Chapter 9 Managing the Global Sales Territory Sales Management: A Global Perspective Earl D. Honeycutt John B. Ford Antonis Simintiras

Introduction Sales territory environments constantly change With change, territorial decisions should be revisited by the sales manager: Sales force or agents? Criteria for selecting partners What is the correct sales force size? Ethical dilemmas in sales force territory design and management

Sales territory environments constantly change

With change, territorial decisions should be revisited by the sales manager:

Sales force or agents?

Criteria for selecting partners

What is the correct sales force size?

Ethical dilemmas in sales force territory design and management

Sales Force or Agent? Firm can use independent agents or company sales force Outside U.S. about 72% of firms use agents Best choice when entering markets with small sales or unknown potential Agents receive high commission, but only when sales are made Agents must be expert in market situation and customer base

Firm can use independent agents or company sales force

Outside U.S. about 72% of firms use agents

Best choice when entering markets with small sales or unknown potential

Agents receive high commission, but only when sales are made

Agents must be expert in market situation and customer base

Agent Attributes Agents are used when: Markets are geographically dispersed There are few customers in market Firm is inexperienced in global markets Product is new and demand is uncertain Firm wants to simplify business activities Concerns about agents include: Partner loyalty Product knowledge

Agents are used when:

Markets are geographically dispersed

There are few customers in market

Firm is inexperienced in global markets

Product is new and demand is uncertain

Firm wants to simplify business activities

Concerns about agents include:

Partner loyalty

Product knowledge

Managerial Decisions Who should be hired for the position? Expatriates, host-, or third-country Expatriates – product knowledge & control, but high cost of maintaining Host-Country – economical and market knowledge; need product training Third-Country – culture and language knowledge; training & identity problems

Who should be hired for the position?

Expatriates, host-, or third-country

Expatriates – product knowledge & control, but high cost of maintaining

Host-Country – economical and market knowledge; need product training

Third-Country – culture and language knowledge; training & identity problems

Breakeven Analysis Economically, sales manager can compute the breakeven point (Q*) of using an agent or a company sales force That is: Q* = Fixed Costs CMsp – rCMa Where Q* is the point of indifference Fixed Costs = Obligated costs CMsp & Cma = Contribution Margin r = percent of time agent spends on product line vs. a company salesperson

Economically, sales manager can compute the breakeven point (Q*) of using an agent or a company sales force

That is: Q* = Fixed Costs

CMsp – rCMa

Where Q* is the point of indifference

Fixed Costs = Obligated costs

CMsp & Cma = Contribution Margin

r = percent of time agent spends on product line vs.

a company salesperson

Breakeven Application Suppose a salesperson has $2,000 fixed costs, the agent spends 50% of their time on the firm’s product line, the contribution margin is $60 and $50, respectively, for the salesperson and agent, we compute Q* this way: 2,000 (60-.5x50) Or 2,000/35 = 57 units If the sales manager forecasts sales of 100 units for a company salesperson, then economically the firm should use a company salesperson

Suppose a salesperson has $2,000 fixed costs, the agent spends 50% of their time on the firm’s product line, the contribution margin is $60 and $50, respectively, for the salesperson and agent, we compute Q* this way:

2,000

(60-.5x50)

Or 2,000/35 = 57 units

If the sales manager forecasts sales of 100 units for a company salesperson, then economically the firm should use a company salesperson

Selecting Partners Partners will contribute directly to the success or failure of a sales firm Partners should posses the following attributes: Marketplace knowledge Marketplace status Similar goals and values View partnering as a “win-win” situation

Partners will contribute directly to the success or failure of a sales firm

Partners should posses the following attributes:

Marketplace knowledge

Marketplace status

Similar goals and values

View partnering as a “win-win” situation

Sales Force Size How many salespersons are necessary? Three methods available: Economic – a new salesperson should be hired as long as the revenue produced by that salesperson exceeds their cost Difficult to compute this point Can at best be estimated This suggests that a full commissioned salesperson should always be hired

How many salespersons are necessary?

Three methods available:

Economic – a new salesperson should be hired as long as the revenue produced by that salesperson exceeds their cost

Difficult to compute this point

Can at best be estimated

This suggests that a full commissioned salesperson should always be hired

Breakdown Method Second method to compute sales force size is the breakdown method Sales Force Size = Forecasted Sales Average sales per SP For example if forecasted sales in Euros was 250 million and the average salesperson sold 20 million Euros, then 12.5 salespersons would be needed

Second method to compute sales force size is the breakdown method

Sales Force Size = Forecasted Sales

Average sales per SP

For example if forecasted sales in Euros was 250 million and the average salesperson sold 20 million Euros, then 12.5 salespersons would be needed

Computational Concerns When the breakdown is utilized, then one must ask how accurate are the forecasted sales figure and the average sales numbers? Most sales forces have a number of average salespersons, but also a few superstars that raise the average higher than what is accomplished by most salespersons!

When the breakdown is utilized, then one must ask how accurate are the forecasted sales figure and the average sales numbers?

Most sales forces have a number of average salespersons, but also a few superstars that raise the average higher than what is accomplished by most salespersons!

Composite Method A third method of computing sales force size is the composite method Firms are prioritized into A, B, C categories The call frequency for each category determined To compute total calls multiply call frequency times the number of firms in each category Next, compute total calls per salesperson Take average calls per day x days of week clients are called upon x number of weeks worked per year E.g. 4 calls per day x 4 days per week x 45 weeks a year = 720 calls made per salesperson per year

A third method of computing sales force size is the composite method

Firms are prioritized into A, B, C categories

The call frequency for each category determined

To compute total calls multiply call frequency times the number of firms in each category

Next, compute total calls per salesperson

Take average calls per day x days of week clients are called upon x number of weeks worked per year

E.g. 4 calls per day x 4 days per week x 45 weeks a year = 720 calls made per salesperson per year

Completing the Computation Suppose that there are 60A, 45B, and 310C accounts that have to be called upon 15, 10, and 6 times, respectively, per year This amounts to 4,210 accounts Divide 4,210/720 calls and this works out to 5.847 salespersons needed However, if cold calling consumes 10% of salespersons time, this must be factored in

Suppose that there are 60A, 45B, and 310C accounts that have to be called upon 15, 10, and 6 times, respectively, per year

This amounts to 4,210 accounts

Divide 4,210/720 calls and this works out to 5.847 salespersons needed

However, if cold calling consumes 10% of salespersons time, this must be factored in

Sales Force Size Summary Economic method teaches us that sales manager must be aware of relationship between costs and sales Breakdown provides an estimate that can be biased by extreme performances Composite method takes many factors into account and allows sales manager to set service levels and additional duties

Economic method teaches us that sales manager must be aware of relationship between costs and sales

Breakdown provides an estimate that can be biased by extreme performances

Composite method takes many factors into account and allows sales manager to set service levels and additional duties

Sales Administration Sales manager must decide upon sales force activities: Office hours, cold calls, reports, travel frequency Will differ depending upon culture Some cultures expect firm to play a parental role – high level of supervision and inspiration Firms have global data support and Customer relationship management systems

Sales manager must decide upon sales force activities:

Office hours, cold calls, reports, travel frequency

Will differ depending upon culture

Some cultures expect firm to play a parental role – high level of supervision and inspiration

Firms have global data support and Customer relationship management systems

Sales Management Control US firms assume “master of destiny” that assumes salesperson responsible for their actions and accomplishments = merit pay Many cultures view success as being out of the individual’s control – Saudi Arabia Individual evaluations may cause problems in a collectivistic culture Degree of authority delegated to overseas offices must be determined

US firms assume “master of destiny” that assumes salesperson responsible for their actions and accomplishments = merit pay

Many cultures view success as being out of the individual’s control – Saudi Arabia

Individual evaluations may cause problems in a collectivistic culture

Degree of authority delegated to overseas offices must be determined

Travel Planning Travel can consume a salesperson’s time Must plan and work efficiently Best to start at most distant point and work back toward the office or starting point Use a circuitous route the minimizes backtracking Employing a computer program that plans the most efficient travel schedule

Travel can consume a salesperson’s time

Must plan and work efficiently

Best to start at most distant point and work back toward the office or starting point

Use a circuitous route the minimizes backtracking

Employing a computer program that plans the most efficient travel schedule

Ethical Issues A number of decisions arise when designing sales territories Equitable opportunity Territory assignment process Account service levels Partner relations Switching from agents to salespersons Treatment of host- and third-country salespersons

A number of decisions arise when designing sales territories

Equitable opportunity

Territory assignment process

Account service levels

Partner relations

Switching from agents to salespersons

Treatment of host- and third-country salespersons

Distributors and Partners Industrial firms refer smaller customers to distributor partners Allows small quantities to be purchased Relationship with distributors must be coordinated, training must occur, and a coherent sales strategy must be pursued Distributor serves smaller customers and industrial firm concentrates larger customers This cooperation complements market service

Industrial firms refer smaller customers to distributor partners

Allows small quantities to be purchased

Relationship with distributors must be coordinated, training must occur, and a coherent sales strategy must be pursued

Distributor serves smaller customers and industrial firm concentrates larger customers

This cooperation complements market service

Discussion Questions If a firm decides to expand into a new territory with a high-tech product, which form of the salesperson—expatriate, host-, or third-country—is appropriate? For a consumer good such as clothing? List and discuss the four criteria for sound partner selection In what ways is the management of the sales force impacted by ethical behavior?

If a firm decides to expand into a new territory with a high-tech product, which form of the salesperson—expatriate, host-, or third-country—is appropriate? For a consumer good such as clothing?

List and discuss the four criteria for sound partner selection

In what ways is the management of the sales force impacted by ethical behavior?

Summary Territory management is an important duty of the sales manager Sales force employed to insure control and increase emphasis on company product line There are techniques for computing whether to maintain an agent or go to a company salesperson There are three methods to determine sales force size Managers must ascertain sales force administration and control issues Ethical issues influence sales territory management decisions

Territory management is an important duty of the sales manager

Sales force employed to insure control and increase emphasis on company product line

There are techniques for computing whether to maintain an agent or go to a company salesperson

There are three methods to determine sales force size

Managers must ascertain sales force administration and control issues

Ethical issues influence sales territory management decisions

Discussion Questions Are any sales training stages within the process more important than another? Why or why not? List as many reasons as possible why it is difficult to objectively evaluate sales training. Why is it important to conduct follow-up training? How can high-tech methods help with this responsibility?

Are any sales training stages within the process more important than another? Why or why not?

List as many reasons as possible why it is difficult to objectively evaluate sales training.

Why is it important to conduct follow-up training? How can high-tech methods help with this responsibility?