SDM 5

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Sales Management

and sales promotion &Distribution and supply chain

management

MMS / PGP III

Prof M.R.Koshti

Session no.5

75 slides**

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Last session in brief

Plan (Sales plan)

Sales objectives / Goals

Sales strategy - Sales organization, Manpower

planning / Recruitment / Training, Territorymanagement, Routing and scheduling ofsalespeople, Sales targets, Remuneration /incentives / motivation, Channel support andcoordination

Sales organization

Manpower planning, Recruitment

Sales force training**

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Todays topics

Territory management,

Routing and scheduling of salespeople

Sales quota / Targets

Remuneration / incentives / motivation**

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Sales territory

A sales territory is a geographical grouping ofcustomers and prospects assigned to anindividual salesperson,

with a consideration that the salesperson cancall upon them conveniently andeconomically**

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Reasons for establishing or revising

sales territories

1. To provide proper market coverage

2. To control selling expenses

3. To assist in evaluating sales personnel

4. To contribute to sales force morale**

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1 Provide proper market coverage

If you dont call on the prospect you will surelyloose it to one of the many who call on him

Work load should be distributed evenly on all

sales people Good territories design allows sales

personnel to spend sufficient time withcustomers and prospects and minimize time

on road**

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2 Controlling selling expenses

Good territorial design results in sales personspending fewer nights away from home,which reduces or eliminates many chargesfor lodging and food

Cutting unnecessory travel reducestransportation expenses

Higher sales due to more time with theprospects

Controlling is not to minimize the expensesbut to obtain best relation between sellingexpenses and selling volume**

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3 Assisting evaluation of sales

personnel

Selling problems vary geographically

Impact of competition differs widely

When the total market is divided in to

territories, appropriate adjustments can bemade in selling strategies

Thus equal opportunity is given to each sales

person and evaluation becomes fair**

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4 Contributing to sales force morale

Well designed territories are convenient forsales person to cover

They represent reasonable sized work loads

Sales persons find that their efforts areproducing results

Few conflicting claims for the same account**

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Procedure for setting up or revising

the sales territories

1. Selecting a basic geographical control unit

2. Determining sales potential in control units /work load

3. Combining adjoining control units in totentative territories, so that the sales /workload of that territory can be handled byone salesperson

4. Adjusting for coverage difficulty (MPIndore)**

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Reasons for not establishing

territories

Company is too small

When friendship sales are important

High technology selling to a few customers**

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Assignment of sales personnel to

territories

Management should assign each salesperson to the particular territory where hisrelative contribution to profit is the highest

The attempt should be to maximize total salesof the region (which has many territories)

Sales person customer relationship**

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Optimal assignment (Sales table)

A B C D

1 21 21 19 19

2 23 26 21 20

3 22 27 23 18

4 26 24 26 22

Territory

Salesperson

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Hungarian Assignment Method

If rows dont equal columns, then use dummy

variables

HAM is used for Minimization of total cost

If problem given is of maximization, thenconvert it in to minimization by subtractingeach element from the maximum number inthe table**

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Optimal assignment (Profit table)

A B C D

1 21 21 19 19

2 23 26 21 20

3 22 27 23 18

4 26 24 26 22

Territory

Salesperson

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Optimal assignment (Profit table)

A B C D

1 27-21=6 27-

21=6

27-

19=8

27-19=8

2 27-23=4 27-26=1

27-21=6

27-20=7

3 27-22=5 27-27=0 27-23=4 27-18=9

4 27-26=1 27-24=3

27-26=1

27-22=5

Territory

Salesperson

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Optimal assignment (Opportunity cost

table)A B C D

1 6 6 8 8

2 4 1 6 7

3 5 0 4 9

4 1 3 1 5

Territory

Salesperson

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Subtract the smallest element of the row fromeach element of the row

Do it for all the rows (Row minimization)**

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table)A B C D

1 6 6 8 8

2 4 1 6 7

3 5 0 4 9

4 1 3 1 5

Territory

Salesperson

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table)A B C D

1 6-6=0 6-6=0 8-6=2 8-6=2

2 4 1 6 7

3 5 0 4 9

4 1 3 1 5

Territory

Salesperson

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table)A B C D

1 6-6=0 6-6=0 8-6=2 8-6=2

2 4-1=3 1-1=0 6-1=5 7-1=6

3 5 0 4 9

4 1 3 1 5

Territory

Salesperson

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table)A B C D

1 6-6=0 6-6=0 8-6=2 8-6=2

2 4-1=3 1-1=0 6-1=5 7-1=6

3 5-0=5 0-0=0 4-0=4 9-0=9

4 1 3 1 5

Territory

Salesperson

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table)

A B C D

1 6-6=0 6-6=0 8-6=2 8-6=2

2 4-1=3 1-1=0 6-1=5 7-1=6

3 5-0=5 0-0=0 4-0=4 9-0=9

4 1-1=0 3-1=2 1-1=0 5-1=4

Territory

Salesperson

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Optimal assignment

A B C D

1 0 0 2 2

2 3 0 5 6

3 5 0 4 9

4 0 2 0 4

Territory

Salesperson

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Subtract the smallest element of the columnfrom each element in the column

Do it for all columns (Column minimization)**

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Optimal assignment

A B C D

1 0 0 2 2

2 3 0 5 6

3 5 0 4 9

4 0 2 0 4

Territory

Salesperson

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Optimal assignment

A B C D

1 0-0=0 0 2 2

2 3-0=3 0 5 6

3 5-0=5 0 4 9

4 0-0=0 2 0 4

Territory

Salesperson

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Optimal assignment

A B C D

1 0-0=0 0 2 2

2 3-0=3 0 5 6

3 5-0=5 0 4 9

4 0-0=0 2-0=2 0 4

Territory

Salesperson

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Optimal assignment

A B C D

1 0-0=0 0 2-0=2 2

2 3-0=3 0 5-0=5 6

3 5-0=5 0 4-0=4 9

4 0-0=0 2-0=2 0 4

Territory

Salesperson

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Optimal assignment

A B C D

1 0-0=0 0 2-0=2 2-2=0

2 3-0=3 0 5-0=5 6-2=4

3 5-0=5 0 4-0=4 9-2=7

4 0-0=0 2-0=2 0 4-2=2

Territory

Salesperson

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Optimal assignment

A B C D

1 0 0 2 0

2 3 0 5 4

3 5 0 4 7

4 0 2 0 2

Territory

Salesperson

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Draw minimum number of straight lines(vertical and horizontal, no diagonal) to coverall zeros

At any time draw a line to cover maximumuncovered zeros (either row or column)**

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Optimal assignment

A B C D

1 0 0 2 0

2 3 0 5 4

3 5 0 4 7

4 0 2 0 2

Territory

Salesperson

3 lines covered all zeros

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If number of lines covering zeros are equal tonumber of rows or columns, then proceedwith assignment

If not, then select the smallest uncoveredelement, subtract from each uncoveredelement, and add to the junctions of lines**

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Optimal assignment

A B C D

1 0 0 2 0

2 3 0 5 4

3 5 0 4 7

4 0 2 0 2

Territory

Salesperson

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Optimal assignment

A B C D

1 0 0 2 0

2 3-3=0 0 5-3=2 4-3=1

3 5-3=2 0 4-3=1 7-3=4

4 0 2 0 2

Territory

Salesperson

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Optimal assignment

A B C D

1 0 0+3=3 2 0

2 3-3=0 0 5-3=2 4-3=1

3 5-3=2 0 4-3=1 7-3=4

4 0 2+3=5 0 2

Territory

Salesperson

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Optimal assignment

A B C D

1 0 3 2 0

2 0 0 2 1

3 2 0 1 4

4 0 5 0 2

Territory

Salesperson

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Optimal assignment

A B C D

1 0 3 2 0

2 0 0 2 1

3 2 0 1 4

4 0 5 0 2

Territory

Salesperson

4 lines were required to cover all zeros = no of columns therefore proceed with assignme

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Go row-wise

Choose a zero, which is single in a row

Assign that cell

Cancel that row and column

Repeat

If all rows have more than one zero, go

column-wise.**

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Optimal assignment

A B C D

1 0 3 2 0

2 0 0 2 1

3 2 0 1 4

4 0 5 0 2

Territory

Salesperson

X

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Optimal assignment

A B C D

1 0 3 2 0

2 0 0 2 1

3 2 0 1 4

4 0 5 0 2

Territory

Salesperson

X

X

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Optimal assignment

A B C D

1 0 3 2 0

2 0 0 2 1

3 2 0 1 4

4 0 5 0 2

Territory

Salesperson

X

X

X

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Optimal assignment

A B C D

1 0 3 2 0

2 0 0 2 1

3 2 0 1 4

4 0 5 0 2

Territory

Salesperson

X

X

X

X

A-2 B- 3 C-4 D-1 O timal assi nment

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Routing and scheduling of sales

personnel

Routing and scheduling plans aim to optimizesales coverage, and minimize distancetraveled / unproductive time

Scheduling of a day should be preferablydone on previous day. Top down or bottomup approach, avoid middle of the dayappointments. The manager should ensurethat it is done on previous day.

The routing should permit the sales person toreturn home at least on week ends

Control Frequent surprise visits bysupervisors to the field**

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ObjectiveTo minimize total distance

traveled

0 8 12 8 9

8 0 11 8 9

12 11 0 12 10

8 8 12 0 12

9 9 11 12 0

To

FromCity A B C D E

A

B

C

D

E

bj i i i i l di

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traveled

8 12 8 9

8 11 8 9

12 11 12 10

8 8 12 12

9 9 11 12

To

FromCity A B C D E

A

B

C

D

E

Obj i T i i i l di

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traveled (Hungarian M..)

8 12 8 9

8 11 8 9

12 11 12 10

8 8 12 12

9 9 11 12

To

FromCity A B C D E

A

B

C

D

E

X

X

X

X

X

A-D, B-A, C-E, D-B, E-C ????? A-D, D-B, B-A, C-E, E-C

Obj i T i i i l di

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8 12 8 9

8 11 8 9

12 11 12 10

8 8 12 12

9 9 11 12

To

FromCity A B C D E

A

B

C

D

E

X

X

X

X

X

A-D, D-B, B-A, C-E, E-C

Obj i T i i i l di

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8 12 8 9

8 11 8 9

12 11 12 10

8 8 12 12

9 9 11 12

To

FromCity A B C D E

A

B

C

D

E

X

X

X

A-D, B-C, C-E, D-B, E-A A-D, D-B, B-C, C-E, E-A

X

X

A D B C E A

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Sales quotas (Targets)

A sales quota is a quantitative goal assignedto a sales unit relating to a particular period oftime.

A sales unit may be a territory, branch office,a region, a distributor or a person.**

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Purpose of sales quotas

Communicates targets (SMART)(SMARTER)1. S-specific not vague2. M- measurable in some way3. A-agreed as attainable

4. R-realistic but challenging5. T-timed with an achieve by date6. E-evaluated with success criteria7. R-reviewed at agreed intervals Providing goals, and incentives to achieve a certain

performance level Controls sales persons activities Aid to evaluate performance**

T f l t

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Types of sales quotas

(Quantitative) Sales volume quota

Financial quotas (Rs sales, expenses, netprofit, a/r))

Activity quotas (Selling method)1. No. of prospects called upon

2. No of new accounts opened

3. No. of dealers called upon

4. No. of demonstrations made**

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Performance standards (Qualitative)

Customer relations

Coordination with the internal departmentsand the customers

Relationship with principals Market information gathered

Competitive intelligence**

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Sales compensation plan

M ti ti l l f th l

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Motivational roles of the sales

compensation plan

1. Provide a living wage

2. Adjust pay levels to the performance

3. Provide a mechanism to demonstrate the

congruency between attaining companygoals and individuals goals**

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Types of compensation plans

1. Straight salary plan (Salary = F)

2. Straight commission plan (Salary = % xsales)

3. Salary plus commission (Salary = f + % ofsales)**

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Straight salary plan

Advantages

Simple and economicalto administer

Stability of income**

Disadvantages

Average performanceas no incentive fordelivering more

Under compensatesproductive and overcompensates poorperformers

Difficult to adjust tochangingcircumstances**

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Straight commission plan

Advantages Provides direct

monetary incentive

Provides a means of

cost control Flexible as different

rates for differentproducts can be fixed**

Weaknesses

Insecurity as consistentflow of income is notassured

Sales people focus onlyon orders and care lessabout transmittingreports

Sales people resistreduction in size ofsales territories

Disputes over

accounts**

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Basis of commission

If volume is important then sales (invoices) isthe base

Collection (If out-standings are high) To control price cutting by sales people,

gross margin can be taken base (Pricerealized given product cost)

Net profit base controls price cutting andselling expenses (Price realized given

product cost sales dept expenses) Expenses reimbursed / not reimbursed**

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Factors.

Demographic characteristics

Age 20-28Bachelors.High risk, highreward, aggressive company..Straightcommission or incentive

28-35..Married 1-2 young children,established company and stability.Higherbasic + Incentive

35 and abovegrowing children, stability andsteady job.Straight salary**

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Salary plus commission

Advantages

Security of stableincome and incentivefor higher productivity

Management hasgreater control andapparatus to motivatesales force

A cooperative spiritdevelops betweensalesperson and thecompany**

Disadvantages

Clerical costs are high

Disputes on fixed andvariable components

ratio**

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Case study

Amway sales compensation plan**

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Amway sales and marketing plan

IBO Independent Business Owner

Two ways of income

1. Retail profit

2. Cash back on monthly purchase

For a distributor which component would behigher?**

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1 Retail profit

Distributor buys products from Amway at DAP(Distributor Acquisition Price)

Distributor sells products at MRP, earns profit @ 20%on DAP, or @15% on MRP

E.g. LOC 1 ltr, MRP 375 DAP 313 = 62 i.e. 20% 0n

313 Distributor has complete freedom on1. What products, what quantity, when to buy (No

quotas / targets / limit)2. What to do with the bought products (Self use / Sell

them in his own sweet time) Retail profit is realized by the distributor only

when he sells the products. Amway products should be sold only directly to

customers and not from a retail shop or bycommercial display**.

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Sponsoring

Amway on its own does not appoint distributors, however forgrowth, it needs more and more distributors

Existing distributors have been given the privilege to sponsornew distributors under them, train them in selling, and getheavily rewarded for the sales performance of their recruitsand theirtheir recruits.

A distributor can sponsor distributors in India or in any of the80+ countries where Amway is present

Cash back scheme determines the income that a distributor willget from the performance of his recruitsand theirtheirrecruits..**

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2nd way of earningincome

Cash back on monthly purchase

Model working from 1959 in Amway**

Monthly purchase in BV Business volume A f h b k

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Monthly purchase inPV (Point Value In aCalendar month)

BV = Business volume= DAP Taxes

1PV = 60 BV Rs

Amount of cash backas % of BV

=>300 18,000 6 %

=>1,000 60,0009 %

=>2,000 1,20,000 12 %

=>4,000 2,40,000 15 %

=>7,000 4,20,000 18 %

=>10,000 60,00,00021 %

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Situation 1

Table

PV BV %

300 18000 6%

1000 60000 9%

2000 120000 12%

4000 240000 15%

7000 420000 18%10000 600000 21%

You (Distributor)purchase productsworth 50 PV in a

given month Retail profit =

50x60x20%=600

Cash back = Nil

Your that months

income = Rs 600**

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Situation 2

Table

PV BV %

300 18000 6%

1000 60000 9%

2000 120000 12%

4000 240000 15%

7000 420000 18%

10000 600000 21%

You sponsor A, B, C You, A, B, C, each

purchase products of 50PV in a given month

(Group PV 200) Your retail profit =

50x60x20%=600

Cash back = Nil

Your that monthsincome = Rs 600**

You

A B C

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Situation 3

Table

PV BV %

300 18000 6%

1000 60000 9%

2000 120000 12%

4000 240000 15%

7000 420000 18%

10000 600000 21%

You sponsor D,E,F You, A, B, C, D, E, F

each purchase productsof 50 PV in a given

month (Group PV 350) Your retail profit =

50x60x20%=600

Cash back =350x60x6% =1260

Your that monthsincome = Rs 600+1260= 1860**

You

A B

C D E F

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Situation 4

TablePV BV %

300 18000 6%

1000 60000 9%

2000 120000 12%

4000 240000 15%

7000 420000 18%

10000 600000 21%

Like you, A, B, C, D, E, Feach sponsors 6 distributors.Every distributor purchasesproducts of 50 PV in a givenmonth. Group PV = 50+6x350= 2150

Your retail profit =50x60x20%=600

Group Cash back =2150x60x12% =15,480

Group A cash back =

350x60x6%= 1260 Same for(B,C,D,E,F)

Your cash back share =15480 6 x 1260 = 7920

Your that months income =

Rs 600+ 7920 = 8520**

You

A B C D E F

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Situation 5

TablePV BV %300 18000 6%1000 60000 9%2000 120000 12%4000 240000 15%7000 420000 18%10000 600000 21%

Each distributor of A, B, C, D, E, Fsponsors 6 distributors. Everydistributor purchases products of 50PV in a given month. Group PV 50 +6 (50+ 6x350) = 12950

Your retail profit = 50x60x20%=600 Group Cash back = 12950x60x21%

= 1,63,170 Group A cash back =

2150x60x12%= 15,480 (B,C,D,E,F) Your cash back share = 1,63,170 -6

x 15,480 = 70,290 Your that months income = Rs

600+ 70,290 = 70,890 SILVER PRODUCER (1) / Gold

producer (3) / Direct Distributor(6)

Self consumption / retailing of 50 PVby each one in the group cansustain your income**

You

A B C D E F

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Situation 6

TablePV BV %

300 15000 6%

1000 50000 9%2000 100000 12%

4000 200000 15%

7000 350000 18%

10000 500000 21%

In some month noneof the distributors inyour group,including you, buys

any product fromAmway

Your income for thatmonth is

ZERO What type of plan is

this?

Straight

commission plan**

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Situation 7

When A reaches 21%.... Your cash back is nil on As purchase volume

as per the differential formula

But Amway pays you handsomely fordeveloping a self sufficient group

Emerald (3 DDs)

DIAMOND (6 DDs)..Typical income Rs 2-3

lac pm Recognition in Amagram

(Personal selling students to stay back)**

Documents

SDM 5