MANAGEMENT OF SALES TERRITORY

ByTulsi Sindhwad Anand Vig Roll No. 99 Roll No. 114

DEFINATIONSfSales territory is defined as a group of present and

potential customers assigned to an individual sale person, a group of salesperson ,a branch, a dealer, a distributor ,or a marketing organization at a given period of time fTerritories are defined on the basis of geographical boundaries in many organizations

MANAGEMENT OF SALES TERRITORYfIn some cases territories are designed on the basis of

the urgency and frequency of customer requirements rather than geographic coverage. fSituations where products are highly technical and complex in design, when organizations prefer either a technical sales force or a system selling approach, and where a set of people with varied knowledge levels are grouped together to provide solutions to customers problems and queries

MANAGEMENT OF SALES TERRITORYfWhere the territory is designed based on urgency

and frequency, there is a possibility that the same customer may get calls from multiple salespeople from the same organization

ADVANTAGESf1)Ensures better market coverage, effective utilization

of the sales force, efficient distribution of workload of sales people f2)Enhances employees morale and helps managers to better control and monitor sales and evaluate program f3)Helps in building accountability for each sales person in the form of identification of prospects, maintenance of call norms and realization of a different level of sales at different points of time Cont..

ADVANTAGESf4)Inculcates higher sales through up-selling and

cross-selling to the same set of customers f5)Helps generate better value from the customers f6)Helps to integrate the selling efforts with other marketing and promotional functions in the territory f7)Useful in evaluating the performance of the sales forceCont..

ADVANTAGESf8)Identification of the effective utilization of

marketing resources and the level of competition in different areas of the market f9)Helps identify the exact nature of the problem for underperformance, one can take remedial actions for motivating the sales force to perform better f10)Reduced indirect expenses like turnover and employee dissatisfaction f11)Improves the productivity and income of the sales forceCont..

EG:-HP WAYfHewlett Packard equipped all its sales people with

laptop computers backed up by a customerprospecting and relationship tracking system at its HQ which resulted in a 33%growth in sales,31%growth in sales force productivity and a 40%drop in the attrition rate of sales personnel

WHO DO NOT ESTABLISH TERRITORIES?fNewly establish enterprises fOrganizations where sales is achieved through

personal relation fOrganizations selling highly sophisticated and technically complex products fFirms with customers distributed over a vast geographic area and with a lower density In any specific block

WHO DO NOT ESTABLISH TERRITORIES?fFirms using telemarketing and internet marketing

as tools to reach customers fFirms relying on customer service that requires a co-ordination across different geographic territories fSmall firms, particularly with a single sales person dealing with insurance ,fixed deposits and other investment fHighly sophisticated and technologically complex products like computer hardware and software are sold through sales teams efforts which reduce the scope for a territory

SIZE OF TERRITORIESf1) Nature and demand of the product f2) Mode of physical distribution f3) The selling process f4) Transport and communication facilities in

the

overall market and territory f5) Government regulations f6) Density of population

SIZE OF TERRITORIESf7)population spread within the territory f8)market potential and growth rates f9)level of competition f10)firms sales policy f11)ability of the sales person f12)overall economic conditions prevailing in the

country

PROCEDURE FOR DESIGNING SALES TERRITORIESSelect a Control Unit Determine Location and Potential of Customers Determine Basic Territories

Assign Salespeople to Territories

Set Up Territorial Coverage Plans

Evaluate Effectiveness of Design

TERRITORIES- BASICSfConsumer durable with a longer shelf life-larger

territory fPerishable commodities-smaller territories fCan be established on the basis of the productconsumer, industrial, durable, non-durable fIn case of huge demand in the market, the companies decide on designing smaller territories fIn case of having middlemen, larger territory is advisable

TERRITORIES- BASICSf In case of industrial buying, the size of territory is kept

small f Organizations where a higher allotment is made towards selling expenses go in for a larger territories f Territories in rural markets in India are smaller in comparison to the urban market f In a market with high density of population and market potential, companies decide in favor of smaller territories

TERRITORIES- BASICSf In a highly competitive market, size of the territory is generally small f If a company has experienced,, well trained and competent sales people

,it may go for a larger territorial coverf For a firm with a limited number of products, wanting to earn higher

profits, the size of the territory will be larger

TERRITORIES- BASICSf A small size territory is suitable for a firm during recession when prices

have stabilized and customers are not willing to spend spontaneouslyf During a boom condition, firms can increase the size of the territory so

that the sales people can cover a larger market with a higher demand due to an upturn in the economy

TERRITORY SIZE AND WORKLOAD FACTORS WORKLOAD FACTOR TERRITORYSIZE NatureINCREASE/DECREASE of Job: Lots of presale and post-sale activityNature of product: A frequently purchased product A limited repeat-sale Decreases

Decreases Increases Increases Decreases

Market development stage: New market--fewer accounts Established market--more accounts Market coverage Selective coverage Extensive coverage Competition: Intensive oversaturated Limited

Increases Decreases Decreases unless market is Increases

ALLOCATION OF SALES TERRITORIESf Advantages to customersf Customers get prompt and efficient after-sales-service, quick disposal of

complaints and individual satisfaction due to the regular visits of sales peoplef Customers risk perception is reduced due to familiarity with the sales

people of the company and frequent advice of sales people on consumption and purchase

ALLOCATION-ADVANTAGE TO SALES PERSONfThe freedom of choice in serving customers fA transparent system for their performance

evaluation and an efficient reward system based on their performance in the territory

EFFECTIVE TERRITORIAL DESIGNBASICSf Optimum size of the territory should be allocated to every sales person

with uniform distribution coveragef Overlapping be avoided f There should be some flexibility on the allocation so that a sales

manager can rotate territories among the sales people

EFFECTIVE TERRITORIAL DESIGN-BASICSfEqual opportunity for earning average income fProviding maximum service at minimum cost

should be the strategy fWhile deciding allocation, a new sales person should not be given independent responsibility of a sales territory

DESIGNING A SALES TERRITORYf Factors to be considered aref Size of an organization f Level of competition in each product category f Number and quality level of the products in the

portfolio f Type and quality of the services and customer support to be provided f Quality of the sales person serving in the organization

BREAKDOWN METHOD OF TERRITORIAL DESIGNManagement must determine Company sales potential Sales potential in each control unit Sales volume expected from each sales person Tentatively set territorial boundary lines by combining control units total sales potential = total sales volume expected

Modify territories as needed

Territory Design: Break-Down Method Worksheet

Company sales potential = $200,000,000 Targeted volume rep

= $ 10,000,000

Number of reps needed = Company sales potential = $200,000,000 = =20% Targeted volume/rep $ 10,000,000

Territory volume as 50%

=

Targeted volume/rep = $ 10,000,000 = Company sales potential

$200,000,000Each territory should comprise 5% of sales potential or $10,000,000 Combine adjacent control units until each sales potential of $10,000,000

SALES TERRITORIES FOR EXAMPLEDivide The 48 states into 5-10 regions Each region into several districts Each district into 8-12 territories (typically 1 rep per territory)

WHEN TERRITORIAL REDESIGN?fIs done when the market grows to such a size that it

is not possible for the same sales force to cater to the market fWhen there is a merger or a take over fIs also needed when there is a change in the stage of the product life cycle fWhen there is a reallocation of customers in the market

DESIGNING A SALES TERRITORY1. SELECT A GEOGRAPHICAL CONTROL UNIT 2. CRITERIA 3. STARTING POINT 4. TERRITORY SHAPES 5. CONTROL UNITS ADJACENT TO THE

STARTING POINT 6. ALLOCATION CRITERIA AND WORKLOAD ANALYSIS 7. NEW TERRITORIES

1.SELECTING GEOGRAPHIC CONTROL UNITfThese control units must be small enough to allow

flexibility fThese can be country, state, district, division or block

TRADING AREAfIs a geographical control area concentrated near a

city where there are many retailers and wholesalers that furnish a high level of sale, despite a small geographic concentration fA trading area is made up of a principal city and the surrounding dependent area fIt is an economic unit which ignores the political and non-economic reasons of setting boundaries

TRADING AREAfAre based on economic factors, consumer buying

habits and normal trading patterns fTrading areas facilitate sales planning and control and reduce the probability of dispute and duplication of efforts by 2 sales people fFirms dividing cities as trading areas often rely on the Postal Index Number (PIN)

DISADVANTAGES-TRADING AREA AS A CONTROL UNITfVary from product to product and should be

referred to in terms of specific products only fIt is also difficult to obtain detailed statistics for trading areas fThe boundary of two products may not match and this can prove to be cumbersome for a multi product company

TRADE AREA MAPS BY ACNIELSONfAre available for various general products

classifications fThe firm published 65 major trade maps and 250 minor area trade maps fMajor trading areas are mapped out of metropolitan cities and state capitals

TRADE AREA MAPS BY ACNIELSONfThe minor trade areas comprise populated towns in

different states fVarious newspapers and TV channels also publish their readership and viewer ship data on cities fThis data is often used by pharmaceutical and other consumer durable companies for territorial planning

2.CRITERIAfInvolves identifying the sales potential of each

control unit with the help of top authorities, market experts and statistical models fEach territory should provide an equal standard of living for the sales force fThe attempt at this stage is on building an approximation of a territory for final agreement

INDIAN FIRMS TERRITORY DESIGNf1)current customers f2)potential customers size f3)geographic size in terms of sq. kilometers or

square miles to be covered by the sales people

CURRENT CUSTOMER BASEfHelps in identifying the basic workload for the sales

people, as existing customers are added in each new territory fThe presence of existing customers improves the morale of the sales force and motivates them further fCurrent sales in the area should not be used as the sole allocation criterion as it ignores the future potential

MARKET POTENTIALfLargely depends on how sales people successfully

convert prospects into customers fIf there is no computation of the potential markets, the sales force would only concentrate on doing business with current customers

3. STARTING POINTfA common choice is the location point (often the

residence of the sales person) fThis is done to avoid the relocation cost of the sales person and provides emotional support by keeping the sales person closer at home with his family and relatives

STARTING POINTfAnother starting point is trading area (large city or

district HQ) fLocation of large account will be the starting point so that the sales person can provide services to customers and get information without much travel fMany times, a central geographic location or a state capital becomes a starting point

4.TERRITORY SHAPESf1)wedge f2)circle f3)colverleaf fShape of the territory affects sales expenses and the

ease of sales coverage fIt also helps a sales person to spend less time on travel and keeps sales people motivated to work hard

WEDGE SHAPED TERRITORYf Is applicable to FMCG goods and is used by companies

like Marico industries, P&G and HLL f These companies serve both the urban and rural markets in India f The design radiates from a densely populated urban area to small rural areas f The travel time between adjoining wedges can be equalized by balancing the travel time between the urban and rural areas

CIRCLE SHAPEfIs appropriate when the companies have their

accounts distributed across equally sized areas fa sales person is based in the central part of the area and travels uniformly to different areas fCompanies concentrating in urban areas like Maruti, Hyundai and park-avenue follow this design

CLOVERLEAF DESIGNfIs used when accounts are distributed randomly

throughout the territory fCareful call planning makes each visit to the clover a timely affair on the basis of a weekly, daily or a periodic schedule for salespeople

5.CONTROL UNITS ADJACENT TO THE STARTING POINTfThe sales manager keep on running totals on the

allocation criteria for each newly designed territory fThe process of allocation continues until all control units are assigned to each sales person fThe basic units are combined so that the sales potential can be converted into sales

6.ALLOCATION CRITERIA AND WORKLOAD ANALYSISfSmall and large territories in a particular geographic

spread may have an equal potential on customer size f in such cases, there is need to allocate control units on the basis of traveling and call norms in order to reach customers

WORK-LOAD ANALYSISfConsists of deciding how much of selling effort is

required to meet the sales objectives for a given region fThe starting point of the workload approach is the finalization of the tentative boundary for each sales territory fAccount analysis involves estimate the sales potential for each customer and prospect in the territory

TALLEYS WORKLOAD APPROACHfThe sales potential derived from account analysis is

then used to decide on how much each account must be called on and for what duration of time fThe total effort required to cover a territory can be determined by considering the number of accounts and calls to be made for each account, the duration of each call, estimated time of travel and nonselling activities

TALLEYS WORKLOAD APPROACHfThe optimum call frequency is decided at sales

conferences fFirms can be grouped into volume classes and the call frequency for each volume class can then be agreed upon

CALL-PLAN-A XEROX SYSTEMf Response function to each account is generated from

each salespersons inputs f The program collects information from the sales people by asking following questions related to their territoryf When no calls are made f When one half of the present numbers of calls are made f When the present level of calls is continued f When 50% additional calls are scheduled

CALL-PLAN-A XEROX SYSTEMf When a saturation level of calls is reached f A sales person also gives the probabilities for each of the above options

with different cal frequenciesf Call plan then fits curves to these data points and prints out the expected

sales for all feasible call frequencies, optimal number of calls, length of each call to eb made on each client, and the prospect during an average effort period

CALL-PLAN-A XEROX SYSTEMfAfter the completion of the account and workload

analysis, the total workload is divided by the total number of sales force in the firm to reach the call allocations to be made to each sales person in each of the territories

7.NEW TERRITORIESfMany firms appoint new sales persons in areas

closer to their place of stay, where as more experienced sales people are assigned remote territories with a higher potential for growth and sales realization fCharacteristics of each territory, needs of the territory and the appointment of the intermediaries are considered before finally deciding the territory

NEW TERRITORIESf Boundaries of the territory are never kept constant and

evolve over a period of time, depending on the nature and number of customers in these areas f Situations demanding a high level of customer attention and deeper service levels, many firms often allow sales people in adjacent territories to operate either additionally or jointly with the existing sales people in that territory f Unless these situations are well planned, it may lead to confusion and demotivation among the sales staff of an organization

USE OF ITTHE COMPUTER PROGRAMS ARE BASICALLY USED FORf Territory mapping f Simulation fOptimization of routine and f Call norm behavior

IT FOR TERRITORY MAPPINGfAre used to display territories as an aggregate of

various priori data sets fA sales manager feeds the basic data on the market potential, number of present accounts, home location of salespeople, and geographic boundary of control units fTentative territory boundaries are then drawn fThe display gives the size and locale of the territory, relevant data on current and potential sales, and the geographic size for coverage

IT FOR TERRITORY MAPPINGfBy a trial and error process ,a sales manager can

relocate his geographic control units fTerritory maps are tied in which spreadsheets that show the current potentials, sales, targets and the number of calls to be made by the sales person for each category of customers fInvolves establishing an objective function and attempt to minimize it, subject to a set of constraints

IT FOR TERRITORY MAPPINGfAny changes in the location of the geographical

units are automatically reflected on the computer screen and corresponding figures undergo suitable changes fThese programs can help in making territories but do not have ability to find out optimal designs fSome computer programs use an objective function designed to ensure compactness

IT FOR SIMULATIONfThis is called the moment of inertia which is the

sum of the squares of the distances from the control units to the trail territory centers weighed by the potential in each area fThe smaller the value of the moment of inertia, the higher is the compactness of the territories that make up the sales territory

IT FOR SIMULATIONfUsing the interactive mapping software, simulation

helps in improving the sales territory design because the computer has the ability to examine more combinations fMultiple runs are required to take the final decision fMany programs balance territories optimally using several factors and minimize driving time

IT FOR SIMULATIONfThese programs are quite complex and are run in

higher settings fThe high cost of optimizing programs make them applicable for large, multi-product and multilocation companies with a higher geographic spread fThey don no take into consideration problems of geographic barriers like topographic features( hills, rivers ,forests and mountains to crossover during sales calls

COMPUTERS IN TERRITORY DESIGN Geographic Information System (GIS) Combines multiple layers of information to provide in-depth understanding of a sales territory. Elements of a complete GIS: Software Hardware Data Trained people

TERRITORY DESIGN AT MARICOfSales people at Marico use Geographic Information

Systems (GIS) software to design territories fGIS contains detailed maps of specific regions and allows the user to key in additional information such as demographic data of the market to help mangers overcome design problems

TERRITORY DESIGN AT MARICOfGIS uses sophisticated tools that analyze satellite-

based pictures to provide relevant data on transportation , communication , distribution of settlements and the spread of retail outlets in a geographic area

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