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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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Hungarian Assignment Method
Subtract the smallest element of the row fromeach element of the row
Do it for all the rows (Row minimization)**
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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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Optimal assignment (Opportunity cost
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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Optimal assignment (Opportunity cost
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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Optimal assignment (Opportunity cost
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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Optimal assignment (Opportunity cost
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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Hungarian Assignment Method
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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Hungarian Assignment Method
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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Hungarian Assignment Method
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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Hungarian Assignment Method
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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ObjectiveTo minimize total distance
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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ObjectiveTo minimize total distance
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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ObjectiveTo minimize total distance
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, D-B, B-A, C-E, E-C
Obj i T i i i l di
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ObjectiveTo minimize total distance
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
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)**