start in the finance industry; however, 2. Give me an example of when you went out of your
NMF also hires many professionals looking for a career way to help a customer. Why did you go out of your
change. Usually, qualified applicants are not hard to way? What did you learn?
find, and positions are quickly filled. 3. What would you consider to be a recent major event
occurring in the financial markets? What makes this a
The initial interview is usually held over the phone. major event?
During this initial interview, candidates are assessed to
determine if they will be a good fit for NMF. Candi-
dates are asked questions that are situational in nature
and focus on their professional drive, and general cus- and traders. Following an offer of employment, an
tomer service and financial aptitudes. See Exhibit 3 for extensive background check is conducted, including
typical questions asked in the initial interview. credit and criminal checks, work history, education,
Candidates passing the first interview and judged salary history, and references.
to have the aptitude and communication skills for a New employees go through a vigorous initial train-
sales position at NMF are interviewed in person at a ing program consisting of two months of internal train-
local hotel or conference center by a manager from ing on NMF systems, products, and services. Following
the sales department. The questions asked in the sec- this, trainees are given another six weeks of training
ond interview focus on relationship-building aptitudes in preparation for their licensing exams. All employ-
(see Exhibit 4 for sample questions). ees go through this standardized training. After passing
Candidates who are successful in the second inter- the licensing exam, sales representatives receive addi-
view are asked to take an intelligence test to determine tional training during their first year of employment.
the likelihood of an applicant passing the securities They learn effective questioning strategies, followed
licensing tests required of both sales representatives by training at addressing customer objections. Toward
NATIONAL MUTUAL FUNDS: RETAIL SERVICES DIVISION 435

E X H I B I T 4 Sales Representative Candidate E X H I B I T 6 Trader Candidate Second

Second Interview: Sample Questions Interview: Sample Questions

1. Tell me about a time when a customer relationship 1. Tell me about a time when you were required to
that was important to you and your company was in gather and synthesize a large amount of information.
trouble. What did you do to resolve the issue? What Why were you gathering it? How did you synthesize
did you learn from the experience? the information?
2. Give me an example of when you were the expert 2. Would you give me an example of when you really had
in something and had to show this to someone else. to listen to someone to understand what he or she
What did you find to be the pitfalls? Assuming you was trying to tell you? Why was the person having a
were successful in communicating your knowledge of difficult time communicating their message? How did
the subject, why were you successful? you figure out his or her true concerns?
3. Please tell me about a time when you had to convince 3. Tell me about a very difficult task you had to accom-
someone to do something they didn’t know would be plish on the job or at school. What made it so difficult?
good for them to do. What was the situation? Were you How did you accomplish the task?
successful?

manager, who in turn report to the trading director. The

EXHIBIT 5 Quarterly Bonus Schedule
trading department focuses primarily on buying and
Stack in the Team Rank Quarterly Bonus selling securities. Traders are generally detail-oriented,
Top 5% $8,000
like lots of activity, prefer to develop a deep under-
Next 5% $6,500 standing of a few job tasks, and then perform those
Next 5% $4,500 tasks very well. They thrive in a fast-paced environ-
Next 10% $3,500 ment. The average trader made 50 to 70 trades a day.
Next 10% $2,500
Candidates for trading positions go through a sim-
Next 15% $1,500
Next 15% $1,000 ilar set of two interview sessions and take an intelli-
Next 15% $750 gence test to determine their likelihood of passing the
Bottom 20% $0 securities licensing test. The first interview is usually
conducted over the phone, while a trading manager
conducts the second interview in person. Questions
asked in the second interview attempt to gain a bet-
the end of the first year of employment, advanced sales ter understanding of a candidate’s attention to detail,
skills training is offered. Recruiting and training during ability to handle multiple tasks at once, and ability to
a sales representative’s first year costs NMF between listen. Sample questions from the second interview are
$42,000 and $52,000. listed in Exhibit 6.
Sales representatives are paid a base salary and a Following the standard initial training and after
quarterly bonus, based on a stack rank of the sales passing the licensing exam, all new traders receive
results posted by all the sales representatives in each additional mutual fund training and equity trading
phone center. Top representatives make up to $8,000 training. At around the end of the first year, they
in bonuses each quarter, with the lowest performing receive training on options and fixed income trad-
representatives earning no bonuses. (See Exhibit 5 for ing. During their second year, traders attend sessions
the quarterly bonus schedule.) The average salary for on helping customers make financial decisions. For
a first year salesperson is $75,000 and is anticipated to example, they learn how to help a customer who
increase 5 percent per year. wants to know the background on a company before
investing.
During a typical day, an NMF trader receives
TRADING DEPARTMENT OVERVIEW
inbound calls from clients interested in placing mutual
The trading representatives at NMF are responsible for fund, stock, bond, or option trades, or who have basic
helping customers place trades in a variety of invest- questions on investing. See Appendix B for a typical
ment vehicles. Traders are organized into teams of trader–customer conversation. Traders’ compensation
fifteen to twenty-five people who report to a trading package includes a base salary and a quarterly bonus,
436 CASES ANALYSIS

E X H I B I T 7 Bonus Payment Schedule downturn worsened in 2001, as stock trading plunged

for Trackers by 50 percent. The Nasdaq Composite index shed 27
percent of its value, and even the larger stocks of the
Stack in the Team Rank Quarterly Bonus
Standard & Poor’s 500 index declined 14 percent. With
Top 5% $2,200 earnings reports continuing to show a decline in prof-
Next 5% $1,800
its, no sign of a return to strong market growth was in
Next 5% $1,400
Next 10% $1,000 sight.
Next 10% $1,600 Many of the largest on-line brokerage and mutual
Next 15% $1,200 fund houses reacted by making severe cuts in their
Next 15% $800 labor forces as a result of the slowdown in trading.
Next 15% $400
Schwab reduced its head count in 2001 by 25 per-
Bottom 20% $0
cent. Putnam Investments in Boston terminated 4 per-
cent of its workforce in April, and Merrill eliminated
15,000 positions. Other financial giants making signif-
depending on where they rank among their peers in icant staff cuts were Morgan Stanley, Goldman Sachs
customer service skills and in efficiently placing trades. Group, and Citigroup’s Salomon Smith Barney.
The two rankings are combined to derive an overall The market slowdown had a significant impact on
performance ranking for each trader. Trading man- NMF’s profits and operations as well. NMF clients
agers monitor customer service skills during customer transferred over $5.2 billion from equity funds to less
phone calls. Rankings are based on a trader’s ability to volatile money market funds. In addition, trading and
answer questions, maintain a professional demeanor, customer call volume were down significantly in 2001
help customers solve problems, and level of courte- from forecasted levels. While the company had forecast
ousness. Trading efficiency is based on how quickly average daily trades to be 130,000 in 2001, by February
a trader places trades and how many errors are made, this average was only 68,000 per day. NMF was only
such as buying the wrong security or too many shares. receiving 64,000 phone calls per day, versus a fore-
Employees are ranked from highest to lowest based cast of 110,000 calls. Traders, used to spend their days
on their overall performance ranking. In the case of taking calls almost back-to-back, now waited up to 30
ties, the trader with the most trades is ranked highest. minutes for a customer call. Something had to be done.
A quarterly bonus is paid based on a trader’s over-
all ranking in a team. Bonuses range from $2,200 per NMF’S RESPONSE
quarter for the highest ranked traders to no bonus for
the lowest performing traders. See Exhibit 7 for the In an emergency meeting in March 2001, NMF’s top
bonus payment schedule for traders. management met to decide on their response to the
market in light of the market downturn and prospects
of continued lower volumes and activity in the mar-
A MARKET DOWNTURN
ket through 2001 and possibly into 2002. Its operating
While the stock markets enjoyed tremendous growth expenses were clearly out of line with the company’s
for most of the 1990s, late 2000 signaled a major mar- near-term revenue prospects. Having built the company
ket slowdown that worsened in the first part of 2001 on principles of commitment, continuous improvement
(see Exhibit 8). As the new economy stock-bubble of operations, and development of people, however,
burst and the old economy slowed to a crawl, $1.6 management simply did not feel that it could respond,
trillion were lost in the stock market (i.e., price times as had other securities firms, by laying off a significant
number of shares) in the last half of 2000. The number of its people.

EXHIBIT 8 Stock Market Growth and Decline

Market Indicators 1998 1999 2000 2001
Dow Jones Industrial Average % change 16% 25% −6% −7%
NASDAQ % Change 40% 86% −39% −42%
NYSE Average Daily Volume 667 800 1,061 1,166
NASDAQ Average Daily Volume 786 1,046 1,665 1,811
NATIONAL MUTUAL FUNDS: RETAIL SERVICES DIVISION 437

After a number of long and challenging meetings, belief that we are part of the solution, not the problem.
top management decided on a three-pronged response Understandably, it is very important that we deliver on
to the present difficult environment. First, merit raises the faith that has been shown in us. What do we need to
in 2001 were eliminated for employees who earned do to make this reorganization successful? What do you
more than $90,000. Second, a hiring freeze was ordered see as the key issues we need to address to put together
in nonrevenue-generating units of the company. Third, a first-rate program?
and most significant for the NMF Retail Services Divi- Donald Lang: The problem we face and the key to the suc-
sion, management decided to redirect excess human cess of this program is apparent—my traders don’t have
capacity toward revenue generation efforts. It was felt the training and support that they need to do the job that
that in this tough environment everyone should focus we’re asking of them. We’ve never had goals focusing on
on revenue generation. After all, NMF was known for bringing in revenue to the firm. They just aren’t used to
its selling and customer service; management felt that doing a job like this. Not to mention, when the economy
this was the time to rely on these competencies and to picks up and we start increasing our trading volume, I’ll
take this opportunity to develop them even further. This need to reduce the time that they spend calling on clients
approach had the further advantage, they felt, of putting so they can handle their first priority—making trades.
NMF in a position to benefit handsomely when the Harry Smallwood: Don, we’ll have to let the future take
market finally turned around. The security investment care of itself on this one. This is too important to lose
companies that had laid off people would eventually our focus on today. Donald, tell me more about what you
need to ramp up and would be in danger of missing would see as the training your traders would need to be
out on an important window of opportunity. successful.
A key element of management’s human resources Donald Lang: They will need a week of training, at least.
redirection plan called for NMF Retail Services to reor- They need to be trained in how to ask questions in order to
ganize its four retail services call centers. While not identify a potential prospect. They should also be trained
changing the reporting lines within the call centers, the in how to make a professional and informative presenta-
reorganization plan called for traders to take on more tion of our various offerings. And they should also be
of a selling function and to coordinate their activities comfortable in how to answer customer questions and
with the sales force. Traditionally, salespeople were objections. We already have a good program in place for
responsible for assisting existing customers in deter- the sales representatives, so we should just take that and
mining the best mix of investment products to meet condense it into something that will work for us.
their own unique needs, while traders were responsible Phyllis Knight: I agree with Donald that the training can
for assisting customers who phoned in to the call center be compressed into a week, but you have to be careful
in placing more complex transactions. Under the reor- not to overload the program and the traders with infor-
ganization plan, traders would be asked to proactively mation. For instance, I don’t think that they need training
call on current clients instead of just receiving inbound in presentation and objection handling skills. What we
calls. Sales representatives would be expected to close need to do is let the experts do what they do best. When
the sale. NMF Retail Services’ management team was the traders call a client, they can transfer them to a sales
asked to design a plan for executing the reorganiza- representative who is better trained to answer questions
tion and was expected to implement the plan by the and is better able to attempt to bring in additional assets.
beginning of the third quarter of 2001. We should form a partnership between the trading and
sales departments. We need to work as allies to reach our
PLANNING MEETING revenue goals, instead of competing with each other.
Jim Schultz: I agree with Phyllis. We already spend three
In late March 2001, Harry Smallwood called a meeting
weeks training our sales representatives on how to bring
with Phyllis Knight, Vice President of Sales, Donald
more money to NMF; we shouldn’t have to do the same
Lang, Vice President of Trading, and Jim Schultz, Vice
thing for the traders.
President of Administrative Services, to begin develop-
Donald Lang: I don’t think I like where this is going.
ing a plan for implementing the reorganization direc-
Exactly what role would you have my traders play in
tive for Retail Services.
this process? Would they simply make a lot of telephone
Harry Smallwood: We have been given the opportunity to calls and when they find someone willing to talk to them,
make a real difference at NMF. Most important, manage- tell the prospect, “I’m going to pass you on to someone
ment has not taken the easy way out and asked us to cut who knows what they’re talking about. Bye.”? That isn’t
head count in this division. Underlying this decision is a a partnership; it’s servitude. Who would look forward to a
438 CASES ANALYSIS

Monday morning in which this would be the highlight of have a solid plan on how to handle these contingencies in
the day? If you think today’s 25 percent is a high turnover the future, we’re going to be searching for answers every
rate among first-year traders, wait till you see what hap- time our business slows down. What we need to do is
pens if this is what we ask traders to do with half of their evaluate our entire program.
time. Jim Schultz: My department is ready to help in any way we
Harry Smallwood: Donald, no one is trying to crowd your can. I think the training and selection aspects are going to
people out. However, you do raise some important issues. be very important to the success of this program. At the
First, at what point in the selling process should the hand- same time, Harry, I think that we need to come up with a
off take place between traders and sales? I think this is program to promote teamwork between sales and traders.
absolutely critical to the program’s success and funda- In other words, how do we get them to emotionally feel
mental to everything else we do in this program. Don, I like a team? This has to come from above. It has to come
want you and Phyllis to put your heads together and come from you.
up with a clear resolution to this issue. You should give Harry Smallwood: Well. Looks like we have our work cut
this priority one. out for us. You’ve all raised some excellent points. Don-
The second issue that you raise is also a good ald, will you and Joe get together to lay out a plan for
one—turnover. We will undoubtedly be hiring traders due changes in the selection and training of new traders? You
to attrition. Should this change our recruiting and selection should also come up with a plan for the ongoing training
processes? What do you think, Jim? and development of veteran traders.
Jim Schultz: We will need to start determining if the traders Phyllis, you and Donald need to get together to
we hire will be good at selling as well as trading. I don’t develop a plan for the handoff between traders and sales.
think this means we’ll need to change our recruiting of By the end of the week I need a memo outlining the
candidates since we are already able to hire salespeople handoff between traders and sales. It needs to be spe-
successfully. However, it will be harder to find someone cific. You will need to include enough implementation
who is really good at both trading and sales. I’ve already details to help me make a decision on your plan. Whatever
talked with some of my people, and I’m sure we can draw you come up with has to work for all parties concerned,
up some new questions to ask during the second interview and most important, must get us to our revenue target of
for trader candidates. $400 million. This is critical. It’s the centerpiece of the
Harry Smallwood: Jim, will you and Donald get together program.
and lay out a plan for the changes you see in our selection Jim, you and I need to set down and come up with
process as a result of this reorganization? a program to minimize resistance to this program and to
Let’s talk about how much resistance there will be promote teamwork within the call centers. We want to get
to this change. I’m not naı̈ve enough to think that every- everyone behind this program, 100 percent.
one will embrace the program because it is the right thing There is some real time pressure here. We need to
to do. Just how much pushback do you feel we will get? implement the reorganization this quarter. That gives us
Donald Lang: I think it all depends. Everyone wants to be less than two months to put it in place. At the same time,
productive and successful. With the slowdown in trading we have to do this right. Our jobs depend on it.
calls, the job is getting real boring for some of my peo-
ple, and they are looking for ways to fill their day. If this
is seen as a challenge, a growth opportunity, and one in APPENDIX A
which they are equipped with the tools to succeed, then
I think our best people will jump on board. If they are Sales Representative–Customer
having the phone slammed in their faces all the time and Conversation
see themselves as gofers for the sales boys, then you are
going to lose some very, very good people. Worse yet, Salesperson: “Thank you for calling NMF; this is Pat, how
you may lose the motivation and commitment of people may I help you?”
who stay here. We all know these are tough times, but it Customer: “Hi, I saw your ad on the news and I was won-
really depends on the program we put together. dering if I could get some information on your mutual
Phyllis Knight: I think the main issue we have here funds.”
is how to get the entire company more focused on Salesperson: “Sure—we can certainly help you with that. Let
selling—marketing, trading, human resources, everybody. me ask you, do you currently have an account with us?”
The competition is not going to go away, and I’m sure Customer: “Uh, no, not currently. But my wife used to invest
this won’t be the last downturn in the market. Unless we with you through her job.”
NATIONAL MUTUAL FUNDS: RETAIL SERVICES DIVISION 439

Salesperson: “OK—no problem. Why don’t you let me get A dialogue about the Web site follows, with instruc-
a little information so I can get you exactly what you’re tions on how to download an application for a new
looking for? To start with, can I get your name?” account.
Customer: “This is Leonard Cross. I’m calling from
Salesperson: “Now that we’ve picked out a pretty good plan
Orlando.”
for your daughter, you have an important decision to make
Salesperson: “Great. Sounds like a nice place to live this
regarding how to invest her savings. As you might know,
time of year. Let me ask you—which advertisement did
we offer pretty much everything under the sun to invest in,
you see us on?”
including stocks, bonds, and money market instruments.
Customer: “It was the one with the kid who is going off to
There are a couple of different ways to invest, so tell me
college for the first time.”
a little about your investing experience in the past.”
Salesperson: “Yes, that one talks about some of the new col-
Customer: “Well, I know a little bit. My IRAs are currently
lege savings plans that were passed into law last year. The
in some stock mutual funds, but they haven’t grown much
new 529 plans must be what you’re calling about.”
in the last few years”
Customer: “Yeah, I’ve got an 8-year-old daughter who I need
Salesperson: “Its been a rough few years for the market, but
to start saving for, but I really want to find out about your
the good news is we can help you make the most out of
funds as well.”
volatile markets. Of course, the most important thing is
Salesperson: “No problem. Why don’t we determine which
for you to be comfortable with your investments. Do you
plan best fits your needs first; then I can tell you about
like the idea of mutual funds where a professional man-
some of the investment vehicles you can think about.
ages the fund assets, or would you also like to get some
First of all, are you just thinking about investing for your
exposure to individual stocks, like IBM or AT&T?
daughter’s college, or would you also like to discuss some
of your other goals?” The customer and salesperson continue to discuss
Customer: “Right now I just want to talk about my daugh- investment vehicles based on the customer’s experience
ter since I’m getting a late start. I do have some other and risk tolerance.
small accounts, mostly IRAs, that are with a few other
Salesperson: “I’m glad you like the idea of mutual funds.
places.”
They really are easy and take a lot of worry out of the
Salesperson: “OK, we can start with your daughter and then
investing process. Why don’t we discuss which funds
see if we can help you with your other investments as
would be appropriate for your daughter. Tell me, how
well. I know you may not have a lot of time to discuss
much are you interested in putting away each year, and
that today, but keep in mind we’re here until 10:00 p.m.
what do you think her college expenses will be?
your time, or I can always call you back tomorrow or the
next day. But to start out with, there are a few ways you The customer describes how much he is able to put
can save for her education. Not too long ago, most par- away and also what he expects his daughter’s expenses
ents just put money in the bank and earned a small amount to be. They also discuss the mutual funds that have the
of interest. But with skyrocketing higher education costs, potential to generate the type of returns the customer
some other options like UTMAs and the new 529 plans would need to meet with aggressive college savings
are becoming pretty popular. The UTMA account lets you goals.
put away money that is taxed at your daughter’s tax rate Salesperson: “So it sounds like a value mutual fund and a
in most cases, so you don’t need to worry about paying few index funds are what you would be most comfortable
too much in taxes. However, the nice thing about the new with for your daughter’s new 529 plan. I know that we’ve
529 plans is that money grows tax-free, so you can really gone over a lot of information, so let me stop and see if
save a lot on taxes over ten years.” you have any questions or if I can clear anything up for
Customer: “I heard that from the ad. Can you send me any- you.”
thing on that so I can read it over?”
Salesperson: “Sure—I can mail you some information, but The salesperson explains some additional details
you can also take a look at our Web site which has a ton about how mutual funds work and how long it would
of information on 529s, including some graphs that show take to set the account up.
the difference these plans can make over a simple savings Salesperson: “Sounds like you have made a great start into
account. Do you have Web access, or would you prefer making sure your daughter can attend the right school. I
me to mail you some information?” think you’ve made a good decision and have picked out
Customer: “I’m actually on your Web site right now. Can some great investments to get her on her way. Now that
you show me where to go? we’ve had a chance to discuss your daughter’s account,
440 CASES ANALYSIS

tell me if you’ve been happy with the performance of Customer: “Sounds OK to me. I appreciate your taking the
your IRAs.” time to talk to me.”
Salesperson: “No problem, Mr. Cross; we’re here to help.
The customer discusses that he doesn’t look at his Just call us back if you have any problems downloading
IRAs much because he has never been serious saving the applications. Thanks for calling and have a great day.”
for retirement up to this point. However, after starting
a new, higher paying job, he is ready to start putting
more away for the future. The salesperson and customer APPENDIX B TRADER-CUSTOMER CONVERSATION
discuss the benefits of an NMF IRA account, including
the simplicity of having everything on one, easy to read Trader: “Thank you for calling NMF. This is Chris, how can
statement. I help you today?
Customer: “Hi—can you tell me what the market is at right
Customer: “I appreciate the information, but I think I’ll just now?”
keep my IRAs where they are. I don’t like the idea of Trader: “No problem. The Dow is currently down 56 for the
having all my eggs in one basket.” day so far.”
Salesperson: “I don’t blame you a bit. In fact, I hear that Customer: “Hmmmm—not really headed in the right direc-
from a lot of customers. Just for my information, what tion, is it?”
exactly about having all your investments in one place Trader: “Well, I guess that depends on how you look at it.
don’t you like?” Are you interested in moving some of your investments
Customer: “Well, if NMF goes under, I don’t want to lose around today?”
everything. In fact, my accountant told me that I should Customer: “Well, I was thinking about getting out of my
never keep everything in one place.” XYZ stock. I bought it a few years ago and it just hasn’t
Salesperson: “Good point. However, did you know that the done much for me. But I don’t want to sell it for a loss
strength of NMF has nothing to do with whether your when the market’s down.”
money is safe? Your assets are required to be kept in a Trader: “I can understand that. Let’s take a look at what your
separate trust under the name of the fund. In fact, the stock is doing today. Do you have your account number
government even insures your accounts up to $500,000, handy?”
and we even have separate insurance bonds on our mutual Customer: “Yes—it’s 123-456-789.”
funds that protect them. Of course, this doesn’t guarantee Trader: “Great. And if I can just get another piece of infor-
against the performance of the funds, just the safety of mation from you—can you confirm your mailing address
your shares.” for me?”
Customer: “So, you’re telling me that I can’t lose money Customer: “Sure—it’s 123 Main Street, Pittsburg, PA.”
with NMF?” Trader: “Great—and who am I speaking with?”
Salesperson: “Well, that would be great, but you could call Customer: “This is Robert Montgomery.”
any investment company and none of them would be Trader: “Thanks, Mr. Montgomery. Looks like XYZ is cur-
able to guarantee that. You can lose value in addition to rently at $25.06 per share, down right at $.24 from yes-
gain value, depending on the performance of the partic- terday’s close.”
ular fund you chose. However, you are protected against Customer: “That’s what I was afraid of. Can you tell me
fraudulent activity.” what I paid for that originally?”
Customer: “I guess I didn’t know that, but I would like some- Trader: “Sure—looks like you only made one purchase of
thing in writing. Can I also get that off your Web site?” XYZ and you paid $23.96 for 25 shares, so you’ve actu-
Salesperson: “Sure—in fact, you’ll find it in the same place ally made a little money on it. Tell me—were you plan-
as the 529 application for your daughter. I know that ning on using this for anything?”
we’ve gone over a lot of information today. Let me just Customer: “Not really—I just play around a little with this
confirm our plan so far: You’re downloading the appli- and may use it to help with another down payment on our
cation for your daughter’s 529 plan and your own IRA next house in about five years.”
to transfer in. You’ll also find information on the protec- Trader: “I see. Well, if you want, you can place a limit order
tion of your account in the same kit. After you fill it out, where you specify a price that you want to sell XYZ for,
you’ll attach your check and mail it to us at the address if you want to wait and not sell it until you’ve locked in
shown on the application. I’ll also check in with you in a good enough profit. The only problem is, if the market
a day or two to see if you have any problems filling out and possibly your stock continue to go down, you may
the paperwork. Does that sound OK?” want to think about locking in the small profit you made
POWER AND MOTION INDUSTRIAL SUPPLY 441

on it already. Do you feel like XYZ may go lower than will have all the details, or you can call back after market
what you paid for it?” close to get the details. In fact, if you want, you can also
Customer: “I wish I knew. I’ve just heard so many reports look it up yourself on our Web site.”
that we may not have hit the worst part yet. I guess I Customer: “Yeah—I’ve done that before. I’ll just take a look
should go ahead and sell it today and worry about what at my account on the Web later on tonight.”
to do with the money later.” Trader: “Sounds good, Mr. Montgomery. By the way, did
Trader: “No problem. I can put in a market order for you, you know that you can make stock trades over the Web
which basically means you’ll get the next available price as well?”
today. It’s no guarantee that you’ll get the $25.06 I quoted Customer: “Yeah—I know that it’s pretty easy and the com-
you, but it should be close. In fact, just looking at it again, missions are even a little lower, I just prefer talking to
looks like XYZ is down to $25.03 per share right now.” someone when I trade.”
Customer: “Well, why don’t you go ahead and sell it with a Trader: “I understand. While I have you, are there any other
market order. I guess I should be happy that I made any transactions I can handle for you today?”
money off of it.” Customer: “No, just give me one more quote. What’s ABC
Trader: “No problem. Let me just confirm this for you. I’m company at right now?”
going to sell all shares, or 25 total, of your XYZ stock Trader: “Looks like ABC is currently at $56.36, down $1.29
at the market today. The total commission on this will be from yesterday’s close.”
$27.50, and will be deducted from the proceeds. Is this Customer: “Great. I think that covers everything for me
correct?” today.”
Customer: “Yes—let’s go ahead and process it.” Trader: “Well, thanks for calling in, and we appreciate your
Trader: “OK—I went ahead and put that in. You should be business, Mr. Montgomery. Have a nice day.”
receiving a confirmation within four to six days, which

CASE 17 POWER AND MOTION INDUSTRIAL SUPPLY

I
t was 7:00 on Sunday evening when Hal Maybee There were many manufacturers in Ontario and Que-
returned to his office. He had spent the afternoon bec that served central Canada with their own sales
golfing with one of his customers, and he now forces and used distributors for the east and west coasts
had to decide what he was going to tell the head office due to the distances from their head offices and the
on Monday morning with regard to new salaries for geographical dispersion of customers in those regions.
the sales staff at his branch. Although Power and Motion had sales agreements with
Hal had just been appointed Atlantic Region Dis- over 400 North American manufacturers, only about
trict Manager for one of Canada’s largest industrial 100 manufacturers were involved in 80 percent of the
distributors. His appointment was made only two sales.
weeks before, following the sudden death of Fergie It was a complete surprise to Hal when he was pro-
McDonald, who, at 48 years old, had been in charge moted, and he knew there were people at the branch
of the company’s most profitable branch. About 70 per- who thought they deserved it more. Exhibit 1 shows the
cent of the sales in Atlantic Canada, including the four performance evaluations that Fergie had completed on
most profitable product lines, were for manufacturers the six salespeople just before he died. Head office had
that the company did not represent on a national basis. intended to send only five forms to Hal, but one of the

This case was prepared by H. F. MacKenzie of Memorial University of Newfoundland, Canada. The case was prepared as a basis for class
discussion and is not intended to illustrate effective or ineffective handling of a management situation. All names in the case have been disguised.
Copyright © 1994 by H. F. MacKenzie, Memorial University of Newfoundland, Faculty of Business Administration, St. John’s, Newfoundland
A1B 3×5. Reproduced by permission.
442 CASES ANALYSIS

EXHIBIT 1 Evaluation of Salespeople

Rating
Far Worse About Far Better
Salesperson Evaluation Criteria Than Average Average Than Average
Dave Edison Attitude 1 2 3 4 
5 6 7
Appearance and manner 1 2 3 4 5 6 7
Selling skills 1 2 3 4 5 6 7
Product knowledge 1 2 3 
4 5 6 7
Time management 1 2 3 
4 5 6 7
Customer goodwill 1 2 3 
4 5 6 7
Expense/budget 1 2 3 
4 5 6 7
New accounts opened 1 2 3 
4 5 6 7
Sales calls/quota 1 2 3 
4 5 6 7
Sales/quota 1 2 3 4 
5 6 7
Sales volume 1 2 3 
4 5 6 7
Sales growth 1 2 3 4 
5 6 7
Contribution margin 1 2 3 4 5 6 7
Total score: 61
Comments: Current salary $52,000. Territory is Cape Breton Island and the city of Moncton, N.B. Needs more product knowledge
but has learned a lot since hired. A bit aggressive, but he has developed some excellent new accounts through attention to
detail and follow-up support.

Arne Olsen Attitude 1 2 

3 4 5 6 7
Appearance and manner 1 2 
3 4 5 6 7
Selling skills 1 2 
3 4 5 6 7
Product knowledge 1 2 3 
4 5 6 7
Time management 1 2 
3 4 5 6 7
Customer goodwill 1 2 
3 4 5 6 7
Expense/budget 1 2 3 4 
5 6 7
New accounts opened 1 2 
3 4 5 6 7
Sales calls/quota 1 2 3 4 5 
6 7
Sales/quota 1 2 
3 4 5 6 7
Sales volume 1 2 3 
4 5 6 7
Sales growth 1 2 
3 4 5 6 7
Contribution margin 1 2 
3 4 5 6 7
Total score: 46
Comments: Current salary $44,500. Has been calling regularly on his existing accounts in southern New Brunswick (except
Moncton). Although he has increased the number of sales calls, as agreed at our last review, sales have not gone up accordingly.
Some concern with product knowledge. Arne knows all of our major product lines very well, but has not shown much effort to
learn about many of the new lines we have added that may become our best product lines in the future. Further concern with
his contribution margin. This is the fourth year in a row that it has dropped, although it is almost the same as last year.

Hal Maybee Attitude 1 2 3 4 

5 6 7
Appearance and manner 1 2 3 
4 5 6 7
Selling skills 1 2 3 
4 5 6 7
Product knowledge 1 2 3 4 
5 6 7
Time management 1 2 3 4 5 
6 7
Customer goodwill 1 2 3 4 5 
6 7
Expense/budget 1 2 3 
4 5 6 7
New accounts opened 1 
2 3 4 5 6 7
Sales calls/quota 1 2 3 
4 5 6 7
Sales/quota 1 2 3 4 
5 6 7
Sales volume 1 
2 3 4 5 6 7
Sales growth 1 2 
3 4 5 6 7
Contribution margin 1 
2 3 4 5 6 7
Total score: 52
POWER AND MOTION INDUSTRIAL SUPPLY 443

EXHIBIT 1 (continued)
Rating
Far Worse About Far Better
Salesperson Evaluation Criteria Than Average Average Than Average
Comments: Current salary $38,500. Although still the Office Manager, Hal has taken over Newfoundland as a territory and
travels there four times a year. Hal also travels to northern New Brunswick with me occasionally due to his expert product
knowledge on electric and pneumatic products, which we sell to the mines and pulp mills in the two areas. Hal is very focused
and successful with the big sales but needs to develop knowledge of and interest in some of the lower sales volume, less
technical products, as they are generally higher-margin items. Hal has a lot of respect in the office and our efficiency has
improved greatly, as has the general work atmosphere within the office.

Tanya Burt Attitude 1 2 3 

4 5 6 7
Appearance and manner 1 2 3 
4 5 6 7
Selling skills 1 2 3 4 
5 6 7
Product knowledge 1 2 
3 4 5 6 7
Time management 1 2 3 4 
5 6 7
Customer goodwill 1 2 3 4 
5 6 7
Expense/budget 1 2 3 
4 5 6 7
New accounts opened 1 2 3 4 
5 6 7
Sales calls/quota 1 2 3 4 
5 6 7
Sales/quota 1 2 3 4 
5 6 7
Sales volume 1 2 3 
4 5 6 7
Sales growth 1 2 3 4 
5 6 7
Contribution margin 1 2 3 4 
5 6 7
Total score: 59
Comments: Current salary $36,000. Very impressed with her performance. Has good knowledge of product pricing and sourcing
but needs to learn more about product applications. Tanya sells mainly maintenance and operating supplies, but she has a
number of accounts that buy large annual volumes, as her territory is the Halifax-Dartmouth area surrounding our warehouse.
Tanya is dedicated and dependable. She has opened many new accounts for us, and I predict good success for her as she
continues to develop her knowledge and selling skills.

Jim Stanley Attitude 1 2 

3 4 5 6 7
Appearance and manner 1 2 
3 4 5 6 7
Selling skills 1 2 
3 4 5 6 7
Product knowledge 1 2 3 
4 5 6 7
Time management 1 
2 3 4 5 6 7
Customer goodwill 1 2 
3 4 5 6 7
Expense/budget 1 2 
3 4 5 6 7
New accounts opened 1 
2 3 4 5 6 7
Sales calls/quota 1 2 3 
4 5 6 7
Sales/quota 1 2 3 4 
5 6 7
Sales volume 1 2 3 
4 5 6 7
Sales growth 1 2 3 4 
5 6 7
Contribution margin 1 2 3 4 
5 6 7
Total score: 46
Comments: Current salary $42,000. Jim seems to be performing quite well, but there is concern with his behavior. I hope that
a salary increase and some direction from me will improve his performance next year. He has been making some suggestions
that he might like to move back to office management because everyone thinks I will be promoting Hal to full-time sales and
letting him take over my territory as well as Newfoundland. I really do not want Jim back in the office, and I think he should
be a good salesperson. His sales and contribution margin are good, but part of his sales increase this year came from a new
customer that has a manufacturing plant in his region but actually buys from an office located in Tanya’s territory. Tanya and
Jim have agreed to split the credit for the sales, as Tanya must do the selling but Jim has to service the account.

Buck Thompson Attitude 1 2 3 

4 5 6 7
Appearance and manner 1 2 3 
4 5 6 7
Selling skills 1 2 3 4 
5 6 7
Product knowledge 1 2 3 4 5 
6 7
Time management 1 2 3 
4 5 6 7
Customer goodwill 1 2 3 
4 5 6 7
444 CASES ANALYSIS

EXHIBIT 1 (Continued)
Rating
Far Worse About Far Better
Salesperson Evaluation Criteria Than Average Average Than Average
Expense/budget 1 2 
3 4 5 6 7
New accounts opened 1 
2 3 4 5 6 7
Sales calls/quota 1 2 
3 4 5 6 7
Sales/quota 1 2 3 
4 5 6 7
Sales volume 1 2 3 
4 5 6 7
Sales growth 1 2 3 
4 5 6 7
Contribution margin 1 2 3 
4 5 6 7
Total score: 51
Comments: Current salary $49,000. Sells in Pictou Country, N.S., where we have a very established customer base and a
variety of industries. Buck knows all of his customers very well, as he has lived in the area all of his life. He has very good
selling skills and product knowledge and has been the main reason we have done so well in his territory.

secretaries mistakenly included Fergie’s evaluation of had grown to include seven people. He was very dis-
Hal as well. appointed when the head office gave the position to
Nearly three weeks previously, Fergie and Hal were Fergie, as he had no experience other than sales.
making some joint calls on some pump mills in north- Within a year, Jim decided he wanted to get into
ern New Brunswick, the territory that Fergie kept for sales. He was finally resigned to the fact that office
himself, even though head office wanted him to stop management was a dead-end job, and the only possi-
selling and spend more time on sales administration. bility for advancement was through sales. Now, after
During the trip, Fergie told Hal that he was given five years, Jim was not performing as well as he should.
6 percent of the total sales staff salary to be divided In fact, he hated selling and spent an increasing amount
among them for the coming year. This was the custom- of time drinking while away from home. He hinted that
ary way of giving salary increases at the branches, as he wanted to get back into the office. However, when
it gave the head office the discretion to decide the total these rumors started to spread, the staff let it be known
increase in the salary expense, but it gave the district that they did not want to work under Jim again if there
managers responsibility for allocating salary increases. were any alternatives.
Fergie was told that nationally, sales increases would Fergie was thinking about giving Jim a good salary
average about 3 percent, but his branch was among increase. First, it might make him appreciate his job
the lowest paid in the company and had been the best more, and may be he would put more effort into sell-
performing branch for several years. ing. Second, it would make the position more attractive
Hal did not want to express his opinions, as he knew than a possible return to the office, as he would not
he and Fergie would disagree. However, he did allow want to take a tremendous salary cut.
Fergie to express his own thoughts on the staff. There The other problem was Arne Olsen, the other senior
were two salespeople that Fergie had a real problem salesperson. As the territory developed quickly, the
with. He viewed Jim Stanley as his biggest problem. branch hired a secretary just after Fergie was hired.
Jim actually had seniority at the branch. He had been A month later, a warehouseman was hired and Jim
hired, as shipper, order desk salesperson, and secretary was promoted to office manager. Jim immediately hired
when the branch was only large enough to support one Hal Maybee as an order desk salesperson. Within a
person other than Bob Laird, the first salesperson the year, another salesperson, Arne, was hired, along with
company had in Atlantic Canada. Bob and Jim oper- a second secretary. The branch growth slowed but was
ated the branch for almost two years when Bob decided steady from that point on. Arne was always an average
to hire Fergie as a salesperson to help develop the ter- salesperson. He never really had much motivation to
ritory. When Bob retired, Jim thought he would get perform, but he always did whatever he had to do, so
the position as District Manager, as he had seniority, that he was never in any serious trouble as far as his
and he had experience with all aspects of the business job was concerned. Lately, he was starting to slip a bit,
including managing the office and warehouse, which and rumor had it that he was having at least one affair.
QUADO SYSTEMS GROUP 445

He also recently bought a Mazda Miata that he drove Buck Thompson had a very solid, established terri-
on weekends, as he was not allowed to drive anything tory. He needed little direction, as he was doing most
but the company car through the work week. things very well. Fergie was a bit concerned that he
Dave Edison was with the company for just under was not making enough sales calls, but he certainly
one year. If he had had a few more years with the com- was performing well.
pany, Hal knew he would have probably been the new As Hal reviewed the performance evaluations, he
District Manager. He came to the company from the agreed that Fergie had been very thorough and accurate
life insurance industry, and rumor had it that he was in his assessment of each of the individuals. Hal won-
slated for a national sales manager position within the dered about the amount of salary increase he should
next year, as the company was rumored to be taking give to each person. While he had to make this decision
on a new line of capital equipment from Europe that immediately, Hal realized there were other important
would be sold nationally, but would have one person
decisions he would have to make soon. He recognized
at head office responsible for national sales.
some of the problems Fergie had trying to decide salary
Tanya Burt was also in sales for only a year. She
increases, and these were more important for Hal, as he
had been hired as a secretary, but it soon became appar-
had to get the support of the sales staff before he could
ent that she had exceptional telephone skills. She was
promoted to order desk salesperson within a year, and hope to overcome some of these problems. He also
three years later, she requested and was given an out- had to start thinking about hiring another salesperson
side sales territory. There was some concern with her to cover Newfoundland and northern New Brunswick,
product knowledge but no concern with her attitude or as the head office was determined that he give up
sales ability. Tanya was the first and only woman to be responsibility for all accounts in the region. He would,
promoted to one of the company’s eighty outside sales however, be allowed and encouraged to call on cus-
positions. tomers with the sales staff.

CASE 18 QUADO SYSTEMS GROUP

I
n August of 2000, Andrew Thorby, president of could successfully deliver on a project of this size with-
Quado Systems Group, was considering a sales out straining the organization and taking away potential
opportunity at Taylor Corporation, a retail chain revenue from other accounts. On the other hand, the
in North America and Canada. A meeting was sched- project was in an area, the Internet, that Quado had
uled with Taylor’s chief financial officer in one week targeted for future growth and in which they needed to
to present Quado’s proposal for the project. In two build a reputation.
weeks, Quado would make a presentation to Taylor’s The Taylor opportunity had come to the attention
entire project team outlining Quado’s approach to the of Mike Chaffin, one of Quado’s sales representatives,
project and to address any concerns the project team several months after Synectics, a large information sys-
might have. The problem is that Thorby had not yet tems consulting firm with over $1 billion in revenue,
made up his mind whether this was the right oppor- had already established its presence at Taylor. Taylor
tunity for Quado at this time. Quado had grown to wanted to design and build an Internet infrastructure
$20 million in sales last year and had set an objective to connect all of its remote stores and prospective cus-
of $25 million in revenues for 2000. Synectics, a com- tomers in order to provide online access to catalogs,
petitor of Quado, had already estimated the project at inventory, and employee certifications. The objective
$9 million. Thorby was very concerned whether Quado of this project was to allow Taylor to meet some of its

This case was prepared by Michael Chaffin of Quado Systems Group, James Boles of the Georgia State University, William L. Cron of Texas
Christian University. Copyright © by Michael Chaffin, James Boles, and William Cron.
446 CASES ANALYSIS

strategic repositioning objectives, along with reducing A number of our customers have told us that they
costs and improving customer service. have to provide parking for the school bus when the
Despite the attractive size of the project and its fit large systems integration firms show up. Even though
with several of Quado’s strengths, Thorby kept coming this frustrated many of our customers, they had several
projects that required an enormous amount of people.
back to the comment made by Alan Boyer, a project
The large systems integration firms could provide these
manager with Quado.
resources on a moment’s notice, whereas the small
With our existing customers’ demands for more from boutique systems integrators could not—Chaffin
our people, we need to focus on supporting their
The smaller firms, on the other hand, tend to attract
needs. Furthermore, the retail environment has not
been the most pleasant working environment for our top-level, experienced talent because these individu-
consultants. als are confident in their ability due to their experi-
ence. They also have the opportunity to make a big
return should the company successfully go public. This
may make smaller firms more attractive to customers
INDUSTRY OVERVIEW because of the quality of the human resources put on
The term systems integrator is a broad characteriza- each project.
tion for companies that provide information technology The average number of consultants who are not
related and consulting services. A systems integrator assigned to projects for the large systems integration
could be industry-focused such as with information firms is typically around 15 to 25 percent of their work-
technologies used in the oil and gas exploration indus- force, whereas the unassigned in the smaller firm is
try; information technology-focused such as with Inter- usually around 5 percent or less. The large systems
net application development, data warehouse, and so integration firms are the more expensive alternative,
on; or, a mix of both. but from the customer’s perspective are potentially the
Competitors in the systems integration business are least risky in regard to their own job security. Manage-
divided into two groups of firms depending on their ment rarely gets fired should a project fail when they
size. On the one hand, there are a limited number of utilize a large systems integration firm.
very large systems integration firms consisting of com- It seems that our customers have a much more plea-
panies such as IBM, Accenture, Deloitte & Touche, and surable experience working with us. They have a lot
Synectics. Each firm has a worldwide presence with of involvement with our projects and they get to work
several thousand consultants. with senior people. The large systems integration firms
There are also a large number of smaller systems can be frustrating to their clients at times when they
integration firms. The Houston, Texas, market alone is send 20 people to do a project and don’t involve the
home to over 2,200 technology consulting firms. There customer.—Boyer
are at least two reasons for the large number of small Small systems integration firms have to be more cre-
systems integration firms. First, there is very little bar- ative with their approach to marketing. Small firms
rier to entry into this business, as the initial capital might utilize independent contractors or engage in joint
requirements are minimal. Second, most large systems ventures in order to gain client referrals and muster the
integration organizations will not look at projects that resources necessary to compete with the larger firms.
are less than $7 to $8 million in size. These smaller Like most consulting and service industries, the key
firms fill the void created by large firms not taking on resource in this industry is the expertise and experience
the smaller projects. of the firm’s human capital. Salary requirements for
The large and small systems integration firms also individuals with similar experience, for instance, vary
differ in their operating models. The large firms fol- widely. The large demand for consultants has increased
low a leveraged model where they provide one senior their demands for pay, benefits, and stock.
consultant and several junior consultants. This pro-
In 1990, compensation for a technical consultant
cess helps to ensure high quality and consistency,
ranged from $35,000 to $50,000. By 2000, the range
while achieving scale economies. This approach is also
grew from $60,000 to over $100,000 depending
attractive to people early in their careers or those who on their area of expertise. One of our customers
just received their MBAs; they are usually more risk has an information systems staff of over 700 peo-
adverse and still learning the ropes. Despite its advan- ple. Three hundred of those people are consultants
tages, customers’ experiences with this approach are on assignments from numerous systems integration
somewhat mixed. firms.—Chaffin
QUADO SYSTEMS GROUP 447

Phase I
Phase III
Design phase: Phase II
Systems
Requirements Development
implementation
definition

Assign team Construct initial kernel Manage ongoing

enhancements
Define business process Confirm approach
requirements Establish help desk
Report status (weekly) support
Determine technical
requirements Establish additional
Construct remaining kernels communication links
Prioritize requirements
Unit test Refine technical
Develop detailed design infrastructure
Systems test
Interface design
Obtain client sign-off
Confirm and sign-off
prototype concept Deploy system
(optional)

E X H I B I T 1 Project Phases

A TYPICAL PROJECT EXHIBIT 2 Design Phase Team

A typical project in the systems integration industry Business Analysis—determines the business
has three distinct phases (see Exhibit 1). The first requirements for the project
Technical Architect—determines the computer
phase is to define the technical and organizational
hardware platform to support the business
change requirements of the project. The first phase, requirements. This position is a generalist who
often referred to as the design phase of each project, understands a wide range of computer hardware
requires generalists in five categories: business analy- platforms.
Application Architect—determines the development
sis, technical architecture, application architecture, data architecture and toolsets. This position is also a
architecture, and change management (Exhibit 2). At generalist who understands a wide range of
the end of phase 1, there would be a minimal switching development toolsets (i.e., PowerBuilder, Visual Basic,
cost to change systems integrators should there not be etc.).
Data Architect—models the data requirements for the
a fit between the organizations. Phase 1 averaged about project and makes recommendations on the type of
10 percent of each project’s total effort. database required for the project (i.e., Oracle, DB2,
The second and third phases are systems develop- etc.).
ment and implementation (Exhibit 1). Typically, the Change Management—determines the people factors
that might impede the success of the project and how
bulk of the consultants during these phases are spe- to correct them.
cialists in each of the previously mentioned categories.
While the first phase utilized a smaller number of
resources (three to five people on average), the lat-
the overall size of the project (all three phases). In
ter phases for large projects may require in excess of
addition to giving the client an understanding of the
twenty consultants.
general size of the project, it would also give the sys-
Prior to receiving approval for the project, a sys-
tems integrator a chance to sell itself and give the
tems design firm would usually spend some time with prospective clients a comfort level with the systems
the potential client to develop accurate numbers to integrator before moving ahead with the project.
present to the client’s management team so that they
could determine a project’s return on investment (ROI).
Systems integrators would usually spend a week or THE INTERNET
more, depending on the size of the project, performing The Internet has had an important impact on the
a high-level analysis (usually at no cost) to determine systems integration industry. Historically, information
448 CASES ANALYSIS

Survey: What were the most

difficult issues on your project?

Technology Issues
System performance Organizational change
Infrastructure issues
Creating and testing 31% Dealing with fear and
prototypes 48% anxiety in the organization
Managing resistance
Communicating changes
Maintaining management
21% support
Other issues Meeting training needs
Managing project scope
Having a clear vision of
the new business funding

E X H I B I T 3 Problems with Systems Integration

systems departments had developed applications such with seasoned consultants. Unfortunately we did not
as order entry and accounts payable that their business recognize that, as much as our customers despised the
units had to use. The end-users of the application were large systems integration firms, they viewed them as
well defined and their needs fairly easy to see. The job security.—Thorby
Internet, on the other hand, did not have well-defined With this in mind, Quado was born. Quado built
users, nor were the users required to use the system.
its practice rapidly; by 2000 it had grown to approx-
This created much more pressure for organizations to
imately $20 million in sales with over 125 employ-
focus on the user side of the process. Who would be
ees. With more and more organizations looking for
using the system? What would they need from the sys-
industry-specific expertise, Quado had narrowed its
tem? What are their personal preferences? Exhibit 3
focus to three: energy, telecommunications, and finan-
shows the human factors and how they connect the
cial services. Quado also narrowed its product offer-
Internet to an organization’s existing infrastructure
ings to management consulting and custom application
The Internet spawned the introduction of many new development. Within management consulting, Quado
small Internet development companies that are very focused on business process reengineering and change
good at the technical requirements needed to develop
management. Within the custom application develop-
an Internet site. Most of these firms had the creative
talent and developers, but lacked the experience to ment, Quado wanted to shift its focus toward the Inter-
connect the Internet with their customers’ existing sys- net due to strong growth potential.
tems, or to understand the human factor needs for
The Internet is the fastest growing segment in the mar-
projects of this nature. As the Internet moves from
ket. Quado as a company has limited experience in this
more of a passive medium to an interactive one, the
area. We need to get some experience quickly in order
smaller firms will need to partner with firms like ours
to stay even with or slightly ahead of our competition.
to compete.—Boyer
Our management consulting practice is extremely
competitive with the large systems integration firms.
THE QUADO SYSTEMS GROUP The projects we typically go for are considered small
In late November 1992, Kaushik Shah and Andrew in the eyes of the larger systems integrators. When we
Thorby, two independent consultants, sat around the compete against them, they often send in the “B Team”
while we send in our “A Team.” They frequently use
dinner table discussing the current systems integration
a direct strategy to sell against us, by showing the
industry’s business model. customer how many references they have. For the first
Our customers always complained about the way the phase of any project, however, we can compete against
large systems integration firms worked. They felt that anyone.—Boyer
they were paying a lot of money for inexperienced
people to build their large scale mission critical sys- Quado’s objective was to do an initial public offering
tems. We saw an opportunity to build an organization (IPO) within the next eighteen months. It was critical
QUADO SYSTEMS GROUP 449

for Quado to maintain revenue growth and high prof- in order to save a dime. This is why we had a high
itability in order to have a successful IPO. However, failure rate.—Former information systems employee
well-publicized project failures could have an adverse This was Taylor’s first attempt at building an inter-
effect. Since everyone at Quado had stock options, active Internet site, so the technology portion of the
opportunities were scrutinized to avoid any high-risk project was viewed as very complex. Taylor felt
projects. A large part of Quado’s past success derived that it was important that the systems integration
from its ability to attract and retain experienced consul- firm involved in this project should have experi-
tants. Offering the opportunity to work on interesting ence with large-scale Intranet projects. Taylor’s current
and leading edge projects is considered important to company-information only Intranet site was relatively
future recruiting. inexpensive to create and could only be accessed within
Taylor by certain employees. This experience estab-
THE TAYLOR CORPORATION lished expectations with Taylor’s senior management
that the costs for this Internet project would be rela-
The Taylor Corporation traced its history back to 1919 tively low.
as a wholesaler of woolen products. The company sur-
vived the Great Depression and following World War Taylor’s senior management expected hardware costs
II opened its first two retail stores specializing in wool to be the most expensive item on this project. Early
estimates from our hardware vendor were approxi-
products. This was the beginning of a successful retail
mately $750,000 for the necessary hardware.—Boyer
and mail order chain store business that eventually
grew to $6 million in sales. In 1963, Taylor acquired Teri was previously the vice president of human
a small, virtually bankrupt company that was an elec- resources so she had an appreciation for the human
tronics retailer. The company had nine retail stores and factors involved in the project. The project team for
Taylor was made up of information system techni-
a mail order business that sold primarily to ham opera-
cal and project management resources. Teri gave the
tors and electronic buffs. Since 1963, Taylor has grown
project team significant input into the decision process.
to more than 7,000 locations throughout the U.S. and The project team’s decision criteria were the follow-
over $5.6 billion in annual sales. ing: Can the vendor deliver? And can we team with
Taylor Corporation has undergone a lot of changes them to enhance our skills? While the project team
in the past five years, spinning off several unsuccessful wanted to insure a successful implementation, they
business ventures and consolidating and refurbishing appeared concerned that by bringing in Synectics, their
its retail outlets. They also experienced a large infor- roles in the project would be substantially reduced,
mation systems project failure in the previous year, therefore limiting their professional growth with the
causing the business units to be less than confident Internet.—Chaffin
in the ability of their internal information systems A project of this nature is a significant undertaking
department. for Taylor. The technologies are new, and this is the
Our organization was not prepared to take on a project first time its information systems department would be
of that nature. People were comfortable supporting our building a system for customer use. While technical
older systems. They were not ready for change. Unfor- issues associated with developing the screens that the
tunately, management did not recognize this soon individuals saw will present some challenges, Thorby
enough. The project was 100% over time and bud- felt that this was not the main challenge of the project.
get before anyone even thought to look at the problem. Understanding how end users (customers and employ-
The technology was ultimately blamed for what I think
ees) would want to interact with the system and organi-
was clearly a people issue.—Former information sys-
zational issues associated with building and supporting
tems employee
the new systems he considered to be most critical to
Senior management had brought in a whole new team the success of the project. This played into several of
to revamp the information systems department. The Quado’s strengths, particularly its experience in change
new chief information officer (CIO), Teri Sullivan, was management.
determined to tear down any walls that had been built
between her new department and the business units.
The proposed project had to be successful in order to THE TAYLOR OPPORTUNITY
regain the confidence of the business units. After spending a week interviewing all the senior man-
Being a retail organization, the company is fairly agement at Taylor, Synectics, one of the large inte-
price-sensitive and willing to accept a bit more risk gration firms, had put together some rough estimates
450 CASES ANALYSIS

for the entire project. The estimate was $9 million benefits comparison type of presentation. Neither Mike
for full implementation of the project. Taylor was cer- nor his boss Rudy George, sales director at Quado,
tainly shocked by Synectics’ initial cost estimate. Tay- felt that they could slug it out with Synectics stand-
lor’s management was considering this proposal when ing toe-to-toe and win the sale. In summarizing the
Quado was introduced to the CIO through a current situation, Mr. George commented:
customer of Quado. Synectics has positioned itself with Taylor as an Inter-
While Quado did not have experience with net specialist. They have been in the account longer
large-scale Internet projects, this could be a great than we have, they have a lot more experience as a
opportunity for Quado to gain the references it needed company with the Internet than we have, and they have
in the Internet practice. This may also be an opportunity the resources on board now to do the entire project.
for Taylor to reduce its cost. Quado had a much lower Synectics will attack us directly on our lack of Internet
overhead than the larger systems integration firms and technology experience and our size. Based on our com-
petition successfully positioning this project as strictly
a low price offer might be considered the cost of entry
Internet-only with Taylor, the customer has to view
for Quado into this growing business. Synectics as the least risky alternative because of its
The Quado team had spent some time reviewing number of Internet references compared to Quado. We
notes from the original interviews but did not have need to find a way to position this opportunity to allow
enough information to propose costs for the entire us to compete.
project. There were also concerns as to whether Synec-
Not only did Mike and Rudy need to develop a sales
tics had captured all of the requirements or estimated
strategy for Taylor, but also they realized that they
the project cost at a realistic number. Two meetings
would need to sell the merits of the project internally
had been scheduled for Quado to walk through its to Quado.
approach with Taylor. The first meeting, scheduled
for next week, will be a 30-minute session with Tay- This is considered a large project for Quado and a
mid-to-small size project for Synectics. Unfortunately,
lor’s CIO. In this meeting Quado would be expected
we have one large and several medium- to small-size
to present its overall approach to the project and its projects that we are currently working on. All of our
cost estimates. The CIO’s confidence in Quado’s ability consultants are currently involved in these projects.
to deliver and the recommendation of Taylor’s project The latter phases of the project for Taylor would even-
team will be critical for Quado’s to have an opportunity tually require a bunch of people over the next two
to win. The second meeting, two hours with the entire years. Staffing it with all new people would raise our
project team (12) from Taylor, was to discuss Quado’s risk of delivery. But they pay me based on a percentage
approach and allay any concerns the project team might of revenue from new customers, not to be risk-averse.
have with Quado. This meeting is scheduled for two A project of this size would take care of my quota for
weeks from today. next year.—Mike Chaffin
This is a very tight schedule for Quado and not
at all typical of how the selling cycle of most projects WHAT SHOULD QUADO DO?
develops. Commenting on this opportunity. Mike Chaf-
fin explained: Thorby realized that he had to make a decision with
respect to Taylor before things developed too far and
When we first entered the sales process, it appeared events made the decision for him. Due to the size of
that we had such a remote chance of winning that the project and its Internet focus, Thorby recognized
we didn’t pay much attention to what happens should
that this sale had to be considered strategic in nature:
we win. Because of the size and strategic nature of
this project, most people at Quado thought we were We will be only a $20 million company this year
wasting our time because we had no Internet client and could be putting $9 million of next year’s pro-
references. My company felt that we were being used jected revenue of $25 million on one customer. Can
by Taylor to get a better price from Synectics. I think we deliver a project of this size successfully without
Quado is now beginning to worry that we might actu- straining the organization or taking away potential rev-
ally win this project. We’re still the underdog, and enue from a strategic account? This opportunity is not
we have to develop a “win theme” to present to the in an industry that we typically pursue. Although this
executive sponsor and project team. service offering is an area that we want to get into,
we currently don’t have the experience Taylor desires.
It was also clear that Quado’s sales approach would They have clearly stated that relevant Internet expe-
have to be well thought out to have any chance of suc- rience is required. Should we expend the resources
ceeding. This would not be a straightforward features- chasing something that we are not well positioned to
ROMANO PITESTI 451

win or successfully take on? We would have to sub- is a multiyear project involving a service offering in
stantially increase the size of our company to take on which Quado had no current experience. On the other
the latter phases of this project not counting the growth hand, Quado has several people who have the requisite
that will be required to service our existing customers.
experience from previous jobs. Should Quado win this
It is clear that Quado is coming into the game late, project, the customer has a recognizable name, which
and Thorby was wondering if it was too late. It was can be used as leverage with other prospective clients.
even questionable whether Quado had enough infor-
But Thorby also recognized that he had to consider
mation to accurately estimate the price for the entire
the big picture. Was this opportunity right for Quado,
project. Thorby’s concern was that any numbers given
to Taylor could be invalid and could potentially set and how could they minimize their risks? “We have
their expectations too high. revenue goals for sales,” he thought, “low turnover
When talking to sales, Thorby got the impression goals for human resources, and delivery goals for our
that it was very important to win this opportunity. This consultants. Is this business aligned with those goals?”

CASE 19 ROMANO PITESTI

E
vents had come to a head in Tickton-Jones wide range of industrial components. Jones, after years
Ltd. and the Marketing Director, Jack Simp- of steady business as a manufacturer of shoes, ladies’
son, had called in his Consumer Products Sales handbags, and travel goods, had recently moved suc-
Manager, David Courtney, to sort out the problem. cessfully into sports shoes and for the first time had
“To come straight to the point, David,” said Jack, “I’m made an impact in the export field.
about up to here with this sales rep of yours. Romano Ben Jones was the chairman and majority owner of
Pitesti. . . . Am I sick of hearing the guy’s name! Samuel Jones Ltd. He was the grandson of the founder
Everywhere I go, someone bends my ear about him. and the last of the Jones family line with an active par-
Last week it was the receptionist complaining about ticipation in the business. At age 63, he wanted to sell
his making personal telephone calls during company out and retire to the Channel Islands with his wife, who
time. Yesterday it was the security people about his had a health problem. The remaining two senior direc-
untidy parking habits. And this morning, the accounts tors were willing to accept early retirement on generous
department is abuzz with outrage over his expense terms.
returns. Quite frankly, David, these are not isolated
Ben Jones had been very happy to accept Tickton’s
instances—he’s out of control and I want to know
offer and was satisfied that the new company would not
what you intend to do about him, before the whole
company is in uproar.” involve too much upheaval for his employees. He was
a paternal chairman with a strong Protestant work ethic
BACKGROUND but in recent years this had softened, and the organiza-
tion had become somewhat looser in all aspects of its
Tickton-Jones Ltd. was formed two years previously, operations.
when Tickton Flexible Products Ltd. acquired Samuel Not everyone on the Tickton Board had been in
Jones Ltd., a local family-owned company. At the time, favor of the acquisition, largely because it represented
Tickton’s annual sales were approaching $12 million a major diversification into consumer products. But
and they employed 230 people, compared with Jones’ the Managing Director had swayed the decision on
$4.5 million and 110 people, respectively. Tickton was grounds of too much current dependence on declin-
well established as a compounder of polyurethane and ing customer industries (e.g., motor vehicles, railways,
rubber materials and had its own molding facility for a general mechanical engineering). Jones was considered

This case was prepared by A. F. Millman of the Conventry Polytechnic, England. Copyright © by A. F. Millman. Reproduced by permission.
452 CASES ANALYSIS

Marketing
director
Jack Simpson
(Age 51)

Sales manager Sales Sales Manager

Distribution
industrial administration consumer products
manager
products manager David Courtney
(Age 57)
(Age 51) (Age 38) (Age 46)

Romano Vacant
Pitesti sales
(Age 42) territory

5 Sales engineers Junior sales

(Age 30–55) representative
Jim Wells
(Age 26)

E X H I B I T 1 Organization of the Tickton-Jones Marketing Department

to have good products in growth markets. In the words The organization of Tickton-Jones’ marketing
of Tickton’s Managing Director: “An opportunity like department is shown in Exhibit 1. From the marketing
this might never pass our way again. Ben Jones assures point of view, Jack Simpson had merely added another
me that he has a sound labor force and, like our own, arm to his departmental organization—the Consumer
they’re not strongly unionized. The sports and leisure Products Group under David Courtney.
shoe business looks particularly attractive. Put our Prior to the acquisition, David Courtney had been
expertise in molding technology alongside their distri- very much a field sales manager. He was responsible
bution network, and it could be one of our main product for the usual sales management tasks of forecasting
lines in five years. It’s now or never—it would be vir- and budgeting, and spent most of his time dealing with
tually impossible to find equivalent facilities within a major existing accounts or on the road developing new
5-mile radius.” Within four weeks, the acquisition was accounts. David Courtney, Romano Pitesti, and Jim
agreed upon.
Wells were all paid a salary plus commission. The com-
Due to the departure of Jones’s senior directors,
mission element accounted for 20 to 25 percent of their
integration of managerial staff provided few prob-
annual pay. On joining Tickton-Jones’ salary structure
lems. Jones’s production manager, Bill Thompson, was
they received salary only, though in money terms this
retained and placed in charge of the Jones site, which
did not constitute a loss of total pay.
was effectively reduced to a manufacturing operation.
All nonproduction staff, including the sales manager, On the question of company car policy and
David Courtney, were moved to the Tickton site. day-to-day business expenses, there were major differ-
However, the absorption of middle/lower-level ences. Indeed, since at Samuel Jones Ltd. they applied
administrative staff had not been easy, and there to so few people, there were no formal procedures and
were still cliques of former Jones employees who felt Ben Jones signed off on everything, almost without
aggrieved. For example, certain secretaries had found question. In contrast, Tickton had a written document
themselves reporting to managers of lower status; fric- clearly setting out the type of car applicable to par-
tion in the sales administration office and accounts ticular grades; spending limits for travel and entertain-
office caused internal divisions; and there was grow- ment, and so on. There was also a handbook covering
ing rivalry among the industrial sales engineers and the Tickton’s general conditions of service, which auto-
consumer sales representatives. matically became the Tickton-Jones handbook.
ROMANO PITESTI 453

ROMANO PITESTI insisted that it would upset his call schedule, but after
some cajoling agreed to attend the following morning.
To say that Romano Cesare Pitesti was different from
David opened the meeting with firm words:
the industrial sales engineers would be an understate-
“Romano, something has to be done about the way you
ment. While they “toed the line” and had quite similar
operate in this company. It has been put to me that you
training and attitudes, Romano “sailed close to the
are out of control. I’m taking the kicks at the moment
wind.”
and I don’t like it! I’ve got a list of incidents to review
Romano liked to feel that he was an individualist
with you—and you had better have good answers.”
and repeatedly proved disruptive in formal group situ-
ations. Though basically conscientious and hardwork- 1. David: Your time-keeping leaves a lot to be desired,
ing, he operated in bursts of enthusiasm that usually and you’ve been accused of wasting your own time
came to nothing but sometimes, through sheer tenacity and other people’s. The normal starting time is 8:30
on his part, brought the company an important order. a.m. and not some time after 9:00 a.m. when you
He was the master of the instant opinion and often can make it!
entered into conversation on a range of issues of which Romano: That’s all very well, but I’m entitled to a
he had only cursory knowledge and experience. This little freedom on time. Only yesterday I left home
led him into a number of embarrassing situations, at 6:00 a.m. to visit a customer and didn’t return
reflecting his gullibility and boyish naiveté. home until late in the evening. How many of those
There were occasions when he could be charming, complaining about my time-keeping would be pre-
understanding, and a good listener, especially in female pared to join me at such times of the day and night
company. And even more so in the presence of Sheila without overtime payments?
Jones, his previous chairman’s wife! It was well known David: And what about time wasting? You seem
that she had a soft spot for Romano and had once saved to spend a fair amount of time with secretaries and
him from serious trouble following an incident involv- typists.
ing a secretary after the office Christmas party. Romano: No more than anyone else. It’s just that
Romano was flamboyant in all things, yet beneath other people spread their time over the week and
this facade lay a caring and deeply sensitive person. His mine’s more concentrated. You know how much
colleague, Jim Wells, summed him up as “part hero, importance you attach to letter and report writing.
part villain, and part clown.” Well, they all have to be typed.
From the day he transferred to Tickton-Jones, 2. David: That brings me to the time you claim to
Romano was regarded as a curiosity and a “figure of spend report writing. Taking Fridays off is a favorite
fun.” The reasons were not hard to find. He dressed for sniping by the industrial sales engineers.
impeccably and in the height of fashion. Some would Romano: If you want me to write reports, you have
say that he overdid it for a 42-year-old, and he was got to allow me time to write them—it’s as simple
soon dubbed “The Great Gatsby,” “Peter Pan,” and as that.
“The Aging Lothario.” David: The industrial sales engineers write their
In his first year with Tickton-Jones, Romano mar- reports over their lunch break or between sales calls.
ried Wendy Churchill, a 28-year-old set designer with a Why can’t you? There’s a rumor circulating the
regional television company. This brought him in con- company that you played golf last Friday.
tact with numerous television personalities and turned Romano: Yes, that’s right. I played golf with Arthur
him into a prolific name dropper. The stories he told Dixon—you know, Singleton’s Purchasing Man-
provided unlimited ammunition for the industrial sales ager. I’m pretty close to a regular order from them.
engineers, who cruelly taunted him at every oppor- I’m playing with Arthur again on the 29th—should
tunity. But Romano, unperturbed, shrugged off their I cancel it?
remarks, usually with some witty return. David: No, no—I only wish you to make yourself
Despite all these oddities and eccentricities, a little more visible on Fridays. Not every Friday,
Romano’s sales performance was exemplary. just now and then.
3. David: Are you aware that you have higher claims
for replacement of damaged clothing than anyone
THE MEETING WITH DAVID COURTNEY
in the company? Why?
With Jack Simpson’s words ringing in his ears, David Romano: I can’t help it if I wear trendy Italian
Courtney summoned Romano to a meeting. Romano suits and shoes. That damaged briefcase I claimed
454 CASES ANALYSIS

last month really was two-tone crocodile skin and instantly recognizable. Which leads me to a very
cost me $180. I can’t visit my customers dressed serious issue—did you or did you not use your
like those scruffy Herberts in the Industrial Group. company car to ferry voters to the local council
They wouldn’t let me on the premises. elections?
David: OK, OK, just try to moderate your claims Romano: Yes, I did. I had my doubts about it and
in future. I’m the poor guy who has to sign them was on the verge of opting out. Then I realized
off. Bill Thompson, the production manager, was using
4. David: The biggest problem, as always, surrounds his company car for the Labor party, so I thought,
your company car. It’s like a big orange blotch on what’s good enough for Labor is good enough for
the company landscape! the Liberals.
Romano: I can’t see what you have against my car, David: Perhaps I had better have a word with Bill
David. It’s only a Ford Escort 1.3 and bought within about the matter. We’ll pick this one up later.
the company rules. We have very little flexibility on 5. Romano: You’ve mentioned all these minor irrita-
choice of model. After all, it’s my mobile office—I tions, David. Have you ever had cause to question
live in it for 15 hours per week. my sales performance? I’m the best salesperson in
David: Yes, but do you have to choose bright orange this company, and you know it! When did I last
and add all those accessories? The industrial sales fail to meet my targets? And have you received
engineers all have more sober colors such as bottle any complaints from customers? I was the same at
green and navy blue. Do you really need two large Samuel Jones. Don’t forget, we’re a rep short at the
spot lamps with checkered covers, a rear spoiler, moment. A few more salespeople like me and we
and whiplash radio aerial? would be a market leader in no time. Who was it
Romano: I paid for the accessories myself. You who secured the Milan export order?
could do the same if you wish. Incidentally, there’s
a nice vivid green in the Ford Sierra right now! But at that particular moment there was an interrup-
David: I can almost bear the color with my sun- tion. Romano’s telephone paging beeper was signaling
glasses on—but not when you park your car on the an incoming call, and he picked up David’s telephone.
double yellow lines near the reception area. It was Joe Pinkerton. Romano’s number-two customer,
Romano: I knew it! That receptionist has got it in with an urgent query.
for me. It would be her who complained and not Romano sat back in his chair, put his feet
the security people. I only popped in to the switch- on David’s wastepaper basket, and entered into a
board to collect my telephone messages from the drawn-out conversation. Twenty minutes later he was
overnight answering machine. still engrossed in conversation. David shook his head
David: I can accept that as an isolated incident. But and decided to abandon the meeting. Romano gave him
your car is so obvious—everywhere you go, it’s a wry grin as he left the office.

CASE 20 SKATA, INC.

O
ne snowy Saturday in January 2004, Mary United States, who made them available to lumber-
Reid was reviewing the performance of her yards, hardware stores, and contractors. The company
field sales force. Mary was the national sales employed fifty-six salespeople who worked with the
manager for Skata Inc. Skata produced vinyl siding and distributors and made calls on contractors, retailers,
plastic plumbing supplies for the construction indus- and architects. Skata had organized its sales force into
try. Their products were sold to 120 distributors in the five geographic districts headed by sales managers. The

This case was prepared by Douglas J. Dalrymple of Indiana University.

SKATA, INC. 455

National sales
manager
Mary Reid

District 1 District 2 District 3 District 4 District 5

sales manager sales manager sales manager sales manager sales manager
Northeast Midwest Northwest Southeast Southwest
George Davis Helen Page Bill Anderson Fred Ellis Jane Thomas

14 13 9 9 11
salespeople salespeople salespeople salespeople salespeople

E X H I B I T 1 Skata Sales Organization

five sales managers reported directly to Mary Reid salespeople worked for less than a year. As a result,
(Exhibit 1). Siding and plumbing fixtures were shipped Reid adjusted calls and commissions to make it easier
by truck from company warehouses to distributors and to compare salespeople with one another.
directly to large buyers. Next, Reid transferred her data files to the new
Salespeople were assigned fixed territories and were spreadsheet analysis program that she had acquired.
responsible for increasing sales in their areas. They This program allowed her to create new variables and
were given quotas based on potential and past company perform a variety of evaluations on her field salespeo-
sales in their areas. Territory performance was also ple. Reid decided to calculate some simple correlation
measured by the penetration ratio. This ratio compared coefficients among her control variables (Exhibit 3).
company sales with published industry data showing Age appeared to be related to sales, and there were
the volume of building contracts awarded in each ter- some interesting correlations with other variables. Reid
ritory. Salespeople who exceeded their quotas were decided to focus on the most significant associations
eligible for recognition awards, larger territories, and to see what effects they might have on sales force
promotions. supervision. Based on a review of the numbers in
Field reps were paid a straight commission that Exhibit 3, she decided to plot some of the variables
ranged from 1 to 3 percent of sales. The size of to give a performance matrix for evaluation.
the commission varied according to the experience of Skata’s marketing manager had been asking for
the salesperson. In addition, salespeople received an some recommendations on sales managers and sales-
expense allowance that averaged $8,500 per year. The people who could be honored at the national sales
five district sales managers were paid a salary and a meeting scheduled for February. Although it would be
bonus based on the volume produced in their districts. very easy to rank them on sales achievements, Reid
Consolidated sales of Skata, including the overseas wondered if she should prepare some sort of composite
division, totaled $355,670,000 in 2003. Although sales index that would evaluate the sales force on a variety
were up in 2003, net profits had declined. These results of factors.
were partially due to increased competition and price Reid had recently come across an article in a
cutting. Reid wanted to learn more about her sales marketing journal suggesting that salespeople follow
force because she was under considerable pressure to a career path that resembles the product life cycle.
improve profits in the new year. According to the article, salespeople start off exploring
Reid decided to start her analysis by calling up the sales field, go into a development phase, mature,
some basic sales force performance data on her desk- and then experience declining performance measures
top computer. These figures are shown in Exhibit 2. as they approach retirement. The suggested relation-
The territory sales quota, penetration, and contribution ship is shown in Exhibit 4. Note that sales are lowest in
margin are given for twelve months, even though a few the exploration phase, grow rapidly in the development
456 CASES ANALYSIS

EXHIBIT 2 Sales Force Performance Data for Skata, Inc.

Sales Sales Quota Commission Contribution Months
2003 2003 2003 Penetration Calls per Month Margin Sales of Work
Name Age (000) (000) (000) 2003 2003 2003 2003 (000) District 2003
Field 54 $3.710 $2.943 $3.548 702 917 $6928 $1318.0 1 12
White 29 2.971 2.070 2.300 419 467 4990 1149.7 2 8
Evans 35 2.927 2.364 2.749 1948 1219 4075 1041.8 1 12
Long 37 2.428 1.773 2.107 315 880 4125 903.8 2 12
Hunt 30 2.298 1.753 1.899 710 1213 4905 854.9 3 12
Reed 32 2.741 2.421 2.879 2820 935 4967 977.0 1 12
Knight 33 2.577 1.948 2.228 527 1096 4198 920.4 5 12
Quinn 36 2.565 2.432 2.847 297 807 4752 961.9 2 12
Reilly 34 2.278 1.684 1.899 957 939 4305 833.8 3 12
Adams 33 1.872 1.308 3.016 338 889 3851 699.4 2 12
Zimmer 37 2.982 2.399 2.649 644 1165 5618 1105.4 3 12
Smith 27 1.669 1.751 2.098 225 780 3250 635.9 4 12
Miller 37 3.589 3.272 3.698 368 1091 6030 1329.2 2 12
Hall 51 3.755 3.322 3.739 306 1181 7107 1366.6 4 12
Vance 29 1.928 2.054 2.391 580 866 3684 698.3 3 12
Martin 27 1.292 .914 1.777 343 1178 3659 465.1 5 10
Sharp 48 3.884 3.301 3.798 1490 1354 6726 1375.9 1 12
Jones 43 3.500 2.836 3.150 1960 1180 6565 1219.1 3 12
Baker 26 2.944 2.256 2.738 571 402 4251 1120.9 2 12
Queen 37 1.945 1.886 2.248 506 492 3402 704.6 2 8
Kelly 35 2.068 1.932 2.141 342 825 4883 759.0 2 12
Lewis 60 1.501 1.295 1.339 448 1199 4466 535.1 5 12
Young 57 2.693 2.067 2.421 1123 806 6070 979.0 1 12
Isom 27 1.551 1.612 1.878 246 832 3137 584.7 2 12
Urban 38 1.099 .716 .962 231 353 3706 387.4 2 12
Green 40 1.262 1.071 1.309 453 1313 3876 468.4 5 12
Scott 67 2.243 2.042 2.767 550 968 5535 793.6 2 12
Norris 33 2.448 2.225 2.558 453 1060 4129 905.5 4 12
Ward 34 2.713 1.567 1.998 267 958 4960 996.7 4 12
Wood 45 2.541 2.670 2.811 873 1260 4918 899.3 1 12
Upchurch 49 2.759 2.583 3.086 365 969 6056 1008.8 4 12
York 65 2.606 2.400 2.697 497 1147 5352 986.7 4 12
Grant 33 2.786 2.400 2.197 441 1461 4279 1009.6 5 4
Taylor 38 2.965 2.174 2.448 1151 1373 5473 1075.8 5 12
Carter 63 3.716 2.704 3.128 1332 1047 6920 1347.0 1 12
Wolf 64 2.384 1.990 2.281 3000 614 6202 835.8 1 12
Olsen 43 2.126 2.050 2.200 455 1173 4240 785.2 5 12
Edwards 47 2.203 1.930 2.600 141 882 5870 818.8 5 8
Summers 32 4.078 2.762 3.183 602 767 6725 1472.1 1 12
Black 53 2.742 2.434 2.682 931 945 5976 998.6 3 12
Allen 38 2.617 2.475 2.898 300 938 3353 968.1 4 8
Owens 32 3.595 3.323 3.848 1861 1135 5339 1346.2 1 12
Day 63 3.358 2.801 3.282 1133 1604 8265 1205.7 1 12
Parsons 38 1.790 1.842 2.105 203 941 4029 655.9 4 12
Dunn 49 2.596 2.372 2.796 310 1162 5089 927.9 5 12
Thomas 39 1.678 1.571 1.812 907 1281 3136 608.5 3 12
Voss 30 2.192 1.875 2.469 166 673 5824 829.3 4 7
Stone 48 1.879 1.711 2.032 990 1182 5124 679.4 5 12
Zorn 30 2.011 1.739 2.281 243 568 3657 742.2 2 11
Jackson 33 1.903 1.894 2.161 450 840 3790 701.3 3 4
Nichols 36 1.609 1.690 1.898 381 1307 2527 583.3 5 12
Irwin 30 2.631 2.170 2.560 199 697 3803 987.9 2 10
Page 47 3.047 2.939 3.298 806 1200 5846 1099.6 1 12
Cook 37 2.328 2.054 2.398 664 933 4665 859.6 1 12
Walker 39 2.055 2.043 2.399 519 1099 3594 735.9 3 12
Fox 28 3.411 2.689 3.248 3322 706 5335 1187.5 1 12
SKATA, INC. 457

EXHIBIT 3 Correlations Among Sales Force Performance Factors, 2003

Sales Commission Contribution Sales Contribution
Growth Sales to per Margin per per
Age Sales 2003/2002 Quota Penetration Calls Month Percent Call Call
Age 1.00 .21 −.09 .04 .16 .30 .59 −.39 −.15 −.17
Sales .21 1.00 .22 .45 .39 .17 .76 −.15 .52 .51
Sales growth −.09 .22 1.00 .64 .08 −.19 .22 −.05 .35 .35
Sales quota .04 .45 .64 1.00 .19 .03 .34 −.09 .36 .35
Penetration .16 .39 .08 .19 1.00 .08 .34 −.53 .19 .17
Calls .30 .17 −.19 .03 .08 1.00 .22 −.28 −.68 −.67
Commission/month .59 .76 .22 .34 .34 .22 1.00 −.27 .29 .25
Contribution percent −.39 −.15 −.05 −.09 −.53 −.28 −.27 1.00 .18 .23
Sales/call −.15 .52 .35 .36 .19 −.68 .29 .18 1.00 .99
Contribution/call −.17 .51 .35 .35 .17 −.67 .23 .23 .99 1.00

Explor- Develop- Maturity Decline

ation ment 38–49 50–68
25–30 31–37
Sales performance measures

25 31 35 38 40 45 50 55 60 65
Age

E X H I B I T 4 Sales Force Career Path Life Cycle

stage, level off in the mature phase, and drop off in factors for groups of salespeople divided according to
the decline stage. Mary wondered whether the career the career categories described in Exhibit 4. Mary was
life cycle concept described in Exhibit 4 applied to sure that there was something to be learned about the
Skata salespeople. Skata employed a variety of sales sales force from the performance data if she just kept
reps ranging in age from 26 to 67; the median age was her computer humming. The data in Exhibit 2 also gave
37. Reid thought it would be useful to calculate an an indication of the turnover rate in the sales force in
age distribution of the sales force to see if there was 2003, and Reid wondered if some adjustments were
anything meaningful to be learned. needed in the compensation program. Reid was con-
To help find out whether the career life cycle cerned that the results of her performance matrix and
applied to Skata, Mary decided it might be instruc- career life cycle analyses would require some changes
tive to calculate the means of various performance in terms of hiring, firing, training, and motivation.
458 CASES ANALYSIS

CASE 21 TEKSPAN CORPORATION

M
ary Stramm sunk back into her first-class which Tekspan has relationships and the aggressive
seat. The perks of flying with the CEO new customer acquisition competencies of the Tekspan
weren’t bad, but she knew that there was sales force.
no such thing as a free lunch. She would soon be After the acquisition, the organization had spent
on another “special assignment.” Mary was officially a lot of time developing “solutions,” which consisted
the vice president of human resources at Tekspan of standard bundles of products and services for the
Systems, a developer of software for middle-market market. It has been Tekspan’s experience that nei-
companies, but unofficially was CEO’s John Vaught’s ther products nor services alone fully solved a cus-
troubleshooter. He called her in on all sensitive cus- tomer’s problems, but that it took the application of the
tomer issues, and this one definitely fit the bill. They right mix of products and services bundled together to
were flying home after a tense meeting with Dave Cow- meet the customer’s needs. Bundling of products and
ley, CIO of Barnett Engineering, an important account. services has the additional advantage of being both
Dave was entertaining a competitor’s offer. cost-efficient and providing a much larger potential
After a few minutes in the air, John started to dollar sale than selling the products and services sepa-
recap the meeting, “Dave has a legitimate gripe. Our rately.
people seem to be driving him nuts trying to sell addi- Despite the compelling logic for the acquisition, in
tional projects left and right. We’re disrupting things many ways the two organizations had worked together
too much by trying to stimulate demand for changes better as partners than as parts of the same company.
that his company doesn’t want and can’t handle. We’re Mary knew that John Vaught’s concern about the Bar-
taking up too much of Barnett’s management’s time. I nett account was only the latest sign of friction. She had
need you to look into this. also heard the grumblings in the hall about the lack of
“No problem,” Mary responded. aggressiveness and effort on the part of the consultants
“I called Tom Lay before this trip and he gave me from AKS.
an earful. Start by calling Tom and get your impres-
sion of the situation. Frankly, I wonder if our sales THE CONSULTANTS’ VIEW
compensation program isn’t part of the problem.” Tom Lay had been the head of Applied Knowledge
“That could be,” Mary offered cautiously. and is now executive vice president of the Solutions
“With sales of product slowing, we need to sell division of Tekspan Corporation. Tom sat behind the
more services. That’s where the growth is, but we don’t desk in his office while Mary talked, but it was clear
want to abuse our customers in the process.” that he had been stung by John’s concern about the
Mary looked out the window thinking about the Barnett account. “Look, this really isn’t about all those
next step. sales calls on his people,” he said defensively. “Dave
Cowley is upset because his boss has been taking my
suggestions to improve his operations. He is just jeal-
BACKGROUND
ous because I have better access to his boss than he
Ten months earlier, Tekspan had acquired the does because I run with him on the weekends. CIOs
systems-integration and consulting firm Applied don’t like it when consultants have better access than
Knowledge Systems (AKS), which had been one of they do.” Mary couldn’t help glancing at the number
Tekspan’s alliance partners. The acquisition seemed to of marathon medals displayed in Tom’s office. “John
offer great opportunities for synergy. Tekspan hoped to should recognize that it’s because of this special access
sell more software, which is a natural by-product of an that Barnett purchased the HR package they signed up
AKS consulting engagement. AKS, on the other hand, for last month. The account manager had nothing to do
would benefit from the wider range of companies with with the sale—his commission is a gift.”

This case was prepared by William L. Cron of Texas Christian University and Thomas E. DeCarlo of Iowa State University. Copyright © by
William L. Cron and Thomas E. DeCarlo.
TEKSPAN CORPORATION 459

“Oh, I see, we don’t need account executives any- After Lola walked in the office, Tom asked, “Lola,
more, do we?” Mary asked, knowing Tom could take Dave Cowley at Barnett has complained that they are
the gentle jab. seeing too many of our people. What would happen if
“I’ll admit, the account execs are great at getting us we waited for the account reps to sell work for us?”
in the door,” Tom continued, “especially when we have “If I waited for that, I might as well start looking
had no prior relationship with the contact. They also for another job,” responded Lola. “The price of a facil-
are good at selling an initial financial software package, ities implementation is about a quarter of the price of
which is usually what prospects purchase first. But the any other package. Our projects are tiny, especially in
account execs don’t help much in growing the account today’s economy. Understand, it is going to take the
because they lack the technical knowledge needed to account rep just as much time to sell for us as it would
sell the add-on business. take to sell any other package. Besides, he would have
“Take Barnett, for instance, if it weren’t for the to build relationships with people in the client’s facili-
extra effort of Dick Carlson during the final month ties department—people he has no other reason to get
of the rollout for the basic finance package, we may to know otherwise. He’d much rather be selling a high
have lost the sale,” Tom said, referring to the princi- priced financial, HR, or sales package instead due to
pal consultant on the engagement. “I was there a lot the commissions.”
myself. That’s how you get to really know the peo- “So you have to sell it?”
ple and to understand a client’s business. Between you “Right. But, I don’t blame the account execs for
and I, the account managers only know how to push being uninterested, I just can’t wait around. I won’t be
product. Selling a solution designed to meet a client’s able to hang onto the team I’ve built up over the past
needs takes a consultant’s perspective.” years if I can’t keep them busy. So I sell.”
“All right,” Mary said, sighing, “but this gets us
“I sense that you would rather not,” responded
nowhere. What was the point of our combining these
Mary.
two companies if the customer contact philosophies are
“I don’t really mind,” Lola shrugged. “Besides, I
incompatible?” After taking a breath, she added, “Tom,
have a natural advantage on the account execs. I know
you just made a remark about the commissions. Do
the facilities people and belong to their associations.
you think there is something wrong with our incentive
The account reps don’t really understand what we do.
program?”
We are not alone in this. There are several small units
“Well, think about it,” Tom said with an admon-
in AKS—excuse me, I mean in Tekspan—that suffer
ishing tone. “The current compensation plan rewards
from this problem. I’ve asked if the company is really
the sales force for all the work sold into an
account—forever! It doesn’t matter if they contributed interested in our practice areas and I’m told it is and
to the sale or not. On the other hand, our people—the that we are needed so that the firm can offer a complete
consultants in Solutions—have to sell to keep billable, array of products and services—one stop shopping.”
but the salesperson who won the account gets the com- “What do you think of the compensation plan?”
mission, even if it was years ago that they won the chimed in Tom.
account and had nothing to do with the current sale at After a long pause, Lola said, “I don’t really under-
all. Does this make sense to you?” stand it. But I figure that the higher-ups have their
“But the salespeople’s contributions are important reasons.”
to our success, aren’t they?” asked Mary. ‘Thanks for stopping in, Lola,” Tom said. “And
“Of course they are. At least sometimes. But there keep up the great work.”
are big holes in the plan.” Tom glanced up and saw Just as she was about to leave, Lola turned and
Lola Krammer passing his door and called for her to added, “The funny thing is that before the acquisition,
come in his office. Lola was in charge of the con- I was always considered a hero at AKS for going out
sulting group that implemented the facilities portion of and selling my own work. Now it upsets people. Good
the solutions package that Barnett purchased. Facilities luck with your investigation, Mary.”
management software and services accounted for only After Lola had left the office, Tom added, “In this
a small fraction of the company’s revenue, and in the market, facilities software isn’t all that popular with
current economic climate few customers signed up for clients. But when the economy turns again and com-
it. Mary knew Lola, and considered her to be very pro- panies are expanding, there’s a lot of interest. Lola has
fessional and levelheaded. She was someone that could to keep things going until then. When the turn comes,
be counted on to be objective. I’ll bet the account execs will take notice of us.”
460 CASES ANALYSIS

THE ACCOUNT EXECUTIVES’ VIEW “Yes,” she said, “but if he didn’t really contribute to
the HR sale. . .”
Knowing that she needed to hear the sales organi-
“Mary, you have to understand how sales really
zation’s point of view, Mary set up a meeting with
works. Sometimes you work your butt off, do every-
Shannon Moncrief, vice president of sales and market-
thing right, cross every ‘t’ and dot every ‘i’, and you
ing at Tekspan. When she showed up for the meeting
still don’t win. Sometimes it comes too easy. It all nets
she was stunned to see the cast on his leg.
out. Philip knows how to maximize his time and tal-
“You would think I’d know better by now,” he said
ents. He knew things were going well at Barnett and
with a laugh. “I was at one or our customer’s company
picnics and they invited me to join in the ‘big’ softball he felt he could spend his time more productively else-
game. Now why would anyone slide into home during where. And you know what, he uncovered Westenhover
another company’s softball game? I don’t even know Electric, which, by the way, is about to sign up for an
the final score.” He laughed again and asked, “So what HR and a planning implementation program this week.
is this changing the compensation plan for my account Do you really want to penalize him for doing the right
execs about?” thing? Oh, by the way, Dick Carlson is the project prin-
Mary knew not to take Shannon’s easy manner at cipal on that account too. You think he worked hard on
face value. Tekspan owed a lot of its success to his it? No! He was too busy at Barnett to be bothered with
relentless drive and ability to manage and lead people. Westenhover. Philip knows you have to stay in front
She proceeded to describe what she had heard from of your customers to move them through the pipeline.”
Tom Lay and the consultants. “Tom said Dick practically lived at Barnett for a
“I’ve known Tom for over ten years, and I’m a month to help with that rollout.”
big supporter of his,” Shannon said. “He is one of the “I know. But look, the consultants get compensated,
brightest guys I know. As you know, I pushed hard for and well compensated, on utilization. The more the
the acquisition of his firm. But he doesn’t understand customer uses the system the more they get paid. They
sales.” have an ongoing stream of income. They didn’t do
“Boy, I have to say that Tom is a pretty good sales- much to sell the extension work at Westenhover, but
man, based on his record,” Mary responded. they’ll still get paid for the work they do there. They
“Sure. Sure. Of course he is. One of the best. It’s want it both ways.”
because of Tom and one or two others that we bought “How much of the first sales to Barnett was product
AKS. I mean he doesn’t understand what it takes to and how much was services?” Mary asked.
manage a sales force. For all of Tom’s posturing, Solu- “You’ve been talking with Tom, I can tell. He’s
tions sales are only 22 percent of the business. We are always accusing my people of ‘pushing product’ rather
hard-charging salespeople who are well rewarded for than ‘crafting solutions’—nothing pejorative about that
our efforts to make the numbers. The reality is that the language, is there? He may have a point, though.
Solutions camp can’t deliver the goods. Aside from Maybe the account execs do need more training in
Tom and a few others, most of them feel selling is selling solutions, but while you are at it, train Tom’s
unprofessional. They don’t want to dirty their hands. consultants to sell anything at all. At least my guys
“The Barnett account you mentioned is a good case can sell product. Most of the consultants couldn’t sell
in point. Philip Davies worked for two years to get sunscreen at a nudist colony.”
us into Barnett. Sure, the basic financial package they Mary had to laugh, in spite of herself. The idea of
purchased was a little disappointing in terms of the some of the more introverted techie consultants in that
size of the sale, and he wouldn’t have had much to type of situation was amusing, she had to admit.
show for his efforts. But now, Barnett is generating all
kinds of revenue and profits for Tekspan. Those con-
sultants would not even have known who Barnett was ON THE BRIGHT SIDE
if it weren’t for Philip and the work he put in on the
front end. I don’t question the job that Tom Lay and That night, bits and pieces of the conversations Mary
Dick Carlson did there, but you can’t screw Philip out had that day kept coming to mind. She found herself
of his commission on last month’s HR implementation. wondering just how big a problem she was addressing.
We would lose him if all he got was commission on Was the merger just not working? She quickly dis-
the initial package.” missed this thought, however, because she knew that
Mary recalled at least two other occasions when she some of the account exec and project consultant teams
had been threatened with the loss of “Prince Philip.” were working well. She decided it was time to look
THE SULLIVAN GROUP (A) 461

into these to determine why some teams were working there pounding the paving, which I don’t have time to
when others were not. do. We’ve have sold more product at WNB than at any
On Friday afternoon, she met with Vickie Morgan, a other account of its size as a result. I’ll bet we can do
project consultant from Solutions, and Dirk Tyson, the the same for other companies we’ve targeted.”
account executive assigned to the Weatherford National “Dirk, is this how you see it?”
Bank (WNB) account. Mary explained her purpose for “Actually, I could say similar things about Vickie.
meeting with Vickie and Dirk and asked, “You two If I spend six months getting a customer to the point
have succeeded wildly at WNB. Has the compensation where he wants a meeting, I can trust her not to cancel
system helped or hurt?” on short notice because a current customer has asked
“I try not to think about it,” joked Vickie. “If I did, for the same time slot. And when I introduce her to the
it might just break up our team.” client, she knows how to present herself and the tech-
Laughing, Mary asked, “Do you agree with that, nology. She doesn’t go on about the latest technical fix
Dirk?” till their eyes glaze over. She listens to their problems.
“I’ve never seen a sales compensation plan that She doesn’t drop the ball.”
worked perfectly. This one’s OK, I guess.” Impressive, thought Mary when she left them, but
“So how do we create more successes like WNB?” how do we replicate that?
“Hire more account execs like Dirk,” said Vickie.
“Could you elaborate on that a little?”
WHAT TO DO?
“Yeah, I’d like to hear more about that, too,” Dirk
said. “Well,” asked John, “what have you found out?”
“I can trust him,” Vickie said. “I can’t say that “John, this may go deeper than compensation.
for everyone I’ve worked with. I remember, just after The account execs provide broad market coverage,
the acquisition, I took an account executive, who will while our project consultants provide excellent content
remain nameless, to meet with the president of one of knowledge and deep working relationships. We need
my old accounts. We were there to explain why the both. We just don’t seem to have developed a way to
two firms had come together and to ensure him that it sort out the two of them.
would enhance the relationship we had with his com- “Compensation can really clarify different people’s
pany. The client was very gracious and the meeting priorities,” John observed.
was going along nicely, until the president mentioned “Yes, but I think that the people with Tekspan and
a need he had. The account exec pounced on it and AKS prior to the merger were better suited to their old
went into full sales mode. My client gave me a look organizations than to the new solutions selling pro-
as if to say, ‘What’s going on here?’ He hadn’t agreed gram. We are going to need to start recruiting to some
to a sales pitch, and we were out of there in about new job profiles.
2 minutes. I called him up and apologized. “I understand Mary, but we can’t turn over a major-
“Dirk would never make such a mistake. He knows ity of the workforce in the next year without causing
how to listen, when to come to me and my consultants, more problems than we solve. I need results before
and how to ask us to support him. Meanwhile, he’s out then.”

CASE 22 THE SULLIVAN GROUP (A)

B
ob Mitchell, Director of Risk Management for say, “A Mr. Matthew Kincaid of the Sullivan Group is
Madison Energy, a publicly traded firm that here to see you.”
focuses on the servicing of producing oil and “Send him in,” Mitchell replied.
gas wells, picked up his phone and heard his secretary
462 CASES ANALYSIS

BACKGROUND INFORMATION Mitchell: Good. And please have a seat.

Kincaid: Thanks. At the Sullivan Group we work hard to
Madison Energy is a rapidly growing company, and the truly understand the business of our clients. You see . . .
complexity of its risk management needs is increasing
accordingly. The major assets Madison Energy needs Kincaid spends several minutes elaborating on the
to protect are its oil and gas wells, workers in the Sullivan Group’s ability to get competitive quotes for
field, and the heavy equipment used on the wellsites. energy companies, focus on client service and claims
In fact, the company has now reached a level finan- handling process..
cially where it requires an array of insurance products
Kincaid: As I was saying, what sets our firm apart is our
and services, including some more exotic services such
total commitment to client service. We have our own 24/7
as those related to kidnapping, to adequately handle its
claims service. This is unique in the industry.
growing exposure to loss. Given this exposure to risk,
Mitchell: Well, Matt, that all sounds great; however, we
the company had hired in the past year Bob Mitchell
have been approached by a number of other firms touting
as Director of Risk Management.
the same services the Sullivan Group provides.
The usual first step of the selling process for insur-
Kincaid: Well, the difference is really in our firm’s expertise
ance products and services is for a brokerage company
with oil and gas companies. Our brokers have written arti-
to call on Madison Energy directly to try and setup
cles and presented on various topics of insurance relating
a meeting with Bob Mitchell, Director of Risk Man-
to the energy industry. In fact (rummages in his briefcase),
agement. If Bob Mitchell felt that the situation war-
here are some brochures that talk about our services and
ranted further investigation, he would set up a meeting
experience in more detail.
between the broker and someone in Accounting Oper-
ations to gather information. A tour of the facilities Kincaid places two brochures on Mitchell’s desk.
would also take place to ensure familiarity with Madi- Kincaid continues . . .
son’s needs. Following information gathering, the bro-
Kincaid: These brochures explain our firm’s philosophy, our
ker would develop a proposal that would be presented
experience in the energy business, and some of our latest
to Mitchell. If he felt it was a viable and attractive
rankings and awards.
proposal, he would pass it along to the Chief Finan-
Mitchell: Ok, so what are we looking at cost-wise for all
cial Officer (CFO). If approved at this point, the CFO
these services and for the insurance plan as a whole?
would present an overview of the proposal to the Audit
Kincaid: Well, here is a table that breaks down the insurance
Committee of the Board of Directors for final approval.
companies we represent (Kincaid has risen and places a
Matthew Kincaid, an Account Executive of the Sul-
paper on Mitchell’s desk. He continues:
livan Group, is about to discuss his company’s insur-
Kincaid: We can get quotes from each of these companies
ance services and its specific experience with oil and
for you in just a matter of weeks.
gas clients. The only previous meeting between Bob
Mitchell and Matthew Kincaid came two weeks ago at At this point, a 15-minute discussion ensues
a local charity event. Mitchell invited Kincaid to come between the two men on the information the Sullivan
by the office to discuss what the Sullivan Group might Group will need to get quotes for Madison Energy.
be able to do for Madison Energy. After the conversation draws to a close, Mitchell rises
and shakes hands with Kincaid.
THE INTERVIEW Kincaid: Bob thanks again for your time. I’ll give you a call
in a couple of days. If you want any more information,
Mathew Kincaid enters Bob Mitchell’s office and
you can reach me on my e-mail or direct number, and
hands him a business card.
I encourage you to explore more about our firm on our
Kincaid: Good to see you again, Bob. Thanks for giving me Web site.
some time to tell you about the Sullivan Group. We are
a leader in risk management and insurance solutions, and
we have developed the most effective program specifi- DISCUSSION QUESTIONS
cally for oil and gas companies like yours. Our program,
based on exceptional client service, will improve your Assume that the decision to use the Sullivan
claims handling and save your company time. I think you Group as your company’s insurance brokerage firm
will see that through this solution we can make you more would involve a minimum bottom line expense of
efficient in your operations. $250,000.
THE SULLIVAN GROUP (B) 463

1. You must now decide whether to send Mr. Kin- 6. How confident are you about your answer to Ques-
caid of the Sullivan Group to see the Accounting tion 5?
Operations people. Would you send him? Very Fairly Not so
Yes No 7. How would you evaluate Mr. Kincaid in terms of
2. How confident are you about your answer to Ques- his likability?
tion 1? Very likable Fairly likable
Very Fairly Not so Not so likable
3. Given the service (the design of risk management 8. How would you evaluate Mr. Kincaid in terms of
and insurance plans) and its expected use by Madi- his knowledge of the service he is selling?
son Energy, how would you evaluate the Mr. Kin- Very knowledgeable Fairly knowledge-
caid’s presentation? able Not so knowledgeable
Good Average Poor 9. How would you rate Mr. Kincaid in terms of his
4. How would you evaluate Mr. Kincaid in terms of overall competence?
his knowledge of Madison Energy’s problems and Very competent Fairly competent
operations?
Good Average Poor Not so competent
5. Suppose instead of sending Mr. Kincaid on to the 10. How would you rate Mr. Kincaid in terms of his
CFO, you personally had full responsibility for trustworthiness?
deciding whether your company would use the Sul- Very trustworthy Fairly trustworthy
livan Group as the company’s insurance broker.
Would you use the firm? Not so trustworthy
Yes No

CASE 23 THE SULLIVAN GROUP (B)

B
ob Mitchell, Director of Risk Management of setup a meeting with Bob Mitchell, Director of Risk
Madison Energy, a publicly traded firm that Management. If Mitchell felt that the situation war-
focuses on the servicing of producing oil and ranted further investigation, he would set up a meeting
gas wells, picked up his phone and heard his secretary between the broker and someone in Accounting Opera-
say, “A Mr. Matthew Kincaid of the Sullivan Group is tions to meet to gather information. A tour of facilities
here to see you.” would also take place to ensure familiarity with Madi-
“Send him in,” Mitchell replied. son’s needs. Following information gathering, the bro-
ker would develop a proposal that would be presented
BACKGROUND INFORMATION to Mitchell. If he felt it was a viable and attractive
proposal, he would pass it along to the Chief Finan-
Madison Energy is a rapidly growing company and the
cial Officer (CFO). If approved at this point, the CFO
complexity of their risk management needs is increas-
would present an overview of the proposal to the Audit
ing accordingly. The major assets Madison Energy
Committee of the Board of Directors for final approval.
needs to protect are its oil and gas wells, workers in
the field, and the heavy equipment used on the well- Matthew Kincaid, an Account Executive of the Sul-
sites. In fact, the company has now reached a level livan Group, is about to discuss his company’s insur-
financially where it requires an array of insurance ance services and its specific experience with oil and
products and services to adequately handle its growing gas clients. The only previous meeting between Bob
exposure to loss. Mitchell and Matthew Kincaid came two weeks ago at
The usual first step of the selling process for insur- a local charity event. Mitchell invited Kincaid to come
ance products and services is for a brokerage com- by the office to discuss what the Sullivan Group might
pany to call on Madison Energy directly to try and be able to do for Madison Energy.
464 CASES ANALYSIS

THE INTERVIEW person in safety, finance, and operations. I have conver-

sations with these individuals, get into more detail with
Kincaid: Good to see you again, Bob. How are things? them, and figure out what this situation is costing you and
Mitchell: Great, Matt. Please, have a seat. how realistic it would be for your organization to create
Kincaid: Thank you. . . . Bob, we work with executives of a partnership that could offload that work—saving you
oil and gas companies like yourself who from time to both time and money. Then, I’ll come back to you with
time find themselves frustrated with the effectiveness of an analysis of those costs. Would that be helpful?
the insurance programs in terms of cost and time it takes Mitchell: Yes. That sounds like a good idea to me.
to accurately resolve claims issues. But before we go any Kincaid: Great. If I may, I would also like to ask you just a
further I wanted to ask you some questions to get to know couple more questions before I get started with your core
Madison Energy a bit better. Is that okay with you? team members.
Mitchell: Sounds great. Mitchell: Sure.
Kincaid: Good. First off, Bob, I know Madison has experi- Kincaid: Bob, as you look at the entire process of cre-
enced a lot of growth over the last few quarters, so how ating a new partnership with an insurance brokerage
does this new business vision relate to your needs from firm—starting with the installation of a new risk man-
an insurance and risk management standpoint? agement program—which part of this process concerns
Mitchell: Put simply, Matt, our business is just a lot more you the most?
complex—not just because we are three times as large Mitchell: As you are aware, the growth plan for our com-
as we were this time last year, but also because we have pany calls for rapid expansion. So, my concern: Are we
some very significant assets now that require solid protec- going to be able to properly address all areas of Madison’s
tion; perhaps the biggest being our people in the field. You exposure to loss quickly enough and be able to mitigate
know how dangerous this business can be, and you also any claim issues that do arise?
know how expensive coverage like workers compensation Kincaid: Can you help me understand what “quickly
can be. We need the peace of mind knowing that we have enough” would be in your situation?
a great risk management program that still enables us to Mitchell: Well, Matt, ideally, we would like to have a new
remain financially competitive to our competitors. insurance broker implementing a competitively priced
Kincaid: Absolutely. Now, let’s talk a bit more about some plan that protects our company’s major assets by the start
of these new complexities Madison is facing. I did a lit- of next quarter—which is next month. Also, it sure would
tle research before our meeting today and talked to a few be nice to get our safety guys back to doing safety work
members of your safety and environmental departments to instead of calling insurance companies as soon as pos-
determine if they were seeing an increase in the number of sible.
complex insurance claims. They mentioned that because Kincaid: What seems to be the key contributing factors to
Madison recently launched an extensive five-year growth making that transition a smooth one and a quick one?
plan, both the number and complexity of claims has Mitchell: I would say it is effective communication with
indeed increased significantly—which is perfectly ordi- each department of Madison Energy that is involved with
nary for a firm of your size. We talked a bit further and the insurance and risk management program. Getting our
they estimated that it works out to about 70 hours per broker on the same page with each division is very impor-
week of their collective time devoted to handling these tant. If we can make a smooth transition, especially with
claims with the insurance company. So Bob, what I’m the time pressures we are dealing with, it will be a big
wondering is, relative to all other issues Madison’s safety help in the kickoff of our growth plan.
and environmental group is already dealing with, is the
potential offload of 70 hours per week worth looking into At this point, Mr. Kincaid asks Mr. Mitchell a
any further? few more questions about Madison’s new growth plan.
Bob: Well, those guys are right; they have had to spend way Finally, Mr. Kincaid rises and shakes hands with
too much time on the phone with insurance companies
Mr. Mitchell.
and adjusters to properly close claims. We really need
them in the field. So, yes, I think it is definitely worth Kincaid: Bob, thanks again for your time. Knowing that time
exploring. is of the essence, I will report back in ten days, if that
Kincaid: Bob, what I would suggest is that you recommend is okay with you. Meanwhile (Kincaid hands Mitchell his
a few of your top people to me—what I like to call business card), please don’t hesitate to call me if you have
your brain trust. These people represent the functions that any other questions or information you would like me to
are impacted by this situation. Usually, I speak to a key obtain for you.
VENTURE INSURANCE CORPORATION 465

DISCUSSION QUESTIONS deciding whether your company would use the Sul-
livan Group as the company’s insurance broker.
Assume that the decision to use the Sullivan Would you use the firm?
Group as your company’s insurance brokerage firm Yes No
would involve a minimum bottom line expense of 6. How confident are you about your answer to Ques-
$250,000. tion 5?
1. You must now decide whether to send Mr. Kincaid Very Fairly Not so
of the Sullivan Group to see the operations people. 7. How would you evaluate Mr. Kincaid in terms of
Would you send him? his likability?
Yes No Very likable Fairly likable Not
2. How confident are you about your answer to Ques- so likable
tion 1? 8. How would you evaluate Mr. Kincaid in terms of
Very Fairly Not so his knowledge of the service he is selling?
3. Given the service (the design of risk manage- Very knowledgeable Fairly knowledge-
ment and insurance plans) and its expected use by able Not so knowledgeable
Madison Energy, how would you evaluate the 9. How would you rate Mr. Kincaid in terms of his
Mr. Kincaid’s presentation? overall competence?
Good Average Poor Very competent Fairly competent
4. How would you evaluate Mr. Kincaid in terms of Not so competent
his knowledge of Madison Energy’s problems and 10. How would you rate Mr. Kincaid in terms of his
operations? trustworthiness?
Good Average Poor Very trustworthy Fairly trustworthy
5. Suppose instead of sending Mr. Kincaid on to the Not so trustworthy
Board, you personally had full responsibility for

CASE 24 VENTURE INSURANCE CORPORATION

J
ohnny Ramone groaned to himself as he reread would have a meeting with the legal staff to decide
the letter from Murry Fine, the attorney for what to do.
Andrew Farriss. The letter threatened both a
lawsuit for wrongful termination and a complaint to the
VENTURE INSURANCE CORPORATION
Equal Opportunity Employment Commission. Andrew
Farriss had been fired by Joni Mitchell, the sales man- Venture Insurance was established in Columbus, Ohio,
ager of the Texas sales district, at the end of 2004. in 1946 after the end of the Second World War II. Ven-
A call to the head of the Venture Insurance legal ture sells health, fire, theft, personal injury, and other
staff provided a recommendation that Johnny gather types of business insurance to business owners and cor-
information on Andrew Farriss, Joni Mitchell’s record porations. It also sold insurance policies to businesses
as a sales manager, and information on the performance to cover the disruption in operations from the death of
of other salespeople in the eighteenth district. The attor- key managers. Until 1976, Venture issued policies only
ney also recommended that all of the information be in Ohio, Illinois, Michigan, and Indiana.
gathered within two weeks. This would allow Johnny In 1976 Venture started expanding geographically
to review the information and see if there actually was in the United States and Canada. In late 2000, Venture
a problem. After Johnny reviewed the information, he completed this expansion when it received permission

Avery Abernethy © 2006. All rights reserved.

466 CASES ANALYSIS

to issue policies in Texas. In 2001 the eighteenth sales than the best male salespeople. However, all of the
district covering Texas was opened in Dallas with Joni female managers were qualified sales management can-
Mitchell as sales manager. didates. Due to these changes in promotion policies,
Venture’s sales operations are divided into eighteen Venture lost about 10 percent of its top-performing
sales districts. There are between eight to fifteen sales- male salespeople to competitors or other business
people per district. A sales manager supervises each opportunities between 1985 to 2004.
district. Johnny is one of two regional managers and Exit interviews with these departing male salespeo-
he oversees 9 sales districts. He reports to the national ple sometimes uncovered considerable hostility toward
sales and marketing manager. Venture. One salesperson who departed after being in
Venture’s target market are the owners of small and the top 5 percent of sales for seven years in a row
medium size businesses. A typical policy will cover a commented, “I got three offers of management posi-
company of $35 million in sales and 30 employees. tions within a month of looking for another job. I was
Currently, Venture does not have any policies with For- turned down for promotion at Venture three times in the
tune 1000 companies. last three years for people outside of the company or
Originally, the entire sales staff was white males. In for women with weaker sales performance. The names
the 1940s and 1950s most business owners were males, of the Top 15% Club and the Top 5% Club are pub-
and Venture thought having a sales staff who related lished in the company newsletter, so I know that my
well to customers would be most effective in the field. performance was better than ***** and *****. I was
The first female sales representative was hired in 1958. never going to get ahead at Venture regardless of my
Venture also had a strong company ethic of promoting performance. You’re lucky you have not been sued yet
from within. The most outstanding employees in the for reverse discrimination. I was stupid for staying at
company were groomed for advancement. Only when Venture for as long as I did.”
special circumstances arose did the company hire out- Venture’s mission statement has an emphasis on
side management talent. profitability, customer service, and diversity. Diversity
Changes in federal law in the 1960s and 1970s, is an important goal because it helps Venture better
along with increasing numbers of businesses owned relate to customers from different backgrounds. Diver-
by women and minorities, resulted in a radical shift sity provides Venture with a better understanding of
in Venture’s recruiting policies. Venture’s market share customers, which in turn allows Venture to better serve
declined from 1975 to 1985. Part of this market decline the needs of it customers.
was attributed to outdated recruiting policies. Although
an increasing number of small businesses were owned
by women or minorities, Venture’s sales staff was GENERAL SALES TRAINING AND SELLING POLICIES
90 percent male in 1985. Venture’s top management
decided to aggressively diversify its sales staff. For the Venture salespeople are paid a base salary plus a
next ten years 80 percent of all new hires were females 7 percent commission on the premiums of policies
or minorities. By 2000, the sales staff was 60 percent sold. Each salesperson has a responsibility to cover
male, and eight of the eighteen sales managers were a specific geographic territory. Salespeople are respon-
female. These personnel changes, combined with sev- sible for selling new policies, maintaining current poli-
eral other strategy changes, caused Venture’s market cies, handling customer problems, and doing the initial
share and sales to increase. Venture’s revenue growth investigation of payment claims.
averaged 9 percent higher than the average growth in Each salesperson goes through an intensive two-
the industry from 1986 to 2003. month training program in Columbus. After success-
These personnel policy changes did not occur with- fully completing the training program, each salesperson
out problems. Until 1985, Venture had always pro- is assigned a sales territory. Existing salespeople are
moted the most successful field sales representatives also given training on new insurance policies, changes
to sales manager. However, due to Venture’s outdated in insurance coverage and policies, and selling tech-
hiring policies, this meant that only one of the sixteen niques during district sales meetings for one or two
sales managers in 1985 was female. In order to diver- days every month.
sify its management team, Venture hired several female Because the sales job requires considerable main-
sales managers from outside of the company. Ven- tenance and support for existing policies, there is a
ture also promoted to sales management positions sev- substantial salary component of total pay. To encour-
eral females whose performance was somewhat weaker age salespeople to generate new business as well as
VENTURE INSURANCE CORPORATION 467

maintain current policies, they receive a 7 percent com- honored as exhibiting Best Practices in the Industry
mission on the premiums paid by customers within at the 2003 meeting of the Business Insurance Trade
their territory. Unlike many other insurance compa- Association.
nies, Venture does not pay a bonus when new policies Sales managers are responsible for training exist-
are issued. Venture tries to maintain a balance of pro- ing sales reps, handling customer problems, doing
viding excellent service to existing customers while initial investigation of insurance claims within their
also aggressively seeking out new business. Venture’s district, conducting triannual reviews of salespeople,
management team believes that providing bonuses for designing and assigning sales territories, allocating
new policies could decrease the emphasis on providing salary increases, and setting sales quotas. Sales man-
excellent service to existing customers. agers recruit new salespeople. Sales managers are also
Salespeople are formally evaluated by their sales responsible for ensuring salespeople follow Venture
manager three times a year. These reviews have sev- policy. Most important, sales managers are responsible
eral objectives. First, they provide the opportunity for for meeting Venture’s financial performance standards.
one-on-one sales coaching and sales training. Second, If a district consistently underperforms financial goals,
they are used to provide warnings to poorly performing the sales manager is replaced with someone else. Sales
salespeople. Third, they are used to gather suggestions managers are paid a salary plus a bonus based on over-
for improving Venture’s information about customers, all district performance.
competitors, and marketing strategy. Salespeople are Because retaining current clients is important and
provided a brief written evaluation (usually one page or also because a significant portion of salesperson com-
less) and more extensive verbal feedback during these pensation is salary, sales mangers at Venture Insur-
review meetings.
ance are required to conduct performance reviews three
times a year with each salesperson. These performance
SALES MANAGER POLICIES AT VENTURE INSURANCE reviews contain a brief written evaluation (usually one
page or less). This written evaluation is signed by
All people selected for sales management at Venture
the sales manager and the salesperson. A copy of the
come from a background of insurance sales. New sales
evaluation is retained by the company and a copy is
managers undergo a variety of training. First, if they
also given to the salesperson. A more extensive verbal
are not experienced Venture salespeople, they undergo
review is also given during the face-to-face meeting
the same classroom training given to new recruits.
with each employee. The average meeting will last
They then spend two weeks studying Venture’s pol-
somewhere between 15 minutes and two hours.
icy and procedure manual. This is followed by an
Although preparing the evaluations and conducting
intensive three-day seminar by Venture’s legal staff
covering fine points of internal policy and procedures. the triannual review sessions is time consuming, Ven-
Next, the new sales managers spend a week with the ture thinks they are important to ensure that the sales
Head Claims and Adjustment Officer to learn the more managers keep up with the activities of the salesforce.
difficult parts of filing, reviewing, and investigating These meetings also provide salespeople an opportu-
insurance claims from policyholders. They then spend nity to provide information about clients, competitors,
two weeks shadowing an experienced sales manager. and selling strategies that could help Venture improve
During this shadowing process, the new sales manager its marketing efforts. Every effort is made by the sales
conducts a monthly training session and also sits in managers to have these review sessions three times a
on triannual reviews. The experienced sales manager year with each employee. But illness, client needs, and
also acts as an official mentor for the new sales man- scheduling difficulties will sometimes interfere with the
ager for the next eighteen months. After shadowing ability to schedule and hold these review sessions.
the experienced sales manager, the management recruit Venture believes in the Three Rights in maintain-
spends a week with his or her regional sales manager ing a highly effective sales staff. These are Recruiting
learning the allocation of sales territories, evaluation the Right People, Giving the Right Training, and Sup-
of employee performance, motivational techniques for plying the Right Feedback. The sales manager plays
the sales force, and other topics. a vital role in recruitment and in supplying feedback.
The training process for new sales managers lasts Sales managers are also vital to ongoing training of
six weeks for experienced Venture sales reps to four- existing staff. Right recruiting, training and feedback
teen weeks for recruits lacking sales experience with helped make Venture profitable and also keep salesper-
Venture. Venture’s sales manager training program was son turnover to 5 percent annually.
468 CASES ANALYSIS

Venture feels that it is essential that sales managers their names and photos in the e-mailed newsletter sent
follow the letter and spirit of company policies. Sales to all Venture employees, and also are honored at the
managers who fail to do so are either provided written national sales meeting. In addition to all of the honors
reprimands or terminated. given to members of the Top 15% Club, members of
the Top 5% Club have their photo taken with the Vice
Employee Satisfaction Survey President of Marketing, the CEO, and the Chairman of
Venture conducts brief, periodic anonymous employee the Board. They also are given luxury accommodations
satisfaction surveys. These surveys are used to monitor at the annual sales meeting.
employee satisfaction and also uncover potential prob-
lem areas within the company. Although the surveys
contain only seven questions, the information from the SALESPERSON CONTROLS
surveys has been helpful in the past in identifying areas
where managers are best motivating their subordinates. There are three primary control procedures used by
The last two surveys for the company were conducted sales managers. First, the sales manager sets sales quo-
in 2005 and 2002. Overall results, as well as results tas. At Venture, it is expected that all salespeople will
within each specific manager’s domain that contained make their sales quota. Failing to make sales quotas
at least six employees, are given to the core manage- is a serious shortcoming. However, it is also Venture
ment team as well as each individual manager. policy to set the sales quotas to both motivate the sales
staff to high levels of performance, but also not to
Salesperson Rewards set the sales quotas so high that they are not possi-
Sales managers have several tools to reward outstand- ble to obtain by experienced salespeople with good
ing salespeople. First, the highest performing salesper- work habits. New recruits are usually given to the end
son within a district is usually given the opportunity of their second year to make their sales quotas, but
to take over a better sales territory when one opens up failure to make significant progress is grounds for ter-
due to someone leaving or being terminated. An infor- mination. In sum, Venture expects the sales managers
mal policy at Venture is that the top-performing rep to carefully set quotas so they motivate outstanding
within a district gets the right of first refusal when a performance, are achievable by experienced reps with
new district opens up. Doing this allows the best sales- good work habits, and also weed out reps who signifi-
people to gradually move into the territories with the cantly underperform.
highest sales levels. This both increases the commis- The second control procedure is Venture policies
sions going to the best salespeople and also provides and procedures. Business insurance is a complicated
the best service level to the most important territories. product. Venture expects the salespeople to be highly
Second, the sales manager has total control over knowledgeable about Venture insurance policies. Ven-
the allocation of salary increases. It is Venture’s policy ture expects the sales representatives to follow all
that salary increases are given for merit only. Venture local and state laws and to operate in a highly ethi-
believes in pay for performance, not cost of living pay cal manner. Intentionally misrepresenting the content
increases. Better performing salespeople will gradually or coverage of Venture insurance policies to current
see their salary increase over time. or potential clients in order to get a quick sale is a
The third possible reward for outstanding salespeo- firing offense. Venture also expects sales reps to fol-
ple is promotion to sales manager. Although it is the low all company policies in all areas. This includes
stated company policy that sales managers be drawn filing accurate and timely reports, following all expense
from the ranks of the best company salespeople, Ven- account procedures, and operating their company car
ture also desires a diverse management team. These in a safe fashion. Salespeople with outstanding sales
two goals will sometimes come into conflict. Since performance who also intentionally violate important
there are relatively few sales manager positions, not company polices can be immediately terminated by
all outstanding sales reps can be promoted. their sales manager.
Venture has a salesperson recognition program. The third control procedure is the triannual reviews.
Salespeople who perform in the top 5 percent of com- Sales managers are expected to identify any seri-
pany sales are inducted into the Top 5% Club for the ous weakness of individual salespeople on the written
year. Salespeople who perform in the top 15 percent review. This is especially important if the sales rep
of sales are inducted into the Top 15% Club. Sales- is performing so poorly that he or she could be ter-
people gaining this recognition receive a plaque, have minated. Sales managers are also expected to praise
VENTURE INSURANCE CORPORATION 469

good performance and also to provide coaching sug- records confirmed that these were the performance
gestions for improvement. Much of the coaching and evaluations given to Farriss and that no evaluations
suggestions for improvement are handled verbally dur- were omitted.
ing the individual meeting with the sales rep.
December 31, 2002 Andrew, I am delighted with your
continued outstanding sales record. You beat your
SALESPERSON SANCTIONS quota by 9%. I’m pretty sure that in January you will
Sales managers have a variety of sanctions they can be named to the Top 15% Club for the second year in
a row. You are also getting a $3,000 merit salary raise
impose on poorly performing salespeople. They can
that will raise your total salary to $26,000 effective
provide negative verbal feedback during performance
January 31, 2003. Keep up the good work!
appraisals. They can give negative written performance
appraisals. Sales managers can withhold salary increase April 28, 2003 Andrew, your overall first quarter sales
from poorly performing reps. The sales manager can results are excellent. You do need to push a little harder
also fire sales reps who perform poorly or violate the in order to pick up a few more quality new customers.
law or company policy. You have plenty of money in your expense account
for prospecting, and I have confidence that you can
achieve this goal.
ANDREW FARRISS
April 30, 2004 Sorry we were unable to coordinate
Andrew Farriss was hired in late 2000 and was one of
schedules last quarter. I’m sure that you noticed the
the initial salespeople in the Texas sales district when extra $4,000 in merit salary raise that kicked in at the
it was formed in January 2001. Andrew held the San end of January. You beat quota again in 2003.
Antonio territory during his entire employment with You need to spend more time traveling outside
Venture. Andrew was named to the Top 15% Club for of San Antonio in order to pick up some new clients.
his performance in 2001, 2002, and 2003. You have plenty of money for a few more road trips.
Andrew was terminated by Joni Mitchell for failure Congratulations for making the top 15% club for
to make his sales quota at the end of 2004 and replaced the third year in a row.
by Michael Anthony.
January 2, 2005 Mr. Farriss, you are being terminated
The letter from attorney Murry Fine charged that
from the Venture Company for failing to make your
Joni Mitchell had wrongfully terminated Andrew in sales quota. I have warned you repeatedly about the
violation of Venture’s own internal policies. Andrew importance of hitting the company’s financial targets.
claimed that Joni had: (a) failed to provide notice Your termination is immediate, and you will be granted
of poor performance that could result in termination the standard one month severance pay.
in triannual reviews; (b) failed to conduct Andrew’s
triannual reviews; (c) given Andrew a poor territory Phone Interview by Johnny Ramone
and withheld the opportunity to have high commis- with Joni Mitchell, January 22, 2006
sion income; (d) imposed much higher sales quotas
on Andrew than those given to other salespeople in Johnny: Tell me about Andrew Farriss.
the district, and (e) denied Andrew promotion to sales Joni: Andrew initially did well. Unfortunately, his per-
manager. formance continued to slip after a great start.
The letter further claimed that Joni had system- Johnny: What did Andrew do well?
atically provided poor territories and thus low com- Joni: His initial sales levels were tops in the district.
mission income to male employees. Joni was also Unfortunately, he continued to slide after the first
charged with creating a hostile work environment for year. He beat quota by 20 percent in 2001, 9 per-
men by failing to hold required performance evalu- cent in 2002 and only 2 percent in 2003. He also
ations and by making disparaging comments toward made the Top 15% club a couple of times, but
male salespeople. The letter also claimed that Venture was never good enough to hit the Top 5% club.
had systematically denied opportunities for promotion Andrew just would not follow my recommenda-
and advancement in sales management to male employ- tions.
ees and instead had promoted more poorly performing Johnny: What do you mean?
women. Joni: Just like company policy states, I reminded him
The letter also contained the last four performance every evaluation that hitting his sales quotas was
evaluations given to Andrew Farriss. The written eval- critical. But he expected to become a manager
uations were very, very brief. A quick check of the after only one year—and that year was not that
470 CASES ANALYSIS

EXHIBIT 1 Sales and Sales Quotas 2001–2005

2001 Sales to 2002 Sales to 2003 Sales to 2004 Sales to 2005 Sales to
Sales Quota Sales Quota Sales Quota Sales Quota Sales Quota
Andrew Farriss 420000 1.2 435000 1.0875 450000 1.022727 465000 0.978947 T
Garry Gary 275000 0.785714 T
Donita Sparks 320000 0.914286 370000 1.013699 400000 1 430000 1.02381 460000 1.045455
Michael Hutchence 370000 1.057143 380000 1.013333 398000 0.995 419000 0.997619 450000 1.022727
Jesse Valenzuela 280000 0.8 350000 0.921053 T
Suzi Gardner 360000 1.028571 385000 1.026667 415000 1.0375 440000 1.047619 475000 1.055556
Phillip Rhodes 390000 1.114286 430000 1.075 490000 1.139535 T
Bill Leen 377000 1.077143 390000 1.026316 420000 1.02439 430000 1.02381 460000 1.045455
Doug Hopkins 410000 1.171429 420000 1.05 440000 1.047619 460000 1.045455 485000 1.021053
Robert Becker 400000 1.142857 425000 1.089744 460000 1.069767 490000 1.042553 540000 1.058824
Jennifer Finch 340000 0.918919 385000 0.9625 T
Gail Greenwood 392000 1.005128 425000 1.011905 440000 1
Janis Tanaka 390000 0.975 410000 0.931818
Dee Palakis 440000 1.1 490000 1.088889
Michael Anthony 440000 1.1

T = Terminated or Left the Company

great. He never got into the 5% club, but expected more than the women. Their commission income
to be promoted after only one year. is higher. It is just like him to blame someone
Johnny: What recommendations did you give him? else for his failure to follow good advice.
Joni: He needed to make quota every year. He did not Johnny: Thanks for the information. I will get back with
pick up enough accounts. He also did not spend you on this.
his expense budget. I kept telling him that if he
could travel more outside of San Antonio, he
could pick up more business. He had the money Phone Interview with Roy Moffitt:
to do it, and his district was compact, but he just Venture Staff Attorney
would not travel much. His performance kept slip-
ping until he failed to make quota. Johnny: Hello, Roy. Did you get the fax with all of the
Johnny: Seems like you missed a couple of evaluations information?
with him. Roy: I have your interview with Joni Mitchell and the
Joni: You know how difficult it is sometimes to coor- last four performance evaluations of Andrew Far-
dinate schedules. If you have an uncooperative riss. I also have the following information from
employee, it is all the harder. I make 80 to 90 the Texas district for 2001–2005: sales and sales
percent of my evaluations every year. My district quota information; the pattern of Joni’s triannual
has also always hit company financial targets! As performance evaluations; expense account spend-
you tell me in our meetings, my job is to fol- ing by salesperson; total sales rep pay; and the
low policy and make lots of money for Venture. results of the last two employee satisfaction sur-
My district is in the top 30 percent in financial veys. (See Exhibits 1–5).
performance year in and year out. Johnny: What do you think?
Johnny: Andrew claims that he had a poor territory. Roy: I’m not sure what to think. Andrew missed quota
Joni: Bull! and Joni fired him. Andrew’s evaluations are
Johnny: Bull? pretty good up until the last one. The big ques-
Joni: Yeah, bull. He made more commission money tion is do you think that Joni is following com-
than most people in the district. pany policy? You have gotten a lot of good data
Johnny: Andrew also claims that you did not treat men together, but only you can determine if Joni’s
well. actions follow company sales policy.
Joni: Andrew is a crybaby. The men in my district make Johnny: You’re dumping this on me?
VENTURE INSURANCE CORPORATION 471

EXHIBIT 2 Triannual Performance Evaluations

2001 2002 2003 2004 2005
Sex 1st 2nd 3rd 1st 2nd 3rd 1st 2nd 3rd 1st 2nd 3rd 1st 2nd 3rd
Andrew Farriss M C C M C C C C M M C M T
Garry Gary M C C T
Donita Sparks F C C C M C C C C C C C C C C C
Michael Hutchence M C M C C M C C M C C C M C M C
Jesse Valenzuela M M C M C C T
Suzi Gardner F C C C C C C C C C C C C C C C
Phillip Rhodes M C M M C C C C C T
Bill Leen M C C C M M C C C C C C C C C M
Doug Hopkins M C C C C C M M C M C C C M C C
Robert Becker M C C C C C M C C C C C C C M C
Jennifer Finch F C C C C C T
Gail Greenwood F C C C C C C M C C
Janis Tanaka F M C C C C C
Dee Palakis F C M C C C C
Michael Anthony M C C C

C = Completed Evaluation
M = No Evaluation Completed
T = Termination or Left Company

EXHIBIT 3 Expense Account Spending 2001–2005

2001 2002 2003 2004 2005
Andrew Farriss 9800 9950 10500 10750 T
Garry Gary 11900 T
Donita Sparks 10900 11000 11300 12700 13000
Michael Hutchence 12000 12500 13000 13400 14000
Jesse Valenzuela 12000 12500 T
Suzi Gardner 11490 12100 12800 13100 13900
Phillip Rhodes 11700 12100 12600 T
Bill Leen 11250 12200 12900 13400 13900
Doug Hopkins 11700 12100 13000 13100 13900
Robert Becker 11850 12500 12750 13490 14000
Jennifer Finch 9900 11100 T
Gail Greenwood 13000 13100 13900
Janis Tanaka 13500 14000
Dee Palakis 13400 13900
Michael Anthony 13500
Spending Cap 12000 12500 13000 13500 14000

Roy: I have to. You are responsible for half of the com- Roy: The critical issue is if Joni followed Venture’s
pany’s sales managers. You handle day-to-day sales and management policies and treated every-
policy implementation. If Mr. Farriss sues, you one reasonably equally. If she did, then we don’t
will be interviewed and all of the information you have a problem. You can fire someone for not
sent me would have to be turned over to Andrew. hitting quota, but if you single him out for bad
I don’t know if Joni’s actions are out of line treatment, he might win in court. Nobody expects
or not. a manager to be perfect, but if Joni singled out
Johnny: Why don’t you know if Joni’s actions are right? Andrew for bad treatment, and especially if she
472 CASES ANALYSIS

EXHIBIT 4 Total Sales Representative Pay

2001 2002 2003 2004 2005
Pay Pay Pay Pay Pay
Andrew Farriss 49400 53450 57500 62550 T
Garry Gary 39250 T
Donita Sparks 42400 50900 57000 63100 70200
Michael Hutchence 45900 50100 54860 58330 63500
Jesse Valenzuela 39600 45500 T
Suzi Gardner 45200 52950 59050 65800 73250
Phillip Rhodes 47300 55100 63300 T
Bill Leen 46390 50300 55400 60100 66200
Doug Hopkins 48700 52900 56800 62200 68950
Robert Becker 48000 54750 61200 67300 75800
Jennifer Finch 48800 55950 T
Gail Greenwood 55440 63750 68800
Janis Tanaka 59300 64700
Dee Palakis 62800 72300
Michael Anthony 64800
T = Terminated or left company

EXHIBIT 5 Employee Satisfaction Survey

2002 2002 2002 2002
Total Overall for District 18 District 18
Salesforce District 18 Males Females
Overall Job Satisfaction 5.2 4.65 4.5 5
Satisfaction with Supervisor 4.5 4.6 4 6
Satisfaction with Training 6 5.7 6 5
Satisfaction with Pay 3.78 3.6 3 5
Satisfaction with Company Policies 4.4 5.3 5 6
Satisfaction with Co-Workers 5.9 6 6 6
Satisfaction with Customer Relations 3.9 4.15 4 4.5

2005 2005 2005 2005

Total Overall for District 18 District 18
Salesforce District 18 Males Females

Overall Job Satisfaction 5.3 4.75 4 5.5

Satisfaction with Supervisor 4.4 4.75 3 6.5
Satisfaction with Training 6.1 5.25 5 5.5
Satisfaction with Pay 3.9 4 2.5 5.5
Satisfaction with Company Policies 4.2 4.75 4 5.5
Satisfaction with Co-Workers 5.9 6.25 6.5 6
Satisfaction with Customer Relations 3.85 4 4 4

Mean scores. 7 = totally satisfied; 1 = totally dissatisfied

systematically treated males badly, Venture could I can’t tell from looking at the data if Joni
be in trouble. was out of line or not. You will have to decide
You also have a responsibility to the com- this. You have to make a decision, we can’t punt
pany. If Joni is not following policy, you will a complaint like this one.
either have to reprimand her or fire her and find Johnny: You can’t imagine how happy I am to hear this.
a replacement. If Andrew was fired appropriately, Roy: Sorry. Just doing my job. I need a decision from
then you should back up Joni. you one way or another within the next two
WHITE ELECTRONICS 473

weeks. That will allow us to start putting together just a troublemaker? But according to the employee
our case. Call me back if you have any other ques- satisfaction survey Joni was much more popular with
tions. the female sales reps. Joni’s district did hit all of the
financial targets, though, and that was very important.
Johnny had a headache. He was going to have to It looked like he was not going to be able to pass
review Joni’s performance and decide whether to back the buck to the legal staff and he needed to make a
her up, reprimand her, or fire her. Maybe Andrew was decision.

CASE 25 WHITE ELECTRONICS

W
hite is a medium-sized electronics com- commission and an annual discretionary bonus. Since
pany that specializes in the manufacture of electronics salespeople did a great deal of developmen-
circuit boards, customized computer chips, tal work, their base wage amounted to about 60 percent
and test equipment. The electronic components are sold of their total compensation. Commission rates varied
by company salespeople directly to original equipment from 0.3 to 1.0 percent of sales, depending on the prod-
manufacturers (OEMs), and test equipment is handled ucts sold. The highest commissions were paid on items
by a second group of independent reps. Bill Hicks was with the largest gross margins. In the past, bonuses had
recently appointed national sales manager at White to been based on sales increases, with some attention to
supervise the company’s salespeople and the indepen- profitability. Each salesperson was also given a com-
dent reps. pany car and an expense account to cover travel and
Company sales for the Electronic and Test Equip- entertainment costs.
ment divisions amounted to $135 million in 2003. Test White’s sales of electronic components increased
equipment sold for relatively high prices and made up in 2003, but profits were relatively flat. Price compe-
the major portion of sales revenue. Independent reps tition was intense, and Hicks had been brought in to
were paid straight 6 percent commissions on all White improve sales force productivity and profits. Bill began
equipment sales in their territories. The volume of test his analysis by collecting some performance data on
equipment shipments had increased 15 percent the pre- his electronics sales force (Exhibit 2). After review-
vious year, and Bill was satisfied with the performance ing these numbers, he thought it might be useful to
of the reps. Also, the reps’ compensation plan made it calculate some additional control factors such as sales
difficult for White managers to direct their day-to-day per call, expenses to sales, sales growth, dollars of
activities. About all Bill could do with the independent gross margin, and sales to potential. White measured
reps was to replace them if they failed to push White’s potential by the number of manufacturers who used
equipment. White’s testing products were only one of electronic components in each sales territory and the
several lines of equipment carried by these reps. value of their finished product shipments. These num-
Bill Hicks was convinced, on the other hand, that a bers were derived from U.S. Census of Business data
review of the Electronics Division’s sales force would using SIC codes and territory boundaries. Bill decided
be quite useful. White currently covered the U.S. elec- to calculate penetration by dividing territory sales by
tronics market with eighteen company salespeople. The the total value of electronics shipments in each area.
assignments of individuals and descriptions of their ter- To help with his analysis, Hicks called up the
ritories are given in Exhibit 1. Electronics salespeople new spreadsheet software that he had recently installed
acted as consultants to OEMs and helped them solve on his computer. He then retrieved the White file.
product design problems using White boards and cus- The next step in Hicks’ sales force analysis was to
tomized chips. They were paid a base salary plus a calculate simple correlation coefficients among his

This case was prepared by Douglas J. Dalrymple of Indiana University.

474 CASES ANALYSIS

EXHIBIT 1 Descriptions of Sales Territories

Territory Number Salesperson Area Included
Assigned
1 Mary Holmes Vermont, New Hampshire, Rhode Island, Massachusetts, Maine
2 James Potter Connecticut, upstate New York (Rochester and east; includes Westchester County)
3 Harvey Stewart Long Island (Nassau and Suffolk counties), western Pennsylvania (Altoona and west)
4 Jane Thomas New York City (New York, Kings, Queens, Richmond, and Bronx counties), north
Jersey, western New York from Buffalo to Rochester
5 Chad Hunter Eastern Pennsylvania to Altoona, south Jersey, Maryland, Delaware
6 Harvey Phillips Ohio, West Virginia, Kentucky
7 Greg Lewis Indiana, Michigan
8 Anne Forbes Missouri, Nebraska, Kansas, Iowa
9 Bill Fredericks Illinois, Wisconsin, Minnesota, North and South Dakota
10 Sally Smith California north of Santa Barbara, Oregon, Washington, Idaho
11 Fred Reilly Los Angeles north to Santa Barbara (includes Santa Barbara, Ventura, and the
western part of Los Angeles County)
12 Marilyn Reed California south of Los Angeles (includes Orange, Riverside, San Diego, and Imperial
counties)
13 George Pardo Los Angeles (most of Los Angeles County and part of San Bernardino County)
14 Henry Dodds Colorado, Arizona, New Mexico, Utah, Wyoming, Montana
15 Todd Young Texas, Oklahoma, Arkansas, Louisiana
16 David Wood Mississippi, Alabama, Tennessee
17 Tammy Cook Virginia, North Carolina, South Carolina
18 Brad Wolf Georgia, Florida

control factors. The correlations that came up on the wage levels and commission rates. Another strategic
screen varied from 0.0 to ±1.0, and they showed question was whether White had enough electron-
the direction and intensity of associations among the ics salespeople. If extra salespeople were hired, Bill
performance variables. For example, a strong positive had to decide how old they should be when hired
correlation observed between sales and dollars of gross and how much experience was necessary. In addi-
margin (+0.806) was expected because gross margin tion, he had to decide if the present sales territories
dollars is simply sales minus the cost of goods sold needed to be redesigned. A reallocation of the ter-
(Exhibit 3). ritories would have to consider where to place any
Once his sales analysis was complete, Hicks had a new salespeople. The more Bill thought about these
number of decisions to make. The annual sales meet- problems, the more he was convinced that he needed
ing was scheduled in two weeks, and he needed to one of those new computerized territory design pro-
identify the best salespeople in each district and nation- grams he had seen advertised. Without a computer
wide so that “Salesperson of the Year” awards could program, he would have to draw some maps to ana-
be made. He wondered whether these choices should lyze the existing territories and plan for possible added
be made on the basis of sales alone or whether he salespeople.
should use some combination of performance variables. Beyond these decisions, Hicks had to make deci-
He also had to identify salespeople for retraining and sions concerning the factors he wanted to emphasize
for possible termination. If the data showed evidence to motivate his electronics salespeople to reach corpo-
of plateauing among his middle-aged salespeople, then rate objectives. Bill knew that his goals were unlikely
changes would be needed to correct this problem. Hicks to be reached if he asked his salespeople to improve
would have to specify the topics needed to be covered on ten different control factors all at the same time.
for those picked for retraining. In addition, Bill had Besides, improving some of the factors conflicted with
$55,000 in annual bonus money that he had to allo- the achievement of others. What he needed was a short
cate among the electronics salespeople. He was also list of prioritized factors to highlight at the upcoming
concerned about whether changes were needed in basic sales meeting.
 EXHIBIT 2 Sales Force Performance Dataa
Potential
Sales, Sales, Gross Territory Size Total Total Value
Territory 2002 2003 Margin Calls, Years of in Miles2 Number of Shipments Salary, Commissions, Expenses,
Number (millions) (millions) (%) 2003 Service Age (000) of Firms (millions) 2003 2003 2003 District
1 $1.839 $2.214 40% 770 2 32 58.4 1965 $9959 $34,100 $16,500 $ 4269 1
2 2.398 2.411 38 660 6 40 44.2 1461 10190 40,150 17,710 7096 1
3 2.497 2.640 33 1250 25 50 16.7 1023 4719 35,860 21,450 9510 1
4 1.509 1.739 36 900 7 34 8.7 2601 10360 37,950 11,440 15628 1
5 2.167 2.686 31 678 20 49 46.7 2264 16287 33,330 22,330 13027 1
6 1.183 1.190 44 610 3 40 104.8 2286 21195 33,000 10,450 9785 2
7 2.232 2.431 37 870 12 38 92.9 2465 23010 33,000 16,610 11797 2
8 1.561 1.632 45 580 16 46 283.3 1601 14240 33,000 11,660 22425 2
9 2.147 2.032 42 630 14 48 334.9 3306 25600 31,900 18,370 12014 2
10 2.012 2.621 40 492 3 32 356.3 3329 17980 39,600 17,380 12523 3
11 .831 .885 52 600 2 26 4.6 136 540 27,500 8,470 4741 3
12 1.658 2.251 28 1030 6 39 16.4 994 4047 33,000 12,100 4938 3
13 1.377 1.146 39 540 5 38 4.0 2127 10590 46,200 6,600 3477 3
14 1.058 1.081 49 480 2 26 662.9 1407 6407 33,000 10,560 14165 3
15 1.898 3.083 37 460 2 29 427.3 3130 26280 33,000 12,100 19431 4
16 1.856 2.578 25 820 5 36 139.1 1603 12303 33,000 14,520 18747 4
17 2.090 2.317 23 820 20 50 118.7 2167 18840 38,500 16,280 9602 4
18 1.224 1.565 39 830 5 28 112.2 2479 13232 28,050 10,340 25394 4

a Data are in file yorkdat.sav.

475
476

EXHIBIT 3 Correlations among Sales Force Control Factors

2002 2003 Sales/ Exp/ Exp/ Years Terr. No. of Value Sales
Sales Calls Calls Expenses Sales Calls Service Age GM (%) GM ($) Size Firms Ship. Penetration Growth Commissions
Sales 1.000 .285 .718 .140 −.435 .115 .346 .332 −.666 .806 .000 .353 .389 .279 .637 .738
Calls .285a 1.000 −.430 −.112 −.221 −.492 .499 .371 −.562 −.047 −.583 −.318 −.343 .725 .071 .358
Sales/call .718 −.430 1.000 .254 −.204 .517 −.079 −.035 −.174 .810 .447 .576 .587 −.203 .611 .355
Expenses .140 −.112 .254 1.000 .807 .875 .061 −.124 −.021 .174 .428 .369 .359 −.337 .436 −.060
Exp/sales −.435 −.221 −.204 .807 1.000 .714 −.121 −.302 .379 −.282 .445 .082 .048 −.386 .026 −.412
Exp/call .115 −.492 .517 .875 .714 1.000 −.120 −.241 .207 .301 .718 .425 .450 −.452 .440 −.147
Years of service .346 .499 −.079 .061 −.121 −.120 1.000 .874 −.429 .120 −.216 −.030 .117 .249 −.211 .640
Age .332 .371 −.035 −.124 −.302 −.241 .874 1.000 −.478 .098 −.284 .057 .244 .180 −.297 .599
GM(%) −.666 −.562 −.174 −.021 .379 .207 −.429 −.478 1.000 −.117 .356 −.111 −.125 −.354 −.420 −.430
GM ($) .806 −.047 .810 .174 −.282 .301 .120 .098 −.117 1.000 .248 .486 .472 .064 .478 .631
Territory size .000 −.583 .447 .428 .445 .718 −.216 −.284 .356 .248 1.000 .333 .331 −.326 .174 −.075
No. of mfg. .353 −.318 .576 .369 .082 .425 −.030 .057 −.111 .486 .333 1.000 .846 −.570 .238 .192
Value ship. .389 −.343 .587 .359 .048 .450 .117 .244 −.125 .472 .331 .846 1.000 −.630 .203 .236
Penetration .279 .725 −.203 −.337 −.386 −.452 .249 .180 −.354 .064 −.326 −.570 −.630 1.000 .116 .271
Sales growth .637 .071 .611 .436 .026 .440 −.211 −.297 −.420 .478 .174 .238 .230 .116 1.000 .131
Commissions .738 .358 .355 −.060 −.412 −.147 .640 .599 −.430 .631 −.075 .192 .236 .271 .131 1.000

a Correlations of .320 and larger are significant, with a probability of error of <.10.
WINSTON LIU, BOOKMAN 477

CASE 26 WINSTON LIU, BOOKMAN

Every day, in every way, I get better and better. I feel than Bibles and more consistent with the image of col-
happy, I feel healthy, I feel terrific! lege students.
At present the educational books and software were

W
inston (Winnie) Liu repeated the mantra to
himself, as a young woman wearing a sal- sold to families in their homes by students during their
warl suit answered the door he had just summer breaks. Students were independent contractors
knocked on. Almost three months after starting his own and had the opportunity to run their own businesses by
business selling children’s books door-to-door, Win- purchasing products from Southwestern at wholesale
nie was working through a wealthy neighborhood in and selling them at retail. Students relocated away from
home to a different part of the country for the summer,
Edmonton, Alberta. Surrounded by enormous houses
away from distractions that might drain attention and
and manicured lawns, he reflected for a moment about
profits from their business.
the promising summer that now found him hungry,
In 1998, Southwestern recruited 3000 students
lonely, and desperate for a sale.
from over 300 universities across Canada, the United
Anita Howard, a sales manager with the Southwest-
States, and Europe. The average 1998 summer profits
ern Company, recruited Winnie during his first year at
of Southwestern Student Dealers who sold for three
the University of Western Ontario (Western). He filled
months (US$) were:
out a card he had received in a chemistry class indi-
cating he was interested in running his own business First summer students: $6,994
during the summer. After meeting with Winnie, Anita Second summer students: $12,891
believed his work ethic, persistence, and friendly per- Third summer students: $17,189
sonality combined with his passion for education would Fourth summer students: $23,364
make him an excellent salesperson. She asked Winnie
After the first summer, students could be selected
to consider starting his own business selling books, and
for student management. Many students worked four,
Winnie agreed, excited about the possibility of being
five, six or more summers, gaining invaluable expe-
his own boss and making a lot of money. Between Jan-
rience by developing their own sales organizations
uary and April, Winnie memorized the prepared sales
throughout their university careers.
talks and attended sales training meetings given by stu-
dents who had sold books before. His enthusiasm for
a rewarding summer grew. THE BOOKS
The two main products sold by the students were
THE SOUTHWESTERN COMPANY the Student Handbook (a fourbook set, USA) and
the Volume Library (a three-book set, Canada). These
The Southwestern Company, located in Nashville, Ten- books were study guides designed to complement,
nessee, was founded in 1855. The U.S. Civil War not replace, encyclopedias and CDROMs. The Student
exhausted the fortunes of many Southwestern Amer- Handbook and the Volume Library contained practical
ican families, and in 1868 the company began helping “how to” information for subjects ranging from math
students finance their school expenses through selling and chemistry to grammar and geography, from the
books door to door. Over the years the company real- grade 1 to grade 12 level. Students in Canada sold the
ized that educational materials were more profitable Volume Library set for $320 retail, taking a 40 percent

Sam Barnhart prepared this case under the supervision of Donald W. Barclay solely to provide material for class discussion. The authors do not
intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other
identifying information to protect confidentiality. Ivey Management Services prohibits any form of reproduction, storage or transmittal without
its written permission. This material is not covered under authorization from CanCopy or any reproduction rights organization. To order copies
or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The
University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail [email protected].
Copyright © 1999, Ivey Management Services Version: (A) 1999–10–25
478 CASES ANALYSIS

commission from the sales price. Though the prices without a sale meant stretching his meager food bud-
were only a suggestion from the Southwestern Com- get a little further. He had been eating peanut butter
pany, students followed the guidelines for consistency and jelly for a week straight. For the first time Win-
across consumers. Since several students would be sell- nie allowed himself to think about quitting and going
ing in every city, it was very likely that friends and home.
relatives might buy the books from different students. Now Winnie was sitting in the home of Ravish
Consistency also helped maintain the image of South- and Kavita Patel, successful stockbrokers and parents
western, which was critical in this door-to-door sales of three children. Halfway through the demonstration
context. Ravish asked his wife to bring in the friends they were
entertaining in the backyard. These four couples, all
wealthy descendants of hardworking immigrants, lived
SUCCESS in the immediate neighborhood, and all had children
The first of two keys to students’ success in selling ranging in age from 7 to 13. All of their children
children’s books was establishing themselves as legiti- attended Temple, the private school of choice for par-
mate education consultants in the community. Students ents in this neighborhood.
sought to understand the strengths and weaknesses Each of the parents liked the study guides. More
of the schools and teachers in the community, and importantly, their children were enthusiastic about the
the attitudes of parents toward the teachers, schools, books too. Ravish moved to face Winnie and said,
and school board. This allowed them to better under- “Okay, you’ve sold us, so no fancy close, Winnie. How
stand customer needs and to connect quickly during a much for the set?” Prepared for the no-close close that a
sales call. fellow salesperson usually called upon, Winnie replied
The second key to success was financial planning. confidently, “It’s not the hundreds or even thousands
Students submitted a high portion of their earnings to that these study guides would cost if you bought them
the Southwestern Company to secure delivery at the by subject individually. All three books for $320. With
end of the summer (time and experience had demon- tax (7% GST) and shipping, the total is only $343.
strated that students were not good credit risks), so That’s pretty good, isn’t it?”
planning was essential to ensure cash flow to cover Ravish turned to the other four couples and spoke
expenses during the summer. briefly in a language Winnie did not entirely understand
but recognized as Hindi. After a brief exchange, Ravish
turned to Winnie and said, “Here’s the deal. Winnie,
WINNIE’S SUMMER what do you make from these, 20 percent? That’s about
After a week of sales training at company headquarters $65 per couple here, $325 for you. We’ll pay you cash,
in Nashville, Winnie drove to Edmonton, Alberta, with up front, and cover shipping. Don’t charge us tax, we’ll
seven students. He found a place to live with Holden pay $310 each. We want just a 10 percent discount. If
McArthur, who had also just completed his first year you don’t pay tax, you only give up $50 and you get
at Western, and Seymour Burke, a student from British five sales now. Boom.”
Columbia, who had sold books during the previous two Winnie did the math in his head. Ravish had under-
summers. Winnie and Holden competed against each estimated his margin by one-half (Winnie normally
other daily, not just for sales, but for what they called received 40 percent of the retail price) and he would
“feel gooders.” These included positive attitude, ran- actually be giving up about $140 for the sale. But the
dom acts of kindness, and the number of people they potential profit was about $500, not the $325 Ravish
had cheered up during the day. had calculated.
Winnie had been successful in all ways until the Winnie responded, less confident now, but sure that
third week of June. He began working in a much Ravish was not objecting to the price. “Everyone pays
wealthier area than he had been in before. His knowl- the same price. There are other students in the city run-
edge of local schools, teachers, and students was unus- ning their businesses and they charge the same price.
able because these schools and people were unfamiliar I’ve charged the same price to everyone so far and I’m
and unrecognized. The children in this neighborhood going to charge the same price for the rest of the sum-
went to private schools. On Wednesday morning Win- mer. Besides, wouldn’t you feel cheated if you found
nie looked over his sales stats for the past two days: out your neighbor got 20 percent off? That’s why I
94 calls, 41 demonstrations, and no sales. Every day charge the same price to everybody.”
WINSTON LIU, BOOKMAN 479

Ravish spoke slower now, “No one has to know, Next summer, the Southwestern company would send
Winnie. Think about $1,550 in your pocket right now. students out to work in this area again, just as he was
For overlooking a silly tax and giving us a small now working in a territory where someone had sold
break. You can call it a ‘Volume Discount for Vol- books in the previous summer. The information he col-
ume Libraries.’ ” His guests chuckled at Ravish’s pun. lected would benefit them tremendously, as would the
Ravish continued, “Come on, Winnie. We’re salespeo- testimonials they would be able to obtain from five
ple too. This is no big deal.” He sat back in his plush families of book owners.
chair and sighed softly, “If you don’t like the deal, you Ravish was right, no one had to find out about this
should leave now.” discount. It was only a small discount. Winnie also felt
Winnie considered the offer. The names of these that the GST was a silly tax. And $500 would end his
families and their children would open doors in peanut butter and jelly marathon immediately. He could
this neighborhood. He desperately needed information almost taste a steak dinner and chocolate milkshake.
about Temple, which these people could give him. Winnie took a slow, deep breath, and spoke to Ravish.
This page intentionally left blank
CREDITS

Chapter 1 Figure 2-4: Adapted from Stanley Slater

and Eric Olson, “Strategy Type and Per-
Figure 1-3: Adapted from The Chally World formance: The Influence of Sales Force
Class Sales Excellence Research Report:
Management,” Strategic Management Jour-
The Route to the Summit, (HR Chally
nal, 21, 2000, p. 813–829.
Group, 2007), p. 3–4.
Figure 2-5: Adapted from Zoltners et al.,
Figure 1-4: Ginger Canton, Lisa Napolitano,
2001, p. 8.
and Mike Pusateri, Unlocking Profits: The
Strategic Advantage of Key Account Man- Figure 2-6: Adapted from Zoltners et al.,
agement (Chicago, IL: National Account 2001, p. 12.
Management Association, 1997), p. 44. Figure 2-7: Adapted from Zoltners et al.,
Figure 1-5: Thomas Muccio, “Procter & 2001, p. 18.
Gamble: Allocating Resources,” in Unlock- Figure 2-8: Adapted from Zoltners et al.,
ing Profits: The Strategic Advantage of 2001, p. 21.
Key Account Management, Ginger Canton,
Lisa Napolitano, and Mike Pusateri (eds.), Figure 2-9: Adapted from Rajendra Sri-
(Chicago, IL: National Account Manage- vastava, Tasadduq Shervani, and Liam
ment Association, 1997), p. 66. Fahey, “Marketing, Business Processes,
and Shareholder Value: An Organizationally
Team Exercise “The Prima Donna” adapted
Embedded View of Marketing Activities
from “Sales and Marketing Challenges,”
and the Discipline of Marketing,” Jour-
Sales & Marketing Magazine (May 2007),
nal of Marketing, 63 (Special Issues 1999),
p. 48.
p. 170.
Figure 1-7: Adapted from “Sales Career
Figure 2-10: Adapted from Srivastava et al.,
Path Model” in recruiting material presented
1999, p. 170.
for Procter & Gamble, 2003.
Figure 2-11: Adapted from Srivastava et al.,
Chapter 2 1999, p. 170.
Figure 2-1: Adapted from Andris Zolgners, Figure 2-15: Adapted from “Data Watch”,
Prabhakant Sinha, and Greggor Zoltners, Velocity (Spring 1999), p. 3.
The Complete Guide to Accelerating Sales
Force Performance, (New York: AMA-
COM, 2001), p. 67. Sales Management Resource:
Figure 2-3: Adapted from William Cron
Estimating Potentials and
and Michael Levy, “Sales Management Per-
Forecasting Sales
formance Evaluation: A Residual Income Table SMR2-1: “2004 Survey of Buying
Perspective,” Journal of Personal Selling & Power,” Sales & Marketing Management
Sales Management (August 1987), p. 58. (September 2004), pp. 12, 18, 21, 32.
481
482 CREDITS

The production employee data in Table Figure 4-3: Adapted from Atlee Pope and
SMR2-2 are from the 2002 Census of Man- George Brown, “Growth is a Project,”
ufacturers, Geographical Area Series, North Velocity, (Q1 2003), pp. 22–25.
Carolina, p. NC 1 and 2.
Figure 4-4: Adapted from Jeff Thull, Excep-
tional Selling, (Hoboken, NJ: John Wiley &
Management Resource: Sales Force Sons, Inc., 2006), p. 218.
Investment and Budgeting
Team Exercise “Different Strokes” based
Figure MR2-1: Adapted from Zoltners et al., on Roger Kerin and Bob Peterson,
2001, pp. 70–71. Strategic Marketing Problems, 11th
Figure MR2-2: Adapted from Zoltners et al., edition (NY: Prentice Hall, 2007),
2001, p. 74. pp. 235–244.

Figure MR2-3: Adapted from Zoltners et al., Figure 4-4: Adapted from Robert Dwyer,
2001, p. 75. Paul Schurrr, and Sejo OH, “Develop-
ing buyer-Seller Relationships,” Jour-
Figure MR2-4: Adapted from Zoltners et al., nal of Marketing, 51 (April 1987),
2001, p104. pp. 11–27.
Table MR2-1: Adapted from Sales Force
Compensation Survey (Chicago: Dartnell
Corp., 1999), p. 9. Chapter 5
Figure MR2-6: Adapted from discussion Figure 5-2: Adapted from Jeff Thull, Excep-
with Mr. Robert Conti, Principal, The tional Selling, p. 29.
Alexander Group Inc., April 16, 2001. Figure 5-4: Adapted from material from the
Wilson Learning Corporation, The Coun-
Chapter 3 selor Salesperson (2002).

Table 3-2: Dartnell Corporation, 30th Sur- Team Exercise “Why Beat a Dead Horse?”
vey of Sales Force Compensation, Dartnell Adapted from Jeff Thull, Exceptional Sell-
Corporation 1999, p. 117. Industry groups ing, (Hoboken, NJ: John Wiley & Sons,
reflect categories selected and reported by Inc., 2006), pp. 194–195.
Dartnell Corporation. The overall average Team Exercise “What Does Ms. Williams
has been calculated based on data from all Hear” was adapted from Thull, Exceptional
industries studied. Selling, p. 86.
Figure 3-1: Adapted from Raymond
LaForge, David Cravens, and Clifford
Chapter 6
Young, “Improving Salesforce Produc-
tivity,” Business Horizons (Septem- Figure 6-2: Source: Economist Intelligence
ber–October 1985), p. 54. Unit and Andersen Consulting: A survey of
more than 200 leading executives in North
Figure 3-3: Adapted from Robert Miller,
America, Europe and Asia, as reported in
Stephen Heiman with Tad Tuleja, Strategic
Velocity (Summer 1999), p. 3.
Selling, New York: William Morrow and
Company, Inc. (1985), p. 235. Figure 6-9: Peggy Moretti, “Telemarketers
Serve Clients,” Business Marketing (April
Figure 3-4: Fenemore Group, as reported in
1994), pp. 29, 31.
Sales & Marketing Magazine, March 1998,
p. 96. Figure 6-12: Adapted from Philip
Kotler, Neil Rackham, and Suj Krish-
naswamy, “Ending the War Between
Chapter 4
Sales and Marketing,” Harvard Busi-
Figure 4-2: Adapted from Rackam and ness Review, (July–August 2006),
DeVincentis, 1999, p. 67. p. 77.
CREDITS 483

Management Resource: Territory “Sales Manager Training Practices: New

Design Perspectives,” University of Alabama at
Birmingham Paper 0-101 (March 2008).
Figure T-1: Adapted from Zoltners et al.,
2001, p. 136.
Chapter 12
Chapter 7 Table 12-1: Sales Force Compensation Sur-
vey (Chicago: Dartnell Corporation, 1999),
Figure 7-1: Source: Used by permission of p. 43.
Federated Insurance.
Table 12-3: Joseph Kornik, Maggie Rauch,
Figure 7-3: Source: Used by permission of and Rebecca Arounauer, “What’s It All
Federated Insurance. Worth? 2007 Compensation Survey,” Sales
Figure 7-4: Source: Used by permission of and Marketing Management (May 2007),
Federated Insurance. pp. 27–39.
Table 12-1: Sales Force Compensation Sur-
Chapter 9 vey (Chicago: Dartnell Corporation, 1999),
Table 9-2: Source: William Keenan, “The p. 121.
Nagging Problem of the Plateaued Sales-
person,” Sales and Marketing Management Chapter 13
(March 1989), p. 38. Table 13-6: Erin Anderson and Vincent
Table 9-3: Sales Force Compensation Sur- Onyemah, “How Right Should the Cus-
vey (Chicago: Dartnell Corporation, 1999), tomer Be?” Harvard Business Review
p. 171. (July-August), pp. 59–67.
Table 13-11: Douglas Dalrymple and
Chapter 11 William M. Strahle, “Career Path Charting:
Table 11-2: Sales and Marketing Manage- Frameworks for Sales Force Evaluation,”
ment (February 1990), p. 82. Journal of Personal Selling and Sales Man-
agement, Vol. 10, No. 23 (Summer 1990),
Figure 11-3: “What Makes Great Sales Peo- pp. 59–68.
ple,” Sales and Marketing Management
(May 1994), pp. 82–92. Table 13-12: James S. Boles, Naveen Don-
thu, and Ritu Lohtia, “Salesperson Evalua-
Figure 11-4: William L. Cron, “Industrial tion Using Relative Performance Efficiency:
Salesperson Development: A Career Stages The Application of Data Envelopment
Perspective,” Journal of Marketing, 48 (Fall Analysis,” Journal of Personal Selling and
1984), pp. 41–52. Sales Management, Vol. 15, No. 3 (Summer
Figure 11-7: Developed by Thomas E. 1995), p. 44.
DeCarlo, Thomas Powers, and Gouri Gupte,
This page intentionally left blank
 KEY TERM AND SUBJECT INDEX

Access to clients, 136–37 of quotas, 291–93 Brand meaning, 36

Account generation, 89–92 Advertising, 39–40 Brand relationships, 36
direct mail, 90 Advocates, in selling situations, Brand responses, 36
directories, 91 119–20 Breakeven sales volume, 94, 95
Internet, 91 Advocating skills, 142–45 Bribes, 268–69
prospect lists, 90–91 addressing customer concerns, Budgets
prospect profiles, 89–90 144–45 administration of, 85
qualifying prospects, 91–92 solution presentation, 143 development of, 83–85
trade shows, 90–91 Alcohol abuse, 254–55 sales training, 224
Account intelligence, 124 Alignment objects, in territory setting targets, 84–85
Account management, 92–100 design, 182–83 Business ethics, 260
methods for setting priorities, Alliances, 41–42 Business mission statements, 32–33
95–100 Americans with Disabilities Act Business skills, in customer
minimum customer size (ADA), 200 relationship management, 46
determination, 93–95 Application forms, 204–5 Business strategy, 32–34
sales versus profits, 100–102 Aptitude tests, 211 business mission, 32–33
time management, 102–4 Assessment center, 211 establishing goals, 33
Account opportunity, 336 Attribution theory, 284 objectives to strategies, 33–34
Account priorities Audiotapes, in sales training, 229 Buyer-seller relationship stages, 121
decision models, 97–99 Automation, sales force, 18, 19, 76, Buying authority, in qualifying
portfolio models, 96–97 151, 226, 257 prospects, 92
sales process models, 99 Average order size, 336 Buying centers, 117–20
single-factor model, 95–96 advocates, 119–20
Account relationships Background checks, 208 economic buyer, 118
alternative types of, 49 Batting average, 336 technical buying influence, 119
buying centers, 117–20 Behavior control systems, 328, 329 user buyer, 118–19
evolution of, 121 Behavior versus output performance Buying power index (BPI), 61–62
growing, 110–12 measures, 329–30. See also
meeting expectations, 122–24 Performance evaluation Call reluctance, 137–39
relationship binders, 122–25 Behavior-based evaluation, 330–32 Call reports, 332
strategy, 47–54 Behavioral observation scales Canned presentation, 132
trust building, 124–25 (BOS), 331–32, 341 Career paths, 19–21
value creation, 122 Behavioral self-management (BSM), Career stages, 281–83
Activity quotas, 289–90 286 disengagement stage, 283
Activity-based cost management Behavioral systems, 330, 332 establishment stage, 281–82
(ABCM), 51 Benefit selection plans, 313–134 exploration stage, 281
Administration Benefit statements, 143 maintenance stage, 282–83
of incentive programs, 294 Brand identity, 36 CD-ROMs, in sales training, 229
485
486 KEY TERM AND SUBJECT INDEX

Census of Business, 333 global perspective competency, questioning, 136

Centralized training, 227–28 17–18 relating skills, 138
Change management process, self-management competency, Customer lifetime value (CLV), 102,
241–43 15–17 105
Chemical abuse, 254–55 strategic action competency, Customer relationship management
Chief Sales Executive Forum, 1–3 13–14 (CRM), 19, 36, 44, 45
Civil Rights Act of 1964, 199–200, team-building competency, 15 Customer service, role of, 147
253 technology competency, 18–19 Customer specialization, 158–59
Classified advertising, in recruiting, Competency-driven strategic account Customer-product matrix, 83, 84
201–2 management (CDSAM), 111 Customers, 6–7
Clayton Antitrust Act, 270 Competition, in marketplace, 5–6 addressing concerns of, 144–45
Closed-ended questions, 142 globalization, 5 buying of, 335
Closing skills, 145–46 product cycles, 5 knowledge regarding, 134–35
alternative choice, 146 proliferation challenge, 5–6 market information and, 226
summary close, 146 Complex sales situations, 117 retail sales and, 6–7
techniques, 146–47 Computer, designing territories by, rising expectations of, 6
timing of, 145–46 189 satisfaction surveys, 310
trial closes, 145 Conflicts and disagreements, 15 supplies and, 6
Coaching, 14–15, 245–46 Consultative relationship, 51–52
Code of ethics, 271–73 Consultative skills, in customer
Decentralized training, 227–28
relationship management, 46
Coercive power, 240–41 Deceptive sales practices, 260
Consumer Credit Protection Act, 271
Cognitive selling scripts, 225 Decision model, in allocating time,
Consumer Price Index, 64
Cold canvassing, 90 97–99
Consumer protection, 270–71
Collaboration, in customer Declarative knowledge, 225
Contribution margin percentage, 334
relationship management, 46 Delegating leadership style, 251
Contribution-based evaluations,
Colleges, in recruiting, 203–4 Derived demand, 113
334–35
Commission plus bonus, 309 Deseasonalized data, 65
Conventional morality, 262–63
Commission thresholds, 307 Direct mail, 39–40
Core based statistical areas (CBSA),
Communications, establishing, 44 in building prospect lists, 90
61
Company culture, recruiting strategy Direct personal contact, 137
Cost per call, 93–94
and, 195–96 Direct selling expenses, 93
Cost saving, territory design and,
Company orientation training, 226 Directive behavior, 244
179–80
Company records, 223 Directories, in building prospect
Credit checks, 208
Compensation plans lists, 91
Credit ratings, in qualifying
assembling, 314–15 Diversity, in recruitment, 212
prospects, 92
benefit selection, 313–14 Dollar contribution margin, 334
Credit Reporting Act of 1971, 208
commission plus bonus, 309 Dollar volume quota, 288
Cross-functional coordination,
evaluating, 316 Dollars versus unit sales evaluations,
170–72
expense reimbursement programs, 326
Cross-selling, 148
312–13 Downsizing, disruptive nature of,
Cross-tabulation performance
profit-based commissions, 311–12 77
records, 223
salary plus bonus, 306–7 Downstream supply chain, 44
Customer Business Development
salary plus commission, 307–8 Teams, 8
salary plus commission plus Customer interaction management, 9 E-mail messages, 137
bonus, 308–9 advocating skills, 119–20, 142–45 Economic buyer, 118
sales force, 310 gaining access, 136–37 Economic consequences, of
straight commission, 305–6 interaction phase, 136–46 independent sales agents,
straight salary, 303–5 motive identification, 140–42 168–79
team-selling plans, 310 needs discovery skills, 139–42 Economic value added (EVA), 46
Competencies post-interaction phase, 146–49 Edwards Personal Preference
coaching competency, 14–15 pre-interaction phase, 134–36 Schedule, 211
KEY TERM AND SUBJECT INDEX 487

Effort, characteristics of, 279 Face-to-face alternatives, 41–42 Globalization, in changing

Effort-performance relationship, Fair Packaging and Labeling Act, marketplace, 5
283–84 271 Go-to-market
Employees, as candidates for sales False Claims Act, 275 participants, 38–41
jobs, 202 Features, in solution presentation, strategy, 37
Employment agencies, in recruiting, 143 Goal theory, 290
203 Federal Sentencing Commission for Goals
Employment termination, 252–53 Organizations, 270 for incentive programs, 293
Empowerment, as leadership skill, Feedback, 245–46, 290 commitment to, 290
240 Field observation, 208 establishment of, 33
End-user specialists, 160 Field training, 228 Government regulation, 270–71
Enterprise relationship, 52–53 Finance skills, in customer consumer protection, 270–71
Entertainment, ethical issues and, relationship management, 46 need for, 271
269–70 Firing, ethical issues in, 253, Gross margin commission, 311
Equal Employment Opportunity 266–67
Commission (EEOC), 198 Fixed cost salary plan, 305 Harassment, sexual, 253–54
Equity theory, 285 Follow-up Hierarchy of needs (Maslow), 280
Equity theory (Adams), 280 in sales training, 208, 232 High-profit sales programs, 35
ERG theory (Alderfer), 280 in selling, 147 Hiring criteria. See Recruiting and
Ethical decision making, 261–65 Forecasting sales, 59–86 selecting personnel
Ethical leadership, 259–76 exponential smoothing, 68–69 Hiring, ethical issues in, 266–67
bribes and, 268–69 jury of executive opinion and, House accounts, 267
code of ethics, 271–73 63–64
conventional morality, 262–63 leading indicators, 64 Iceberg principle, 325
drug-using salesperson, 264–65 mean absolute percentage error, Idealism, 261
entertainment and, 269–70 67–71 Incentive programs, 293–94
ethical checklist, 264 moving averages, 68–69 administration issues, 294
ethical problem decision marking, multiple regression, 70–71 goals, 293
263–65 naive forecasts, 66 prizes, 294
ethics training, 273 percentage forecasting error, 66 Independent sales agents, 41,
expense accounts, 267–68 program selection, 71–72 167–69
gifts for buyers and, 268 qualitative forecasting, 63–64 economic consequences, 168–69
government regulation, 270–71 quantitative forecasting, 65–66 level of control over, 169
hiring and firing, 266–67 sales force composites, 63 market conditions and, 169
house accounts, 267 seasonal adjustment, 65–66 selecting agency, 168–69
Machiavellianism, 262 time series regression, 69–70 Individual needs, motivation and,
role morality, 261–62 trend projections, 67 279–81
Ethical situations, in motivational turning points, 71 Information gathering, 135
plans, 295–96 Foreign Corrupt Practices Act, Input/output factors, 337
Ethics policy statement, 271 269, 275 Inside selling, 9
Evidence, presenting, 143 Four-factor model, 336–37 Integrators, 41
Expectancy theory, 283 Functional specialization, 159–61 Intelligence tests, 210
Expectations Interaction phase, 136–46
of customers, 6 Gatekeepers, 119 Interest, use in sales training, 250
meeting, 122–24 Generalist structure, salesforce, Internet, 40
Expense accounts, 267–68, 312–14 156–61 in building prospect lists, 91
Expense analysis, 326–27 Generic business strategies, 34 in building prospect profiles, 90
Expense reimbursement programs, Geographic control units, 181–82 in sales training, 229
312–13 Gifts for buyers, 268 Internship programs, 203
Expertise power, 241 Global account organizations, 172 Interviews
Exponential smoothing, 68–69 Global perspective competency, field observation, 208
Extranets, 114 17–18 patterned, 207
488 KEY TERM AND SUBJECT INDEX

Interviews (continued ) Market potential, 59–62 Needs discovery skills, 139–42

personal, 205–8 buying power index method in, Net present value (NPV), 46
semistructured, 208 61–62 Networking, in recruiting, 202–3
Intrinsic motivation, 286 estimating, 60–61 New buy, 112
Intuition, as leadership skill, 240 NAICS method in, 62 New customer specialists, 160
Investment, in sales force, 74–83 Market segmentation, 37–38 North American Industry
Marketing mix, 36 Classification System (NAICS),
Job analysis, 196–97 Marketing strategy, 34–36 62, 183
Job description, 196–97, 267 positioning strategy, 36 Number of accounts, increase in, 337
Job qualifications, 198–99 segmentation and target
Jury of executive opinion, 63–64 marketing, 35 Objective setting, in sales training,
Marketing, in customer relationship 224
Knockout factors, 206 management, 45 Objectives. See Sales objectives
Knowledge management, 134–35, Marketing-sales disconnect, 170 Objectives, management by, 331
149 Marketing-sales handoff, 171 On-line advertising, in recruiting,
Marketplace changes, 4–10 201–2
Large territory division, 186–87 competition, 5–6 On-the-job training, 228
Leadership customers, 6–7 Open-ended questions, 142
change management, 241–43 selling process, 7–10 Opportunity management. See
coaching, 245–46 Mean absolute percentage error Account generation; Account
ethical (See Ethical leadership) (MAPE), 67–71 management
feedback, 245–46 Metrics, productivity, 10 Optimization routines, 189
role-modeling, 246 Modified rebuy, 112 Option evaluation, in purchasing
sales force, 12 Morale, sales training and, 221 process, 113–14
sales meetings, 248–50 Motivation Organizational goals, 33
skills for effective leadership, career stages and, 281–83 Original equipment manufacturers
239–40 classic theories of, 280 (OEM), 57, 113
skills, for effective, 240 effort and, 279 Outcome controls, 328, 329
styles, 243–45, 251 effort-performance relationship, Outcome-based evaluations, 332–35
team building, 247–48 283–84 contribution-based evaluations,
trust and, 246 expectancy theory, 283 334–35
using power effectively, 240–41 importance of rewards, 285 potential differences, 333–34
Leading indicators, 64 incentive programs, 293–94 sales to quota, 334
Least squares, 69 individual needs and, 279–81 Output measures, in sales force
Legal issues, affecting recruitment model of, 283–85 evaluation, 329–30
and selection, 199–200 performance-reward relationship, Outside specialists, sales training
Legitimate power, 240 285 and, 230
Line executives, sales training and, quotas and, 287–93
230 recognition programs, 294–96 Partnering effectiveness index, 54
Local sales meetings, 250 self-management and, 286–87 Partnering, thinking strategically
Motivation-hygiene theory about, 44
Machiavellianism, 262 (Herzberg), 280 Patterned interview, 207
Magnuson-Moss Warranty Act, 270 Motive identification, 140–42 Percent of sales approach, in sales
Management by objectives (MBO), Moving averages, 68 force size, 80–81
331, 341 Multiple regression, 70–71 Percentage forecasting error, 66
Managers, sales, 10–12 Performance evaluation
Mapping programs, 189 Naive forecasts, 66 of salespeople, 327–30
Market conditions, favoring National sales meetings, 250 behavior versus output measures,
independent sales agents, 169 Need recognition, in purchasing 329–30
Market Development Organization, process, 113–14 behavior-based, 330–32
20 Need-satisfaction selling model, behavioral observation scales,
Market information training, 226 132–33 331–32
KEY TERM AND SUBJECT INDEX 489

dollar versus unit sales, 326 metrics, 10 Recognition programs, 294–96

expense analysis, 326–27 sales training and, 219–20 Recruiting and selecting personnel
four-factor model, 336–37 Profit contribution, 334 application forms, 204–5
insights for successful evaluations, Profit impact of sales force size, background and credit checks, 208
340 81–83 classified and on-line advertising,
management by objectives, 331 Profit-based commissions, 311–12 201–2
need for, 328 Profit-based quotas, 289 colleges and universities, 203–4
outcome-based, 332–35 Progressive commission rates, 307 company culture and, 195–96
performance matrix, 338–39 Proliferation, competition and, 5–6 customers, suppliers, and
ranking procedures, 337–38 Promotions, 13 competitors, 204
relative performance efficiency, Proposals diversity and, 212
339 sale, 143–44 employment agencies, 203
sales by customer type, 326 sales, 114 follow-up, 208
selecting measures of, 328–29 Prospects job analysis and, 196–97
Performance matrix, 338–39 lists, 90–91 job qualifications, 198–200
Performance-reward relationship, profiles, 89–90 personal interviews, 205–8
285 Purchase decisions, in culminating a personnel needs and, 194–95
Permission marketing, 166 sale, 114–15 physical examination, 211–12
Personal letters, 137 Purchasing process, 112–17 present employees, 202
Personal selling, 3–4 implementation and evaluation, referrals/networking, 202–3
Personality tests, 211 115–16 testing, 210–11
Personnel needs, 194–95 need recognition in, 113–14 Referent power, 241
Phone contacts, 137 option evaluation, 113–14 Referrals, 137
Physical examinations, in recruiting, proposals, 114 in building prospect lists, 91
211–12 purchase decision, 114–15 in recruiting, 202–3
Planning skills specifications, 114 Regional sales meetings, 250
information gathering, 135 supplier ties, 116–17 Rehearsals, 135–36
knowledge management, 134–35 typical, 112 Relating skills, 138
rehearsal, 135–36 Purchasing role, 117 Relationship binders, 122–25
setting objectives, 134 building trust, 124–25
Plateauing, 251–52 Qualified opportunities, 99–100 meeting expectations, 122–24
Podcasts, in sales training, 229 Qualitative measures, 329 value creation, 122
Point quota system, 288 Qualitative sales forecasting, 63–64 Relationship management, 46
Portfolio model, in allocating time, Quantitative sales forecasting, 65–66 Relationships
96–97 Questioning of customer, 142 anxiety regarding, 138
Positioning strategy, 36 Questions, from client, 136 enhancement of, 148
Power, effective use of, 240–41 Quotas evolution of, 121
Preinteraction skills, 134–36 activity quotas, 289–90 Relative performance efficiency, 339
Prizes, as incentives, 294 administering, 291–93 Relativism, 261
Problem-solution selling model, dollar volume quota, 288 Request for proposal (RFP), 114
133–34 evaluating, 292 Resellers, 41
Procedural knowledge, 225 point quota systems, 288 Retention specialists, 160
Product cycles, 5 profit-based quotas, 289 Reward power, 240
Product development management reasons for establishing, 287–88 Reward valence, 285
(PDM), 36, 42–43 sales to, 334 Role morality, 261–62, 272
subprocesses, 42 sales volume quotas, 288–89 Role-modeling, 246
Product expenses, 327 situations not useful, 293 Role-playing, in sales training, 211,
Product knowledge training, 225 types of, 288–90 228–29
Product launches, 77–78 unit volume quotas, 288
Product specialization, 157–58
Productivity Ranking procedures, 337–38 Salary plus bonus, 306–7
enhancement justification, 76–77 Realignment, territory, 180–81 Salary plus commission, 307–8
490 KEY TERM AND SUBJECT INDEX

Salary plus commission plus bonus, Sales management process, 1–29 field training, 228
308–9 building sales competencies, follow-up to, 232
Sales carryover, 75–76 11–12 improved customer relations and,
Sales competencies, building, changing marketplace, 4–10 220–21
11–12 focus on big picture, 11 improved efficiency, 221
Sales engineers, 160 leading sales force, 12 increased productivity and,
Sales force. See also Sales force personal selling, 3–4 219–20
investment positions of, 3 Internet in, 229
composites, 63 sales force roles, 11 line executives and, 230
decision sequence, 32 structuring sales force, 11 morale and, 221
evaluation model, 324 Sales management success, need assessment, 221–23
leadership, 12 preparing for, 21–22 objective setting, 224
observation in sales training Sales managers, 4, 10–12 objectives, 220
assessment, 222 responsibilities of, 10–11 outside specialists and, 230
personnel issues, 251–55 Sales meetings, 248–50 podcasts in, 229
programs, 47–54 common problems in, 250 process, 219
roles of, 11 follow-up to, 250 program development, 224
structuring, 11 local, 250 reasons for, 218–19
Sales force automation (SFA), 18, locations and timing of, 249–50 reduced turnover, 220
19, 76, 151, 226, 257 maintaining interest during, 250 role-playing, 228–29
Sales force investment, 74–83 meeting budgets for, 249 salesperson development, 232–33
budget administration, 85 meeting objectives of, 249 staff specialists and, 229–30
budget development, 83–85 national, 250 technology-based selling skills,
gradual downsizing and, 77 participation during, 250 226
percent of sales approach, 80–81 regional, 250 topics, 224–27
product launches and, 77–78 Sales objectives Sales, in customer relationship
productivity enhancement hierarchy of, 34 management, 45
justification, 76–77 setting, 134 Seasonal adjustment, in sales
profit impact of size, 81–83 Sales per order, 337 forecasting, 65–66
proper size of, 74–75 Sales potential, 59 Segmentation, market, 35, 37–38
sales carryover and, 75–76 Sales process activities, 38 Self-confidence, building, 291
sales response approach, 79–80 Sales process models, in allocating Self-management, 286–87
workload approach, 78–79 time, 99 Self-management competency,
Sales force organization Sales proposals, 114, 143–44 15–17
cross-functional coordination, Sales response approach, in sales Self-understanding, as leadership
170–72 force size, 79–80 skill, 240
cross-functional sales team, Sales response function, 95 Selling leadership style, 251
164–65 Sales teams, 172 Selling models, 132–34
customer specialization, 158–59 Sales to quota, 337 need-satisfaction model, 132–33
decisions affected by, 155 Sales training, 217–36 problem-solution model, 133–34
functional specialization, 159–61 in company orientation, 226 standardized model, 132
generalist structures, 156–57 in customer and market Selling partners, 173–74
global account organizations, information, 226 Selling process, 7–10
172 in product knowledge, 225 inside selling, 9–10
independent sales agents, 167–69 in sales process, 225 productivity metrics, 10
marketing-sales disconnect, 170 in teamwork, 225–26 sales teams, 8–9
product specialization, 157–58 audiotapes in, 229 solutions selling, 7–8
sales teams, 172–73 budget setting, 224 Selling teams, 8–9
selling partners, 173–74 CD-ROMs in, 229 traditional buyer-seller interface
strategic accounts selection, 163 centralized versus decentralized, versus, 9
telemarketing, 165–67 227–28 Semistructured interviews, 208
Sales funnel, 100 evaluating, 230–32 Service consultants, 160
KEY TERM AND SUBJECT INDEX 491

Service, in customer relationship Supportive behavior, 244 Theory of learned needs

management, 45 Supportive leadership style, 251 (McClelland), 280
Sexual harassment, 253–54 Survey of Industrial Purchasing Thomas Register of American
Shareholder view, 261 Power, 333 Manufacturers, 91
Single-factor model, 95–96, 101–2 Time management, 102–4
Situational leadership, 244–45 Target marketing, 35 Time series regression, 69–70
Smoothing constant, 69 Team building, 247–48 Total sales volume, 325
Solutions selling model, 7–8 Team-building competency, 15 Trade shows, in building prospect
transactional selling versus, 8 Team-selling plans, 310 lists, 90–91
Specifications, product, 114 Teams, selling, 8–9 Training. See Sales training
Staff specialists, sales training and, Teamwork, improving, 225–26 Training needs analysis, 221
229–30 Technical buying influence, 119 Transactional relationship, 49–51
Stakeholder view, 261 Technology competency, 18–19 Transactional selling model, 7
Standardized selling models, 132 Technology, sales and, 5 solutions selling versus, 8
Starting points, in territory design, Technology-based selling skills Transformational leadership, 243–44
183–84 training, 226 Trend projections, 67
Straight commission, 305–6 Telemarketing, 40–41, 165–67 Trial closes, 145
Straight rebuy, 112 acceptance of, 166 Trust building, 124–25
Straight salary compensation, 303–5 advantages of, 165 Trust, in sales coaching, 246
Strategic account management challenges of, 166–67 Turning points, 71
program, 161–65 Internet role in, 166–67 Turnover, 180, 194, 195
account selection, 163 management of, 166 reduced, 220
assignment to management, 164 scope of, 166
cross-functional sales team, Telling leadership style, 251 Unit volume quotas, 288
164–65 Termination, of employment, Universities, in recruiting, 203–4
organizational alternatives, 252–53 Unqualified opportunities, 99
163–65 Territory design Up-selling, 148
separate sales force, 164 alignment objectives, 182–83 Upstream supply chain, 44
Strategic implementation decisions, buildup methods, 185 User buyers, 118–19
36–47 cost savings and, 179–80
go-to-market participants, 38–41 final adjustments to, 185–88 Validation, of hiring process, 212–13
go-to-market strategy, 37 geographic control units, 181–82 Value analysis, 115
sales process activities, 38 getting buy-in, 187–88 Value congruence, as leadership
Strong Vocational Interest Blank, importance of, 179–80 skill, 240
211 increased sales and, 179 Value creation, 122
Summary closes, 146 large territory division, 186–87 Value-added resellers (VAR), 38
Supplier tiers, 116 mapping programs, 189 Vendor analysis, 116
Supplier ties, 116–17 morale and turnover, 180 Vertical marketing, 158
Suppliers optimization routines, 189 Vision, as leadership skill, 240
changes in customer expectations, procedures, 181–89
6 process, 182 Wage level options, 314
reduction in number, 6 realignment, 180–81 Whistle-blowing, 272
Supplies, customers and, 6 salespeople assignment, 188–89 Women in sales, 254
Supply chain management (SCM), starting points, 183–84 Wonderlic Personnel Test, 210
36, 43–44 Territory efficiency, sales training Workload approach, 78–79
Supply chain management and, 221 Workload methods, 187
subprocesses, 43 Testing in recruitment, 210–11 Wrongful termination suits, 253
This page intentionally left blank
 AUTHOR INDEX

Abele, John, 121 Bauer, Gerald, 4, 241 Campbell, Tricia, 202

Abery, Lesley, 46 Baunchalk, Mark, 4 Campo, John, 223
Abramson, Harry J., 250 Bellizzi, Joseph A., 327 Cannito, Michael, 132
Adams, J. Stacy, 280 Bendapudi, Neeli, 189 Cannon, Joseph P., 53, 247
Agarwal, Sanjeev, 333 Berkowitz, Erin, 43 Carbone, Jim, 6, 44
Ahearne, Michael, 171 Beverland, Michael, 53 Carr, Nancy, 320
Ainscough, Thomas, 225 Bharadwaj, Sundar, 19, 48, 114, Chang, Julia, 169, 204, 229, 250,
Alderfer, Clayton P., 280 115, 120 294
Alford, Bruce, 290 Bink, Audrey, 172 Chirsten, Colleen, 46
Allbright, David, 225 Birkinshaw, Julian, 163 Chllagalla, Goutam, 15
Allen, Jeremy, 161, 162 Blair, Edward, 188 Cholewka, Kathleen, 85, 137, 293
Anderson, Erin, 169, 324, 330 Bland, Timothy S., 205 Chonko, Lawrence B., 140, 241,
Anderson, James, 115 Blattberg, Robert, 89, 102 247, 313
Anderson, Rolph, 42, 59 Bloom, Doug, 21, 24, 27, 28, 58, Clarke, Ann Hojbjerg, 37, 41
Armstrong, Robby, 277–78, 278, 129, 151, 177, 215, 235, 236, 258, Claxton, Reid, 124, 145
284, 288, 290 276, 299, 320, 345 Clayton, Joseph, 21
Arnold, Catherine, 91 Boe, John, 91 Cocks, David, 308
Arnold, David, 163 Boehle, Sarah, 231 Cody, Ray, 26
Aronauer, Rebecca, 3, 19, 301, Boles, James S., 339 Cohen, Andy, 85, 202, 204, 308,
314 Bostrotz, Stephen, 137 330
Atkinson, Tom, 245 Bownman, Douglas, 124 Colletti, Jerome A., 160, 241
Attia, Ashraf M., 220 Bradford, Kevin, 53, 115 Comer, Lucette, 125
Attia, Magdy Mohamed, 220 Brannick, Joan, 195 Compeau, Larry, 124
Atuhene-Gima, Kwaku, 246 Brewer, Geoffrey, 281 Covey, Stephen, 104
Avlonitis, George J., 311 Bridges, Claudia, 139 Coviello, Nicole, 51
Brodie, Roderick, 51 Cox, Jennifer, 125
Badaracco Jr., Joseph L., 259 Brown, Gene, 262, 273 Cox, Mike, 309
Bagozzi, Richard, 137 Brown, Steven P., 132, 286, 291, Cravens, David W., 14, 35, 42, 96,
Baker, Tom, 235 295 239, 327
Baldauf, Artur, 239 Bruswig, Bergen, 149 Cron, William L., 198, 207, 218,
Barnett, Tim, 262, 271, 273 Bunker, Barbara, 125 219, 281, 291, 295, 331
Barone, Bill, 29 Burley James, 42 Crosby, Lawrence, 53, 138, 139
Barone, Michael J., 248 Burns, John, 307 Cross, James, 42
Barrett, Amy, 273 Burns, Stella, 129 Crute, Liz, 237, 239, 295, 320
Barrick, Murray R., 198 Busch, Paul S., 198 Cummings, Betsy, 135, 310
Bartholomew, William J., 221 Curry, Adam, 46
Bass, Ken, 262, 273 Callaghan, Mary, 56 Curry, Jay, 46
Bateman, Connie, 165 Campbell, Kim Sydow, 145 Curry, Sheree, 180
493
494 AUTHOR INDEX

Dahlstrom, Robert, 262 Galantine, Carolyn, 311 Jackson, Susan, 12

Dahneke, Marshall, 88 Galea, Christine, 20, 93, 231, 308, Jacobs, Richard, 139, 140
Danaher, Peter, 51 309 Jakobson, Leo, 306
Darmon, Rene Y., 314 Galvin, Tammy, 219, 224, 231 Jamil, Maqbul, 149, 284
Datrymple, Douglas J., 338 Gardner, Alston, 137 Jap, Sandy, 124
Davis, Lenita, 145 Gerdes, Larry, 113 Jaramillo, Fernando, 260, 311
Dawson Jr., Lyndon E., 198 Gerstner, Lou, 56 Jawahar, I.M., 199
Day, George, 156 Getz, Gary, 89, 102 Jaworski, Bernard, 246
De Wulf, Kristof, 122 Giacobbe, Ralph, 139 Jensen, Ove, 10, 158, 161, 163, 164
DeCarlo, James E., 245 Gilbert, Jennifer, 149, 250, 308 John, Deborah Roedder, 198
DeCarlo, Thomas E., 225, 245, 248, Godes, David, 9 John, George, 304
283, 284, 304 Golterman, Jeff, 46 Johnson, Bill, 27, 258
Dehnel, Stacy, 149 Gonzalez, Gabriel, 117 Johnson, Devon, 19
DelVecchio, Susan, 124, 145 Good, David J., 8, 260 Johnson, Jean, 49
Der Hovanesian, Mara, 260 Gray, Gordon T., 283 Johnson, Mark, 195
DeVincentis, John, 47, 52 Green III, David L., 319–20 Johnson, Michael, 89
Dickie, Jim, 170 Greenberg, Paul, 18, 44 Johnson, Tom, 162
Dixon, Andrea L., 149, 247, Grewal, Rajdeep, 49 Johnston, Wesley J., 51, 220, 283
284 Guest, Anna Britnor, 15 Jolson, Marvin A., 111, 271, 281
Donthu, Naveen, 339 Gupta, Sunil, 102 Jones, Bill, 204
Douglas, Mica, 18 Guy, Bonnie, 18 Jones, Eli, 140, 188, 195, 241, 247
Driver Sr., Howard, 24 Joseph, Kissan, 307
Drollinger, Tanya, 125 Haddad, C., 273 Josephs, Susan L., 253
Dubinsky, Alan J., 19, 42, 241, Hair, Joseph, 35
271 Hall, Sally, 190 Kahle, Lynn, 112
Dutta, Inranil, 311 Hall, Tim, 319 Kalwani, Manohar U., 307
Dwyer, Sean, 290 Harley, Ray, 129 Kantak, Donna Massey, 195
Harris, Angela, 195 Kapil, Tuli, 48
Ebrahim, Sherina, 161, 162 Harris, Jim, 195, 207 Kaplan, Katharine, 283
Eisenberg, D., 159 Hartley, Steven, 42, 43 Kearney, Bob, 42
Elling, Martin, 102, 136 Hasty, Ronald W., 327 Keck, Kay L., 225, 331
Elliott, Brian, 121 Hayes, Jill, 190, 191 Keenan, William, 63
Erevelles, Suni, 311 Heiman, Stephen, 99, 118 Kellaris, James, 262
Esperanzo, Sonny, 237, 238, 240, Hellman, Theodore, 8 Kelleher, Susan, 215
248 Hellriegel, Don, 12 Keller, Kevin Lane, 36
Evans, Kenneth R., 8, 138, 139, 140, Helsig, Jane, 140 Kelly, Gregory, 161, 162
286 Henson, Steve, 339 Kerin, Roger, 43
Evanschitzky, Heiner, 198 Herzberg, Frederick, 279, 280, 285 Killingsworth, Larry, 162
Hicks, Bill, 190 Kim, Keysuk, 283
Fahey, Lam, 36 Hill, Linda, 10, 17 Kinni, Theodore, 35, 140
Fine, Leslie M., 228, 253 Hoffman, Douglas, 117 Kirkpatrick, Donald L., 230
Fiss, Mary, 160 Homburg, Christian, 10, 53, 158, Kleine, Robert, 138, 139, 140
Flaherty, Karen E., 246, 281, 282, 161, 163, 164 Kleiser, Susan Bardi, 262
304 Honeycutt, Earl D., 220 Klompmaker, Jay, 137
Fogle, Holly, 102, 136 Hunt, Shelby, 35 Knudson, Victoria, 333
Ford, Neil, 161 Kohli, Ajay, 15, 48, 114, 115, 120,
Foster, Larry, 319 Iacobucci, Dawn, 122 246
Frakes, Alan, 196 Ingram, Thomas N., 4, 7, 117, 193, Koprowski, Ron, 245
Frankwick. Gary, 53 239, 241, 243 Kornik, Joseph, 7, 301, 314
Freitag, George, 266 Kosanovich, Wendy L., 254
French Jr., John, 240 Jackson Jr., Donald W., 139, 196, Kosch, Dan, 118, 119, 143
Futrell, Charles, 195 327 Kotabe, Masaaki, 271
AUTHOR INDEX 495

Kotler, Philip, 170 Marshall, Greg W., 8, 112, 198, 199, Penttinen, Esko, 48
Krapfel, Robert, 10, 163 207, 218, 219, 331 Peppers, Don, 46
Kriessmann, Erin, 46 Martin, Mark, 258 Percy, Nigel, 163
Krishnaswamy, Suj, 170 Maslow, Abraham, 280, 285 Perkins, Henry, 269
Kumar, V., 102 McClelland, David, 280 Peterson, Robert, 47, 132, 286
McDaniel, Carl, 35 Petruzzi, Nicholas, 121
LaForge, Raymond W., 4, 96, 193, McElroy, James C., 283, 284 Pettijohn, Charles E., 198
239, 241, 243 McFarland, Jennifer, 10 Piercy, Nigel F., 9, 239, 327
Lamb, Charles, 35 McFarland, Richard, 146 Pilling, Bruce K., 339
LaNasa, Julie, 172 McGraw, Patrick F., 198, 225 Plank, Richard, 142
Landry, Timothy, 138, 139, 140 McIntyre, Roger, 124, 145 Plouffe, Christopher, 10
Lane, Nikala, 327 McKhann, Charles, 102, 136 Podsakoff, Phillip M., 239, 243, 244
Lassk, Felicia G., 195 McMaster, Mark, 224, 229, 335 Polk, B.J., 21
Le Meunier-FitzHugh, Ken, 9 Mehta, Rajiv, 42, 59 Porter, Michael, 34
Leach, Mark P., 143, 219, 220, 230 Meng, Leong Siew, 198 Porter, Stephen, 53
Lechman, Otto, 319 Miao, C. Fred, 286 Porter-Roth, Bud, 114
Lee, Chris, 229 Michaels, Ronald E., 271 Pullins, Ellen, 142, 228
Lehmann, Donald, 102 Miller, Amy, 162 Pusateri, Michael, 10, 163
Leigh, Thomas W., 193, 198, 225, Miller, Robert, 99, 118
227, 295, 331 Minahan, TIm, 114 Quast, Lou, 140
Lemon, Katherine, 102 Mitchell, Tom, 36 Quinones, Miguel A., 291
Leone, Robert, 189 Moncrief, William, 112
Levy, Michael, 198 Monroe, Kent, 125 Raccioppi, Vinny, 178
Li, Haiyang, 246 Moore, Jesse N., 199 Rackham, Neil, 47, 52, 170
Lichtenthal, David, 139 Morgan, Jim, 116 Ramsey, Rosemary, 255
Ligos, Melinda, 268, 269, 308 Morgan, Robert, 35 Rasmussen, Erika, 160
Lim, Chae Un, 271 Morgenstern, Julie, 103 Rauch, Maggie, 301, 314
Lisper, Hans-Olof, 125 Moskal, Brian, 249 Rautalinko, Erik, 125
Liu, Annie H., 143, 219, 220, 230 Mudgett, Brad O., 291 Raven, Bertram, 240
Liu, Ben, 121 Mulki, Jay Prakesh, 260, 311 Reaser, Don, 235
Locander, William B., 239, 243, 260 Reid, David, 142
Loe, Terry, 16 Narayandas, Das, 124 Rich, Gregory A., 14, 239, 243, 244,
Lohtia, Ritu, 339 Narus, James, 115 246
Lollar, James G., 225, 331 Naumann, Earl, 196 Ridnour, Rick E., 195
Lorimer, Sally E., 98, 154, 156, 161, Nease, AnJanette A., 291 Roberts, James, 241
179, 188, 247 Neuborne, Ellen, 301 Roberts, Jim, 49, 50
Lublin, Joann, S., 272 Nicholson, Carolyn, 124 Rody, Raymond C., 245
Lucas, George, 47 Roegner, Eric, 121
Luke, David, 301 O’Brian, Bridget, 260 Rogelberg, Steven G., 249
Lweicki, Roy, 125 O’Hara, Ann, 121 Rogers, Martha, 46
Oderkerken-Schroeder, Gary, 122 Rosenberg, Jill L., 254
MacAllister, Jon, 345 Olson, Eric, 32, 34, 324 Ross, William, 290
Macciavelli, Niccolò, 262 Onyemah, Vincent, 324, 330 Roth, Philip L., 198
MacGirr, Larry, 140 Rowland, Ken, 276
Machiavelli, Niccolò, 262 Page, Rick, 131 Rudelius, William, 42, 43
MacKenzie, Scott B., 239, 243, 244 Palmer, Jonathan, 48 Rust, Roland, 102
MacMillan, Jonathan, 299 Panagopoulos, Nikolaos G., 311
Mader, Tom, 24 Panza, Ellen, 319 Sager, Jeffrey, 195, 207, 284
Mantel, Susan Powell, 260 Pappas, James M., 246, 281, 282, Sanchez, Diane, 99, 118
Marchetti, Michele, 90, 94, 174, 304 Sant, Tom, 143
247, 287 Patton, W.E., 18 Scarborough, Jonathan, 193
Marr, Jeff, 102 Pekkarinen, Michael, 88 Schiffman, Stephen, 146
496 AUTHOR INDEX

Schippmann, Jeffrey S., 198 Stalcup, Sue S., 205 Wa, Shiming, 113
Schlacter, John L., 327 Stamps, Miriam B., 199 Waaser, Ernest, 88
Schmidt, Helmut, 342 Stern, Gabriella, 272 Walker, Mark, 102
Schmidt, JoAnn, 165 Stevens, Greg, 42 Warren, Wendy, 228
Schultz, Roberta, 140 Stevens, Howard, 5 Webb, Alan, 5
Schwepker Jr., Charles H., 260, Stevens, Mary, 269 Weber, James, 297, 298
273 Stewart, Greg L., 198 Webster, Jesse, 266
Seines, Fred, 89 Stone, Bob, 235 Weeks, William A., 112, 241,
Sengupta, Sanjit, 10, 163 Stone, Thomas H., 199 313
Sethi, Rajesh, 124 Strable, William M., 338 Weinreb, Michael, 241
Shapiro, Robert, 56 Strong, James, 59 Weinstein, Luke, 171
Sharma, Arun, 198 Strout, Erin, 40, 159, 221, 249, 264, Weiss, Wendy, 146
Shepherd, C. David, 195, 253 268 Weitz, Barton, 53, 115, 198, 304
Shermach, Kelly, 218 Stuart, Jennifer, 102 Wert-Gray, Stacia, 283
Shervani, Tasdduq, 36 Sudharshan, D., 121 Wheatley, Malcolm, 226
Shoemaker, Mary, 115 Sujan, Harish, 198, 207, 218, 219, Whitmore, Same, 91
Shonka, Mark, 118, 119, 143 331 Widmier, Scott M., 196
Shute, Liz, 26, 28 Summers, John O., 227 Wiens, Carl, 224, 231
Silver, Lawrence S., 290 Swanson, Lisa, 254 Wiessel, Michael, 88
Simon, Cathie, 129 Swift, Ronald, 46 Wiles, Michael A., 201, 207
Simon, Chris, 102, 136 Switzer III, Fred S., 198 Williams, Brett, 323
Simpson, Jeff, 130, 131 Williams, Tiffany, 26, 27, 28, 29,
Singh, Jagdip, 198, 207, 218, 219, Tanner, John F., 313 58
331 Teas, Kenneth, 283, 284 Wilson, David, 52
Sinha, Prabhakant, 75, 81, 154, 156, Tellefsen, Thomas, 139 Wolfe, William G., 327
161, 179, 188, 193, 219, 221, 225, Thomas, Jacquelyn, 89, 102 Wood, John Andy, 138
227, 247, 285, 287, 290, 291, 303, Thull, Jeff, 133 Workman, John, 10, 158, 161, 163,
304, 340 Toulan, Omar, 163 164
Sivadas, Eugene, 262 Tracy, Brian, 146
Skinner, Lauren, 145 Trailer, Barry, 170 Xia, Lan, 125
Slater, Stanley, 32, 34, 324 Treadgold, George, 26, 215 Xia, Weijun, 113
Slocum Jr., John W., 12, 281, 291 Trinkle, Bob, 169
Smith, Bo, 260, 261, 264, 265, 334 Tuleja, Ted, 99, 118 Yip, George, 172
Smith, Daniel, 161 Tuli, Kapil, 114, 115, 120 Young, Clifford, 96
Smith, John, 319 Turner, Paulette, 1, 21 Young, Louise, 124
Smith, Kirk, 188 Tyagi, Pradeep, 195 Yukl, Gary A., 244
Sohi, Ravipeet, 49, 161
Solomon, Paul, 260, 311 Ueland, John, 249 Zeithaml, Valerie, 102
Soper, Barlow, 198 Ustuner, Tuba, 9 Zemanek, James, 124, 145
Spain, Judith, 255 Zimmerman, Eilene, 309
Speier, Cheri, 19 Valentine, Sean, 271 Zoltners, Andris, 37, 41, 75, 81, 98,
Sperry, Joseph, 30, 111 Vassey, Michael, 42 154, 156, 161, 179, 188, 193, 208,
Spiro, Rosann L., 149, 198, 201, Venkatesan, Rajkumar, 102 219, 221, 225, 227, 247, 285, 287,
207, 218, 219, 284, 331 Venkatesh, R., 15 290, 291, 303, 304, 340
Srinivasan, Narasimham, 171 Venkatesh, Viswanuth, 19 Zoltners, Greggor, 75, 81, 179, 193,
Srivastava, Rajendra, 36 Verbeke, Willem, 137 219, 221, 225, 227, 285, 287, 290,
Stafford, Thomas, 138 Vinchur, Andrew J., 198 291, 303, 304, 340
 COMPANY INDEX

Access Communications, 173 Caterpillar, 111, 121, 220 Ferno-Washing, 162

Access Radiology Corporation, 56 Certain-Teed Corporation, 311 FileNet, 224
A.G. Edwards, 224, 231 Chase Manhattan Bank, 165 Ford Motor Company, 6, 52
Align Star, 189 Chrystler Corporation, 52, 53, 114
AllBright Software, 152 CIBA Vision, 140 Gallup Management Consulting
Allegiance Healthcare, 15, 227, 242 Cisco Systems, 172, 227 Group, 280
Allnet Communications Services, 89 Club Corporation, 19 GartnerGroup, 46
AllSafe, 28 Coca-Cola, 5 GE Fanuc, 287
Allstate Insurance Company, 219 Colgate-Palmolive, 5 GE Medical Systems, 148
American Airlines, 53 CompensationMaster, 308 General Dynamics, 264
American Bankers Insurance Group, Computer Task Group, 164 General Electric (GE), 1, 52, 64,
232 Conglomerate Corporation, 343 115, 229, 337
American Business Information, 135 Corning, 169 General Industries, 222
American Home Products, 63 Costco, 6 General Mills, 41
AMF Bowling Products, 257 Creative Communications, Inc. General Motors (GM), 272
Amway, 215 (CCI), 40 Georgia Pacific, 228, 234
Anderson Chemical Company, 140, CRMonDemand.com, 332 Gillette Company, 95, 229
141 Goodyear-Dunlop, 163
Apple Computer, 204 Dartnell Corporation, 314 Graham Company, 35
AT&T, 41, 89, 118, 164, 165, 173 Database America, 135 Great American Insurance Company,
Aurora-Baxter Corporation, 258 Dell, 41, 50, 166 25
Avon Products, 5, 90 Diageo, 162, 164
Disney, 6 Hamilton Company, 138
Banta Corporation, 202 Dun & Bradstreet, 92, 135, 173 Hewlett-Packard, 2, 39, 59, 95, 164,
Baxter, 173 Dun’s Marketing Services, 60 172, 206
Bear Computer Company, 323–25, DuPont, 222 Hill-Rom, 87–89
326, 327, 333, 334 Holston Building Supply, 49, 51
Beta Corporation, 328 Eaton Corporation, 277–78 Honeywell, 1, 2
Big Cyclone Paper Company, 318 Encyclopedia Britannica H.R. Chally Group, 6, 57, 58
Boeing Aircraft, 130–31 Corporation, 13–14 Hyatt Hotel, 158
Boise Cascade Office Products Enron, 259
Corporation (BCOP), 51, 52 Enterprise Solutions Group, 30 IBM Corporation, 9, 10, 21, 38, 41,
British Telecom, 45 Equifax, Inc., 135, 208 52, 53, 56, 123, 158, 164, 165,
Browning-Ferris Industries, 160 E*Trade Group, Inc., 55 172, 174, 204, 229, 297
IMS, 135
Caliper Corporation, 215 Federated Insurance, 192–94, 196, Infobase, 135
Cardinal Health, Inc., 96 197 Integrative Sales Concepts, 301
Carlson Marketing, 306 FedEx Corporation, 101, 308 ITT, 169
497
498 COMPANY INDEX

J.D. Edwards & Company, 91 Petro-Safety Technologies, 138 Target, 2, 6

J.D. Power and Associates, 6 Pfizer Labs, 41, 149, 221, 222, 229, TaylorMade Company, 18
Johnson Controls, Inc., 228 242 Teledyne, 169
Johnson & Johnson, 157, 228 Pharmacia, 222 Thomas Cook Group, 95
Pitney Bowes, Inc., 164, 237–38, 3M Technology Group, 9, 10, 160,
Kent Plastics, 189, 190–91 239, 295 165, 176
Kinko’s Inc., 163 PricewaterhouseCoopers, 147 Transcend Services, Inc., 113
Klein Tools, 195 Primary Software, 151 Trinet, 135
Kmart, 215 Princeton Softech, 20 TRW, 135
Principal Financial, 307 TTG, Inc., 189
Lexmark International, 160 Procter & Gamble (P&G), 7, 8, 9, Tyco, 259
Lucent Technologies, 44, 221 20–21, 33, 52, 70, 123, 165, 171,
173, 307 Union Pacific Railroad, 165
Maritz, Inc., 310 Prudential Insurance Company, 260, United Gunite Corporation, 268
McDonald’s, 6 274, 289 United Technologies, 275
MCI, 164 Upjohn Company, 241
Merck, 165, 225 Quaker Oats, 102, 307 U.S. Surgical Corporation (USS),
Merrill Lynch & Company, 55, 56, 42
211, 275 Reuters, 228
Metron, Inc., 189 Reynolds and Reynolds, 30–32 Vanguard Group, 18
MG Rover Group, 163 R.L. Polk, 135
Microsoft, 337 Wall Data, Inc., 285
Micro Systems, Inc., 217–18 Salesforce.com, 332 Wal-Mart, 2, 6, 7, 117, 171, 268
Milliken, 52 Sara Lee Corporation, 169 Warner Lambert, 215
Mobil Oil, 169 Saturn, 306 WebEx, 91
Monsanto, 56, 169 Satyam Computer Services Ltd., WESCO Distribution, Inc., 56,
Motorola, 6, 122 110, 111, 121 57
Scott Paper, 33, 228 WESCO International, Inc., 127,
National Gypsum, 164 Sears, 6 128
National Logistics, Inc., 127 Shield Corporation, 21, 24–29, 58, Westvaco, 235
Nestlé SA, 41 109, 129, 151–52, 177–78, Widget Corporation, 303
Nortel, 172 215–16, 235–36, 258, 276, Wilson Learning Worldwide, 144,
Northwetern Mutual Life, 318 299–300, 320, 345 147
Novartis Group, 225 Siebel CRM, 174 WorldCom, 259
Siebel Systems, 91 Wotruba, Thomas, 195
O’Neal Steel, 203, 222–23 Siemens AG, 1, 2 W.W. Grainger Inc., 183
Oracle Corporation, 1, 2, 174, 176, SmithKline, 207, 214 Wyeth-Ayerst International, 18
241 Solectron, 172
Ortho Pharmaceutical, 228 Sony, 6, 172 Xerox Corporation, 1, 2, 6, 140,
Southwest Networks, 91 144, 146, 153–55, 164, 169, 173,
Parke-Davis, 41 Sprint, 89 178, 228, 232
Peoria Resin and Plastics, 215 Stateline International, 128
PepperCom, 135 Sun Microsystems, Inc., 91, 172 ZS Associates, 77, 179
 CASE INDEX

Adams Brands, 366–70 General Electric Appliances, 409–16 Quado Systems Group, 445–51
Arapahoe Pharmaceutical Company,
371–75 Hanover-Bates Chemical Romano Pitesti, 451–54
Atomic Company, 375–80 Corporation, 417–20
Hyde-Phillip Appliances, 420–22 Skata, Inc., 454–57
Conner Labs, 380–87 Sullivan Group, 461–65
Crestfield Furniture, 387–97 Inject Plastics, 422–24
Tekspan Corporation, 458–61
Dave MacDonald’s Ethical Milligan Pharmaceuticals, 424–30
Dilemmas, 397–400 Venture Insurance Corporation,
National Mutual Funds, 430–41 465–73
Erikson Industrial Supply, 400–401
Power and Motion Industrial Supply, White Electronics, 473–76
First National Bank, 402–9 Inc., 441–45 Winston Liu, Bookman, 477–79

499