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39 Cards in this Set
- Front
- Back
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Sales Territory
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best viewed as a group of present and potential customers... the geographic aspects at most come secondary! And relate to how much it costs to cover certain geographical area but when it comes to marketing product using the internet geography is irrelevant
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Yuna Cho
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"Less is more"- Territory division and territory development- yuna did her senior thesis on this topic- She gathered data from area sales managers to proves that over time the sales potential of a territory evolves over time and increases over time with proper sales development- this is reflected in the graph...
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Graph proving the increase in sales potential with proper sales development...
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In year one- the person approaches the account as a cold call- in this year 1 sales potential with this account tends to be relatively low...WE say that the profit maximizing in sales for year 1 only is up to three calls for that year! But a byproduct of proper development of the account in the upward and rightward movement of the S shaped curve to the fact that the sales potential for the account is enhanced- in year 2 the profit maximizing number of sales calls on the account is 5!
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Sales territory
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The reward that the SP gets for doing such a good job in year 1 is that they get their sales territtory divided because now they've got 5 sales calls to do whereas in year 1 it was only 3--- so, the SP has to give up 107 account to someone else so that he/she can handle the increased amount of sales calls.
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What does "less is more" mean to selling?
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You can give more of your time to the decreased amount of accounts and therefore they receive more and you also receive an increased salary and increased commission rate!
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How many steps/processes are there for RE-aligning the sales territories?
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3
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Step 1 in RE-aligning the sales territories
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MAP INFO--- geographic addresses in this database- you use this to create sales territories... so you choose the control until that is the 5 digit zipcode
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Step 2 in RE-aligning the sales territories
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Sales managment needs to develop a sales response curve for each and every present and potential customer in the market areas...
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Step 2 in RE-aligning the sales territories
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Sales managers have heuristics (go with your instinct) they use to develop a sales response curve- SM assign accounts to either A, B, or C, status which relates to the amount of time each month you give to the account- (where A- call on them 2 times a month or 24 a year divided by the 800 hours of face to face calling on customers time given in a year, so A accounts are .03 of your time- B is only 1 time a month, or 12 times a year with .015 of your time and C is 1 every other month or 6 times a year with it being .0075 of your time)
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Step 3 in RE-aligning the sales territories
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You then continue this process until each SP has 100% of accounts of 100% of work to complete within a year. You then move to a new territory and re-align it!
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Claim Jumping
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is a term that was developed to describe what happened in the 19th century- barrick- is a gold mining company that has recently had two huge strikes in western Nevada so it's still going on- Whenever a SP calls upon an account that is assigned to another sales person! Trying ot take an account from another person- the claim that the SP is trying to jump is the annuity flow of sales- what motivates this is firstly an imbalance in workload and secondarily in potential
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Dealing with Claim Jumping
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only pay sales people for sales that are made in their assigned accounts
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Routing
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totally planning in advance a SP calling schedule for a week or even for a month... so if it's routed by week then that SP will know exactly where he/she is going to be on WEdnesday at 11pm- Whenever a SP calling activity with a given account are regular and frequent then that SP calling should be routed
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The Iceberg Principle
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Typically in many firms, particularly those that aren't well run, members of management will tend to perform relatively easy analysis, such as analysis of total company profit and analysis of total company market share- they will perform this anlysis, however they will NOT perform analysis, which are more enlightening called analysis of sales volume by territory, market and product- SM dont' do this because they are difficult and time consuming
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Iceberg Principle Issues
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If management does not do analysis of sales volume by territory, market and product then their companies will run into BIG trouble- they will run into the iceberg that is below the water level- often they go bankrupt
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Fundamental Axiom of Capitalism
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a companies resources (monetary, human resources) should be permitted to flow to wehre profit prospects are greatest
-Japan banking industry- was damaged fatally by not following this |
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80/20 Rule
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Very wealthy smart business man that W. knows said that the 80/20 rule is the most important
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80/20 Rule
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80% of the companies sales volume and profits will come from 20% of the companies territories, customers and products
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80/20 Rule Example
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Industrial scales- there are 5 product lines, 5 types of customers (1 kind would be manu. customers- buying a lot of counting scales, another would be a convenience stores that has retail scales- cheese, candy, deli meat) and 5 territories
- How many little cubes are in that big cube? how many products, customers, and territories combination? 125 little cubes. How many of those little cubes are responsible for 80%of the companies sales volume and profits? 25 little cubes |
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80/20 Rule Example Continued
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Dave Hewitt? The name of W. friend, who is the CEO of Crayola- How does he apply the 80/20 rule?
- He follows the fundamental axiom of capitalism, he looks at which of these small cubes are responsible for 80% of companies sales volumes and profits and puts the capital towards these cubes and flods them with resources |
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Back ass wards of the 80/20 rule
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Where you look at the 80% of cubes that are responsible for 20% of the companies sales volume and profits-
-"soft spots" authors of the text tell us to: harden soft spots- this is WRONG, this will take money away from your profits- because you've got scarce company resources and you look down into the empty space of 80% of the cubes and you try to shake out these resources to "harden" the "soft spots"... they will have violated the fundamental axiom of capitalism |
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An individual profit that "rounds out" a product line
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"rounds out"- fills in the crack where analysis of sales volume does not shed light- we say that an individual product rounds out a product line if its presence in the product line makes the entire product line more salable
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Example of a "rounds out" product line
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A producer of peripheral device for computers names ICS- there's an item that ICS produces and sell sis called a programmable multiplexor an dits presence in a given personal computer configuration enables the different peripheral receives to communicate better with each other- If it weren't present then sales of the other devices would go down
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Does the concept of less is more apply to the 80/20 rule?
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YES! because you're putting more money in fewer product lines and it ends up generating more sales and more products
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Human relations problem
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comes up with an analysis of the sales volume- analysis of sales by sales person is the same as analysis of the sales volume of territory---
Some will make mistakes and publicize the results and make SP want to quit due to being ridiculed in public- this should not happen- it should be discussed in private. |
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Marketing Cost Analysis (MCA)
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Cost------> Volume
- WHat is the bottom line is that of slaes volume-all kinds of factors non-price factors influence sales volume-personnel selling activity - Cost drives sales volume- how? by way of price -In a competitive environment reductions in cost influences sales volume positively- it will drive sales volume up- by way of price -reductions sin price drive sales volume up -but you've got to have a competitive environment |
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Production Costs Accountant (PCA)
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Volume-----> Cost
-Has as bottom line-production costs -One thing that drive cost is sales volumes -Example: ITG, owned by WIlber Ross- you've got 2 production runs, 1000 run and 100,000 run- set up costs: $1,000 where 1,000 yards suc/yd=$1. and 100,000 yards suc/yd=$.01 -So you se that volume drives costs- where by producing 100,000 yards vs. 1,000 yards you save $.99 |
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1st way to analyze marketing costs
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looking at accounting ledger
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2nd way to analyze marketing costs
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-look at those ledger expenses and regroup them into marketing activity functions
-Personnel selling, advertising= marketing activity -we claim warehousing, shipping and order processing expenses in marketing: because everything flows from analysis of ultimate customer needs- how much will customers be willing to pay for a very fast response to changing customer needs- if they're willing to pay a lot then the company is advised to have many man warehouses! People on the 4th floor will contest this the entire way |
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2nd way to analyze marketing costs continued
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Operating expenses
-sales force travel- in example $372 when we allocate these to marketing activities, this is an easy allocating because all of these expenses will go directly into the personnel selling function -supplies- through marketing activities- this is a foul ball- because there is no direct metod for allocating supplies to marketing activities- nobody for example is going to take every pencil, paper clip, legal pad and sit there at the "admin" machine to try to allocate costs directly to advertising, personnel selling, etc. It costs too much to do this! so instead of a direct allocation of this supplies- WE're going to develop a heuristic for indirectly apportioning supplies to marketing activities |
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2nd way to analyze marketing costs continued- heuristic
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Heuristic development comes from experience
-how do we allocate the supplies across marketing activities? -first we think about supplies- who uses the supplies a lot? members of management? secretaries & clerks? -to allocate supplies to direct non-managerial personnel (secretaries & clerks) costs in each activity center |
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3rd way to analyze marketing costs
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SImilar kinds of cost allocations- direct and indirect
-Example:allocate sales force travel expenses to product lines -It's virtually impossible to exactly and directly allocate SFTE to product lines! It can't be done. So you develop a heuristic (rule of thumb) for allocating SFTE to product lines -Look at the concept of call reports! That sales people write up on what happened on outside sales calls -Salesforce.com can be used to gather this information automatically! this overall initiative is called sales force automations |
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Heuristic for allocating SFTE to product lines
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# calls concerning product A
----------------------------------------- total $ sales = R^A= .04 -We find that in 400 of these calls out of 10,000 calls product A was memtioned so we've got 400/10,000=the number of calls concerning number A divided by the 10,000 sales calls -Sales force travel expense in book= $372,000 x .04= $14,880 allocated to product line A |
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Costs
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If you are not covering variable costs (contribution margin) then your business needs to be shut down
-If you are covering variable costs but not all fixed costs, then the company has a little more time- so that management can think of the best course of action - |
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Contribution Profit Margin
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nets out just variable costs (direct costs)
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Fully Costed Profit Measure
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nets out both variable and allocated fixed costs (indirect and direct)
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Negative contribution margin figure then....
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sales person is not covering slaes costs- then either the sales territory needs to be closed or the sales person needs to be fired or BOTH
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Ethical Dilemma- What happens when there are ethical problem regarding cost allocations for regional managers when these regional managers incentive pay is influence by cost allocations?
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Allocate fixed costs in direct proportion in sales volumes achieved by the regions- A great majority of manager's pay is incentive pay that is directly related to the shape of sales volume or the profitability of the profit center (where each region is a profit center)
-That is a problem... there's no defensible method of indirectly apportioning fixed costs across regions- the only way to actually deal with this is to have the incentive pay of regional mangers be a function of their contribution margin profitability rather than their fully costed profits |
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Sales Rep Performance
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sales= (days worked) X (call rate=calls/days worked) X (batting average= # orders/# calls) X (average order size sales/ # orders)
This equation comes in handy with people who are older and are using excuses as to why they are just not doing their work, like they have a crappy territory- you can then use this equation and find out that their excuses are BS batting average and average order size are important |
