C.P = 3.

6 OM – 1 SALES AND DISTRIBUTION MANAGEMENT

UNIT-1

WHAT IS SALES MANAGEMENT

Sales management is a business discipline which is management of a firm’s sales operations and
focused on practical applications of techniques used in sales. This is a crucial aspect of the business as
net sales of products and services draw profit of the business. Sales manager is hired to look after the
sales and to manage them. t is attainment of sales in an efficient and effective manner and all the
activities involved in sales are managed. Sales Management’s ultimate goal is to attain sales
objectives of company.

Sales Management involves various activities like-

• Formulation of sales strategies like account management policies, sales force compensation policies,
sales revenue forecasts, and sales plan

• Implementation of those strategies

• Sales Research, Price fixation, Establishing sales territories and co-ordination of sales

• Sales techniques required

• Hiring staff, setting goals, regular monitoring

Sales Management is the most crucial and determining factor in any business enterprise. It is
important to meet competition and to make efficient and economic distribution system to reduce costs.
It is also important when new product to be launched and when distribution costs to be reduced.

1. According to Committee on Definitions, American Marketing Association, "Sales Management is

the planning, direction and control of the personal selling activities of a business unit including
recruiting, selecting, training, equipping, assigning, routing, and supervising. PAY ing and
motivating, as these tasks apply to the personal sales-force.

2. In the words of Rachman and Romano, "Sales Management includes recruiting, selecting, training,
supervising, motivating and evaluating the sales-force."

3. In the words of Hampton and Zabin, "Sales Management is primarily the direction of men with all
the management functions, of organisation, control, recruitment, training, supervision and motivation.

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 4. in the words of Hain- R. Tosdal. -Sales Management is the part of the management in which the
aim of an organisation is to make provision for the sale of the produced commodities.—

5. According to B.R. Canfield "Sales Management involves the direction and control of salesmen,
sales planning, budgeting, policy making, coordination of marketing research, advertising, sales
promotion and merchandising and the integration in the marketing programmed of all business
activities that contribute to the increased sales and profits."

SALES MANAGEMENT

PLANNING/DIRECTION/CONTROL
SALES FORCE
OTHERS SALES
MANAGEMENT PERSONAL SELLING ACTIVITIES
FUNCTION

SALES EFFORTS

SALES GOALS
NATURE AND CHARACTERISTICS OF SALES MANAGEMENT

1. Key Function—Sales management is a key function in many kinds of enterprises. Manufacturing

and wholesaling enterprises encounter a wide range of sales problems. Still and Cundiff state, "Sales
management problems exist even in companies not employing sales personnel."

2. Responsible—it is responsible to an important part of marketing functions. It is also responsible for

the effective functioning of personal selling activities. Sales managers have still other responsibilities.
They are responsible for participating in the preparation of information critical to the making of key
marketing decisions, such as those on budgeting, quotas, and territories.

3. Role—Sales managers participate in decisions on products, marketing channels and distribution

policies, advertising and other promotion, and pricing. Still and Cundiff write, "The sales manager is
both an administrator in Sales Management Planning/Direction/Control l Sales Force Personnel
Selling Activities Other Sales Function Management Sales Effort Sales Goals charge o personal
selling activities and a member of the executive group that makes marketing decisions of all types."

4. Strategic Function—Sales management achieves personal-selling objectives through 'personal-

selling strategy.'

5. Development of Human Resources—Boone and Kurtz write, "Sales management effort may be
exerted in the direction of securing, maintaining, motivating, supervising, evaluating and controlling
an effective field sales force." Thus, the modern concept of sales management revolves around the
development of human resources.

6. Specialized Function—Sales management is a significant branch of general management. It is one

of the highly specialized functions of general management. A salesman must be expert in his job.
Hence, sales management is a field of specialized knowledge.

7. Consumer Welfare—the scope of sales management is not confined not only to self-centered
corporate goals of profit and sales maximization and sustained growth. It goes well beyond these

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towards consumer welfare, satisfaction, delight and maximum social advantage by making available
the goods and services to the needy consumers in right time and at reasonable prices, at the place
wanted

8. Customer-oriented—Sales management is expected to be customer-oriented. It produces what is

needed by the customers in the quest of maximum social welfare. 'Customer delight' is the
fundamental guiding principle of sales management.

9. Functional Area—Sales management represents one of the most important functional areas of
management. It also represents all the principles of general management such as planning, organizing,
direction, motivation and control applied sales activities and sales-force for securing better business
performance, viz., reasonable profits through sales.

10. Challenging Profession—Sales management is a challenging profession. k n responsible for

obtaining sales volume, handling sales operations so as to make contributions to profits, and for
ensuring continuous growth. Sales executives insure the delivery of products with customer
satisfaction.

11. Synonymous with Marketing Management—Modern sales management is treated identical

with marketing management. In new age, it has attained wider and newer dimension. It included
management of all the marketing activities such as advertising, sales promotion, marketing research,
physical distribution, pricing, merchandising, and the like, in addition to the management of sales-
force.

12. Goals—the objectives of sales management includes achieving sales results giving major
contribution to profits, and experiencing continuous growth.

UNIT-2
Personal Selling: Objectives and Features
Rovert Louis Stevenson stated, “Everyone lives by selling something.” The people who do selling are
called salesmen, sales representatives, sales persons, account executives, sales consultants, sales
engineers, field representatives, agents, service representatives, marketing representatives etc.
Personal selling and salesmanship are used without distinction.

But there are some differences between the two. Personal selling is a broader concept. Philip Kotler is
of the opinion that personal selling involves oral presentation in a conversation with one’ or more
prospective purchasers for the purpose of making sales. Personal selling is a greatly distinctive form
of promotion.

Like advertising and sales promotion, personal selling is also a method of communication. It is a two-
way form of communication. It involves individual and social behavior. Each person is contacted by
face to face conversation. Personal selling influences the buyers to buy a product.

Personal selling reaches the goal of marketing effort i.e., to increase profitable sales. The purpose of
personal selling is to bring the right products into contact with the right customers, and to make
certain that ownership transfers take place. Personal selling creates product awareness, stimulates
interest, develops brand preferences, negotiates price etc.

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The American Marketing Association defines the term salesmanship as “the personal or impersonal
process of assisting and/or persuading a prospective customer to buy a commodity or service and to
act favorably upon an idea that has commercial significance to the seller.”

Advertising, sales promotion and personal selling ensure the process of selling. Of the three personal
selling is more important. It contacts the concerned persons in person and hence it is more effective.

Objectives of Personal Selling:

Personal selling has two types of objectives-long-term and short-term. The long-term objectives,
which are more or less permanent, are broader. These are also known as qualitative objectives.

The objectives under this head are:

1. To do the entire job.

2 To serve the existing customers.

3. To search out and obtain new customers.

4. To secure and maintain customers’ co-operation in stocking and promoting the product line.

5. To keep customers informed of changes in the product line.

6. To assist customers in selling the product line.

7. To provide technical advice and assistance to customers.

8. To handle the sales personnel of middlemen.

9. To provide advice and assistance to middlemen whenever needed.

10. To collect and report market information on interested matters to company management.

Apart from these qualitative objectives mentioned above, certain quantitative objectives are also
assigned, known as short-term objectives, to personal selling, and they are:

1. To obtain a specified sales volume.

2. To obtain sales volume in ways that contribute to profit objectives, by selling proper mix of
products.

3. To keep the personal selling expenses within specified limits.

4. To secure and retain a specified share of the market.

TYPES OF PERSONAL SELLING OBJECTIVES

Personal Selling-Objectives: (Qualitative):

1. To do the entire selling job (as when there are no other elements in the promotional mix).

2. To “serve” existing accounts {i.e., to maintain contacts with present customers, take orders etc.)

3. To search out and obtain new customers.

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4. To secure and maintain customer’s cooperation in stocking and promoting the product line.

5. To keep customers informed of changes in the product line and other aspects of marketing strategy.

6. To assist customers in selling the product line (as through “missionary selling”).

7. To provide technical advice and assistance to customers (as with complicated products and where
products are specially designed to fit buyers’ specifications).

8. To assist with (or hand) the training of middlemen’s sales personnel.

9. To provide advice and assistance to middlemen on various management problems.

10. To collect and report market information of interest and use to company management.

Objectives (Quantitative):

1. To obtain sales volume in ways that contributes to profit objectives.

2. To keep personal-selling expenses within certain limits.

3. To secure and retain a certain share of the market.

4. To obtain some number of new accounts of given types.

5. To secure a given percentage of certain accounts’ business. — Still and Cundiff

Features of Personal Selling:

1. He must maintain lasting relations between the firm and its customers.

2. It is a creative art. He creates wants in customers. A human need may change into human want but
because of salesmanship. He should possess the ability to convert needs into wants.

3. He must talk in the point of view of customers and engage their mind to his point of view. That is,
the ability of the salesman must influence the customers’ mind.

4. He must satisfy the consumers not only by selling products but also provides knowledge and
assistance to satisfy the needs of consumers.

5. The new type of salesman has to play an important role in the total marketing process. Thus he
must have the ability to learn and ability to communicate expert knowledge, in which he deals. Apart,
typically, considerable weight has been put upon the importance of the art of persuasion a necessary
characteristic of good selling.

Personal selling carries importance when:

1. The product is in the introductory stage;

2. The product’s unit value is high;

3. The product requires demonstration;

4. The product must fit to the needs of buyers;

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5. The company does not go for advertisement.

Recruiting and Selecting Sales Personnel

RECRUITMENT

Recruitment is a positive process in which a company attract a pool of talented people, whereas
selection is a negative process through which they screen people and finally select desired number of
personnel who are offered appointment. Attracting and selecting new sales personnel is an important
aspect of the sales manager's job. Recruitment is the procedure to obtain a good number of people
with the potential capability of becoming good sales personnel. After attracting a large number of
people, it becomes feasible to select the individuals, which fit the needs of the organization.
Appropriate recruiting and selection policies and procedures, and their skillful execution result in
greater overall efficiency of sales department. Good selection fits the right person to the right job,
thereby increasing job satisfaction and reducing the cost of personnel turnover. In addition training
costs are reduced, either because those hired are more capable of absorbing training or because they
require less formal training.

RECRUITMENT PROCESS

To ensure the new recruits have the aptitude necessary to be successful in a particular type of sales
job, certain procedures should be followed in the recruitment process. The steps in this process are:

(a) Conducting a job analysis: Before a company can search for a particular type of salesperson, it
must know something about the sales job to be filled. To aid in the
Process, a job analysis should be conducted to identify the duties, requirements, responsibilities, and
Conditions involved in the job. A proper job analysis involves following steps:

(a) 1. Analyze the environment in which the salesperson is to work.

(a) 2. Determine the duties and responsibilities that are expected from the sales-person.
(a) 3. Spend time making calls with several salespeople, observing and recording the various
tasks of the Job as they are actually performed. This should be done for a variety of different
types of customers and over a representative period of time.

(b) Preparing a job description

The result of a formal job analysis is a job description. Since a job description is used in recruiting,
selecting, training, compensating and evaluating the sales force, the description should be in writing
so that it can be referred to frequently. The written job description lets prospective job applicants, as
well as current sales personnel, know exactly what the duties and responsibilities of the sales position
are and on what basis the new employee will be evaluated.

The job description is probably the most important single tool used in managing the sales force. It is
used not only in hiring but also in managing and sometimes as a basis for firing salespeople. It
provides the sales trainer with a description of the salespeople's duties and enables him or her to
develop training programmers that will help sales people perform their duties better. Job descriptions
are also used in developing compensation plans.

Often, the type of job determines the type of compensation plan that will be used. Job descriptions aid
managers in supervision and motivation, and they are used as an official document that is part of the
contract between management and a salesperson's union. Finally, a job description puts management
in a position to determine whether each salesperson has a reasonable workload.

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(c) Developing a set of job qualifications
The duties and responsibilities set forth in the job description should be converted into a set of
qualifications that a recruit should have in order to perform the sales job satisfactorily. Determining
these qualifications is probably the most difficult aspect of the entire recruitment process. One reason
is that the manager is dealing with human beings; therefore, a multitude of subjective and very
complex characteristics are involved. Specific qualifications such as education and experience should
be included in the job qualification, thus making good candidates easier to identify. But most firms
also try to identify personality traits that presumably make better salespersons, such as self-
confidence, aggressiveness, etc.

(d) Attracting a pool of applicants the next major step in the recruitment process is attracting a
pool of applicants for the sales position to be filled. All large companies with a sales force have a
continuous need to identify, locate, and attract potentially effective salespeople. The candidates
recruited become the reserve pool of sales staff from
Which new salespeople will be chosen? The quality of this group will predict the future successes or
problems of the sales organization.

SOURCE OR RECRUITMENT

There are many places a sales manager can go to find recruits. Sales managers should analyze each
potential source to determine which ones will produce the best recruits for the sales position to be
filled. Once good sources are identified, sales managers should maintain a continuing relationship
with them, even during periods when no hiring is being done. Good sources are hard to find, and
goodwill must be established between the firm and the source to ensure good recruits in the future.
Some firms will use only one source; others will use several. The most frequently used sources are
persons within the company, competitors, non-competing companies, educational institutions,
advertisements, and employment agencies.

(a) Persons within the company - Companies often recruit salespeople from other departments, such
as production or engineering, and from the non-selling section of the sales department. The people are
already familiar with company policies as well as the technical aspects of the product itself. The
chance of finding good salespeople within the company should be excellent because sales managers
know the people and are aware of their sales potential. In fact, most firms turn to non-sale personnel
within the company as their first source of new sales recruits.

(b) Competitors -Salespeople recruited from a competitor are trained, have experience of selling
similar products to similar markets, and should be ready to sell almost immediately. But usually a
premium must be paid in order to attract them from their present jobs. Some sales managers are
reluctant to hire competitors' salespeople because the practice is sometimes viewed as unethical. But
is it? Is it really any different than attempting?
to take a competitor's customers or market share? No. But it is unethical if the salesperson uses
valuable confidential information in competing against the former employer.

(c) Non-competing companies - Non-competing firms can provide a good source of trained and
experienced salespeople, especially if they are selling similar products or selling to the same market.
Even though some recruits may be unfamiliar with the recruiting firm's
product line, they do have selling experience and require less training. Companies that are either
vendors or customers of the recruiting firm can also be an excellent source of candidates. Recruits
from these sources already have some knowledge of the company from having sold to or purchased
from it; their familiarity reduces the time it will take to make them productive employees. Another
advantage of recruits from the sources is that
they are already familiar with the industry.

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(d) Educational institutions - High schools, adult evening classes, business colleges, vocational
schools, junior colleges, and universities are all excellent sources of sales recruits. Large firms usually
are successful in recruiting from universities, but small firms tend to be more successful in recruiting
from small educational institutions or from other sources. While most college graduates lack specific
sales experience, they have the education and perspective that most employers seek in potential sales
managers. College graduates tend to adapt more easily than experienced personnel. They have not yet
developed any loyalties to a firm or an industry.

(e) Advertisements - Classified advertisements in newspapers and trade journals are another source
of recruits. National newspapers and various trade
journals are used in recruiting for high-caliber sales and sales management positions. However, most
firms that use advertising, especially in local newspapers, are recruiting for low-level sales positions.
Many businesses use advertising only as a last resort. While advertisements reach a large audience,
the caliber of the average applicant is often second-rate. This places a burden on those doing the
initial screening. The quality of applicants recruited by advertisements can be increased by carefully
selecting the type of media and describing the job
qualifications specifically in the ad. To be effective, a recruiting ad must attract attention and have
credibility. The following elements should be included to ensure an ad's effectiveness: company
name; product; territory; hiring qualifications; compensation plan,
Expense plan, and fringe benefits; and the way to contact the employer.

(f) Employment agencies - Employment agencies are among the best and the worst sources. Most of
the time it depends on the relationship between the agency and
the sales manager. The agency should be carefully selected, and a good working relationship must be
developed. Sales managers should make sure that the agency clearly understands both the job
description and the job qualifications for the position to be filled.
SELECTING SALES PERSONAL
After recruiting a pool of sales candidates, managers must screen out candidates who do
Not meet the hiring criteria. Selection is a process to decide whether an applicant meets the
Qualifications for the specific job and to choose that who is most likely to perform well in job.

In the words of Dale Yoder, "Selection is the process in which candidates for employment are
divided in two classes: those who are to be offered employment and those who are not."

According to Still, Cundiff and Govoni, "A selection system is a set of successive "screens," at any
of which an applicant may be dropped from further consideration. Employment is offered to
applicants surviving all screening steps.

SELECTING

Characteristics of Selection

1. It is a decision to drop the incompetent applicants in screening.

2. It is a sequential filtering process.

3. Selection finishes with 'hiring.'

4. It is an integral part of implementing the strategic sales-force plan.

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5. Company designs its selection system to fit its own information needs and to meet its own
budgetary Limitations.

6 A selection system fulfills its main goal if it improves management's ability to estimate success
and failure Probabilities.

7. Still and Cundiff writes, "No selection system is infallible; all eliminate some who would have
succeeded and Recommend hiring some who foil.

8. Any selection system must be "job-relevant "—that is, it must be directly related to the job.

9. Selection decisions may no longer be made on gut feeling. These must be based on objective
criteria, legal Considerations, and lawful inquiries.

10. like management, selection is also both an art and a science. It is an as it requires experience
and science because a set of systematic procedures arc followed.

NEED AND IMPORTANCE OF SOUND SELECTION

A proper or sound selection of salespersons has the following advantages:

1. Key to Sales-force Management: Selection is matching company needs and applicants' potential.
It is very important key to the strategic and tactical aspects of sales-force management.

2. Worst Mistake: It is said that the worst mistake a manager can make is to make a bad hire.

3. To Acquire Best Sales people: Selection of proper salespeople is very important to avoid
disappointments, both to the employer and employee. It live sales managers make every effort to line
the best salespeople available to them. Having wrong personnel costs a great deal to any organization
as neither ihc employer nor the employee is satisfied.

4. Low Turnover Rate: An organization’s turnover rate shows the effectiveness of its selection
process. It is a risk both to the company and the salesperson. The company looses because the
salesperson does not fit into the required job and the salesperson looses by choosing a wrong career
and losing time which cannot be recovered

5. To Seek Emotional Maturity: Unlike other jobs success in selling does not depend on a
intellectual ability Alone. There are many emotional demands on the salesman also. His personality,
ability, experience, temperament and aptitude are also important in tackling situations that a company
acquires through sound selection.

6. Proper Service to Customers: One of the greatest challenges is hiring salespeople who can
develop a close, trusting, long-term relationship with customers. The manner in which salespeople
establish, build, and maintain relationships is no longer an incidental aspect of personal selling.

7. Good Sales Performance: Selecting applicants is an integral part of implementing the strategic
sales-force plan. If the selection stage is handled effectively, it can help ensure successful sales
performance.

8. No More Training: A proper or a sound selection of salespersons makes the base for success of a
sales organization. It helps to reduce or limit the turnover of salesmen. Selection made of experienced
and qualified salespersons need no [raining on the jobs.

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9. Increases Goodwill: A sound selection of salesmen increases goodwill of the firm. In the eyes of
the buyers, a salesman represents the company. If he makes a poor impression the company is likely
to have a poor reputation among its customers.

10. Long-Term Success: The selection of salespeople, while of obvious importance to the long-term
future of the business, is a task which does not always receive the attention it should from sales
managers. All too often, the 'person profile' is ill defined and the selection procedure designed for
maximum convenience rather than optimal choice.

11. To Reduce Legal Complications: To reduce legal complications and possible legal hassles later
companies should follow good selection procedure and should validate their selection tools before
using them.

PROCEDURE, PROCESS AND TOOLS OF SELECTION OF SALESPEOPLE

Selection is a filtering process incorporating many steps. It is a set of successive "screens."

Employment offers are extended to applicants surviving all steps. The recruiter begins the
selection process by making pre interview screening and by evaluating application blanks and
resumes and proceeds to interviews and tests.

1. Pre-interview Screening - The purpose of pre-interview screening is to eliminate unqualified

applicants. The applicant is provided information about the company and general details about selling
positions in it—a well prepared bruiting brochure does this effectively and does not require an
employee's time for anything other than to hand it to the applicant. The interview application form
fulfills its mission if it enables management to detect the presence or absence of predetermined
minimum qualifications. Applicants not possessing these minimum qualifications do not receive
appointments for interviews. The preliminary interview can be handled by a low paid clerk or
secretary.
2. Formal Application Form - A formal application is filled out after a preliminary interview
indicates that a job candidate has promise as a company salesperson. The application form may be
filled out by the applicant personally or by an interviewer who records the applicant's responses.The
application form is a quick and inexpensive method of screening out applicants in order to produce a
shortlist of candidates for interview. The questions the form should enable the sales manager to check
if the applicant is qualified with personal specification.
3. The Interview - This is also known as personal or selection interview. The interview is the most
widely used selection step and in some companies it comprises the entire selection system. Some
personnel experts criticize the interview as an unreliable tool, but it is an effective way to obtain
certain information. No other method is quite so satisfactory in judging an individual as to ability in
oral communication, personnel appearance and manners, attitude toward selling and life in general
reaction to obstacle presented face to face and personal impact upon others.

TYPES OF INTERVIEWS
1. Patterned Interview
2. Non – Directive interview
3. Interaction Interview
4. Rating Scales
5. Group Discussion
6. Field Observation

4. Selection Test – Included mostly psychological are an important part of selection process. The
Utility of these tests is -
i) Employers have become more Knowledgeable about the legal requirement to use test.
ii) Tests are better predictors

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iii) It reduces cost of selective candidates as well as poor selection in organization.

TYPES OF TESTS –

(1) Mental intelligence tests—intended to measure a person's intelligence quotient (IQ) and general
ability to learn.

(2) Aptitude tests—designed to measure a person's aptitude for selling. This category also includes
tests that measure social aptitude (social intelligence). Some examples arc (1) the Sales Aptitude
Checklist, (2) the General Sales Aptitude Test, and (3) the Diplomacy Test of sympathy.

(3) Interest tests—designed to measure or compare a person's interests with the interests of
successful people in specific occupations.

(4) Personality tests—intended to measure various personality traits. These tests arc the most risky
and difficult to validate because of our inability to identify the traits needed for a particular sales job.

(5)Achievement tests—Achievement tests seek to determine how much individuals know about a
subject. Few standardized achievement tests.

(6) Temperament tests—There tests help to evaluate the various factors of nature such as likes and
dislikes, cruelty, flexibility, habits, etc.

(7) Situation tests—these tests are used to measure the applicants' capability to work in the real
situation. It measures the capacity of salesmen to behave with different customers in different sales
areas.

Conditions When Tests are most effective: Tests in sales selection arc most likely to be effective
when -
(a) The firm hires a relatively large number of salespeople.
(b) Management wants to improve its success ratio.-
(c) The company is hiring young, inexperienced people about whom limit is known.
(d) The executives who interview candidates are not adept at discovering personality traits and
selling aptitudes.
(e) The cost of failure is high.
(f) The executives can competently interpret the psychologist's recommendations and feel free to
act on their own judgment regardless of the tests.

5. Role Playing - Another aid in the selection of salespeople is the use of role playing in order to
gauge the selling potential of candidates. This involves placing them individually in selling situations
and assessing how well they perform. The problem with this technique is that, at best, it measures
sales ability at that moment. This may depend among other things on previous sales experience.
Correct assessment of salespeople, however, should be measuring potential. Further, role playing
cannot assess (he candidate's ability to establish and handle long term relationships with buyers.

6. References Checking - References provide information on the applicant not available from other
sources.Some employers deny the value of references, saying that references hesitate to criticise
personal friends, or exemployees The purpose of reference checking is to find out the facts about the
applicant's character, conduct, behavior and morality. Personal contact is the best way to obtain
information from references, since facial expressions and voice intonations reveal a great deal, and
most people are more frank orally than in writing. Applicants tend to name as references those on
whom they can rely to speak in their favour.

7. Background Investigation - This is a pre-employment investigative procedure. Useful

information’s .about applicants can be acquired from former employers, co-workers, neighbors,

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creditors, police department, etc. This information may relate to the applicant's financial condition,
criminal and driving records, employment history, and career fraud. Today, reference checks and
other forms of background investigation are tactical because, sad to say, too many job applicants He
about their backgrounds. Some applicants lie about their educational record, past salaries, and/or past
job responsibilities.

8. Credit Checks - Many companies run credit checks on applicants for sales positions. Credit files
are compiled by local credit bureaus, and special credit reports are provided by certain organizations.
Credit checks are commonly used to assess the financial responsibility of applicants, since financial
responsibility goes hand in hand with Job responsibility.

9. Physical Examination - Because salespeople typically must endure a lot of stress and frustration,
'his sales manager wants to be certain that the candidate has the stamina needed lo the job. The
salesmen should not have any disability or disease. Good health is very essential to perform job well.
The following types of examinations are squired tor a salesman -
(a) Examination of physical fitness, weight, height, chest, waist, etc.
(b) Test of blood pressure, heart beat, etc.
(c) Neuro-psychiatric tests.
(e) General test of various body functions.
(f) Test of weight-carrying capacity.

10. Additional Selection Tools

Some companies’ are using additional selection tools to help choose the right sales candidate. One
such tool is the assessment center, in which candidates participate in job related exercises. More and
more companies are using internship programs, not only to determine if the person has selling skills,
but also to see if he fits in with the company culture.

11. Determination of Terms of Service - When the candidate has passed through all the selection
stages, the terms of service are determined. These terms of service generally include the matters
related to salary, commission, allowances, hours of work, leaves with pay, travelling allowances,
housing facilities, transportation, etc. which are determined before making the job offer decision.

12. Job Offer Decision - A company must decide whether to’ make a job offer. This decision
involves a review of everything known about each .applicant. It involves all the hopes and ambitions
of each applicant as matched/against the opportunities and rewards offered by the job and the
company. The hiring company should develop two lists: the first is a list of the recruits in the order of
the firm's preference for them; the second is a list of the recruits in the order of their preference for the
firm. If the firm clearly has decided not to hire a certain applicant, an executive should gently, but
clearly, tell the person. If the decision is to hire a certain person, the next step is to make a formal
offer and persuade the person to accept it.

13. Extending the Offer -This is the stage of issuing an appointment letter. It contains the terms and
conditions of appointment and the salary that the salesperson will be paid. The offer should also
include the other benefits that will be part of the employment package. These might include any or all
of the following: insurance, retirement contributions, vacation pay, educational benefits, profit
sharing, a company car. Most large companies pay for moving expenses when they transfer
employees. Who will make "-the offer? How will it be made? Will a contract be written up? These are
the questions which should be decided with full consideration.

14. Socialization and Assimilation - According to Spiro, Stanton and Rich, Socialization is the
process through which the new recruits take on the values and attitudes of the people who are already
working for the firm. This process begins before recruits go to work for the company and continues
until they are tally assimilated into the company's culture. Successful socialization of recruits and new
salespeople helps them adjust to their new jobs. More important, it also leads to increased
involvement and job satisfaction in the long run.

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 DEVELOPING AND CONDUCTING SALES TRAINING PROGRAMMES

SALES FORCE TRAINING

Training is very much important for sales force to ensure that the contents related to the product are
described to the potential customer and exiting customers efficiently and effectively. Generally,
training means to train the employees i.e. to improve their productivity to face the challenges created
by competition. The art of selling lies in presenting the benefits and multi-uses of the product so that
the buyer gets the feeling of satisfaction to his needs.

Not only, it is expected from a successful salesman that he must be well informed/intelligent in terms
of knowledge but also he must be skilled in the presentation of information/knowledge of himself. A
sales force training programme, thus, aims at providing the required knowledge about the products
and the effective ways presentation to the customers in the market. The nature and scale of both these
skills should be specified, in advance, so that the programme so conceived is directed towards
predetermined and definite goals. The Training-Programme may be for the-newly recruited salesmen
as well as those already in employment with the company to refresh their knowledge. So, the first task
for the Sales Manager/Training Manager is to set objectives for such type of training programmes. For
this purpose, the first step is to identify the gap between the standard of skills required and Salesman’s
current standard in the organisation/company.

The level, they are supposed to achieve can be known easily by reference to job specifications.
Current-levels of skills, in the case of existing Salesmen, can be determined through observations of
their actual working i.e., their knowledge about Product, Competition, selling skills etc. Though, a
good Training-Programme should clearly state what the Trainees are expected to do, after their
Training and the period within which they should be able to do it. For guidance, the Training
Manager, may include Knowledge-Areas, viz. the Company, its Products, Practices and Procedures;
as well as the Product/Services and their Competition.

The Skill-Areas include

(i) Sales-techniques, (ii) Work-Organisation, and (iii) Reporting-System. Depending on the

nature of a Company, there may be certain other exclusive, supplementary areas, where
Training may also be needed.

After setting the objectives, the Manager has to think about the following points:

(i) What should be taught?

(ii) Where should it be taught?
(iii) Should who teach it?
(iv) How should it be taught? And
(v) What time should it is taught at?

In the reply of the first question, i.e., what (i.e., contents of the course), have been explained already.
Regarding the second question of place, normally there are three alternatives: the company’s, factory
an Office, the fields and courses run by outside organisations, e.g., NICEM, etc. Usually, the best
location for training in basics: policies procedures and processes, knowledge is the place where this
type of work is being actually carried out, e.g. Company’s Head Office. Moreover, the basics of
theoretical-training maybe discussed the staff training room is the best location. To impart the basic

13
knowledge, the trainees should be assigned to a senior sales executive. It will be here that the trainee
will be able to appreciate the application of the required kills. And, training may be integrated with
demonstrations and real-life experience in in-plant training.

In the response to the question ‘By Whom’, it simply means that the training should be imparted by
different senior sales-executives, who are specialists in their own areas. Of course, the overall
respol1sibility is that of the sales manager/training manager. By delegating the authority, the sales
manager does not wash-off his hands; he just shares his burden, but retains overall control. Some big
companies have their own training department and human resource development departments. It pre-
supposes enough number of trainees, to justify specialised staff. Sometimes, companies also have
consultants. But this approach has the disadvantage of total lack of their knowledge of company’s
objectives and needs. External courses are also mostly general in nature. However, a judicial mix of
all the three alternatives, so as to serve best the company’s
needs is advised.

The reply of fourth question depends upon, who is teaching? Every individual has his own and
unique way of teaching/explaining. However, some basic guidelines may be laid down to serve as
instructions of the training-personnel. Similarly, the last question is at ‘What Time?’ It is difficult to
precisely lay down the specific duration of training. Usually, itmay be between 6-8 weeks in medium
to large companies. In between sessions, there should be adequate breaks. If required, the programme
can go well into the evenings. However, every instructor should avoid too much of lectures and rather
should concentrate on participative-activity, so that interest in the course is maintained. Another
teaching-approach, suitable to all companies of any size is meet the man behind you. Here,

Each head of the department talks with the trainees. In doing so, he makes direct contact and he
befriends them. He tries to self his department to the trainees. During this type of a lecture, the
following points are may be covered:

(i) His job-what he does? (ii) Goals-what his

Department does presently? (iii) Innovations- what is scheduled for future? (iv) Needs-what is
needed for his more effective working? (v) Help how salesmen can help in effective working?

To sum-up, the initial training-programme ends with the achievement of basic-objectives laid
down for it. By this time the trainee is expected to have acquired basic grounding in

(i) product-knowledge, (ii) the company and (iii) the desired level of skills in sales-techniques,
and maybe considered to be fit to be exposed to actual field conditions, i.e., then starts the on-
the-job training.

It is here, that he applies the principles enunciated during his training. It is absolutely necessary that
the supervisor looks after each new entrant; and ensures their proper seasoning. Sometimes, a new
entrant is assigned to an experienced senior salesman, for a couple of weeks, so that he gets practical
training; before-assuming charge of his independent territory. It is sometimes said, if the trainee has
not learnt, the trainer has not taught. In fact, it is true; because, as we know that after a series of tests,
analysis etc.; a person of below average qualities cannot get selected for the job. So, unless the
training-methods are devised and planned well in advance, it would result in a huge waste of valuable
resources of the company. A good training schedule may be prepared on the basis of ACMEE
principle,

where’ A’ = Aim of the Training; ‘C’ = Content of the Training; ‘M’ = Method of the Training;
‘E’ = Execution of the training-programme, and ‘E’ = Evaluation. A Training-
Programme should be executed scientifically, and a post-evaluation should be made after each
kind of Training.

14
 Sales Training: 5 Different Methods of Conducting Sales Training

The methods used for training depend on the objectives to be achieved, type of training,
background and experience of the trainees and such.

i. Slide presentations:

This is an effective way to present material and graphics in outline form. They help the trainer to stay
on schedule and present technical data or information.

ii. Video tapes/audio cassettes:

Many a times an entire group is not available at a predetermined time. In such situations, a preceded
training module can be prepared, using experts so that all can benefit by the content. But, on the other
hand, since there is no interaction with the trainer, some doubts can remain unanswered in the minds
of the trainee.

iii. Lectures:

This can be a class room environment and can be used in collaboration with the previous one. The
videos can be used to give product demonstrations and applications whereas the lecturer can support
the presentation by his expert comments and clear doubts raised by the trainees.

iv. Group discussions:

In such training, a trainer leads and stimulates talk and participation on the part of the trainees. Case
studies have been used widely as a tool to stimulate group discussion. Trainees are given cases to
study, and then the trainer leads a case discussion to analyse and solve the problems involved in the
case. However, this Method of training cannot be prescribed for novices.

v. Role playing:

In role playing, the trainee tries to sell a product to a hypothetical prospect (usually a trainer to
another trainee). Role Playing can help trainees learn to handle unforeseen developments that often
arise in selling situations. It also gives the trainer a chance to work with trainees on voice, poise,
manners, speech and movements. They would get an opportunity to understand the product,
competitors, industry and the customers.

In order to achieve an optimal level of effectiveness in teaching combinations of the above mentioned
methods can be used.

SALES FORCE DEVELOPMENT

It is assumed that the newly trained salesmen charge of his Territory after initial-training freely. But,
the sales manager must ensure the ways for their continuous development. The standards of
Performance that the salespeople have learnt during their training must be properly channelized. It
has been noticed that even the seniors, with good performance-records, need assistance, to give
continued good performance. And it must be remembered that the development is a continuous

15
process and is the key to make the sales-force really more and more productive/efficient.
Development-process could be carried out
in two ways:

(1) Field, i.e., on-the-job training, where sales-executive develops each individual new-entrant
salesman, under his charge, during his day-to-day working, and

(2) Through sales-meetings, refresher courses and development programmes, at the office.
Field- training aims at rendering continuous help to the salesman, to get over his initial
difficulties; and perform better on an on-going basis. For this, the sales-executive in-charge has
to follow the points:

(i) Compares his charge’s field-performance regularly,(compared with the set standards) and
reasons for variances are established.

(ii) Weak areas are also identified, and the salesman is educated, on how to overcome them. The
new-entrant salesman is encouraged to incorporate offered suggestions in his work.

(iii) The weak areas observed by the sales-executive in-charge, should be tabulated on corporate
basis. This will reveal general weaknesses of initial training, and would help set objectives of the
refresher course for the future. It will also help in improving the quality of training for future
batches.

How to Develop a Training Program for Sales

Developing a training program for sales typically involves defining the desired competencies
and then preparing materials to develop those skills and behaviors. Depending on the size of
your sales force, you might conduct monthly workshops, host annual events or produce self-
paced course materials that help participants enhance their selling skills. Comprehensive sales
training programs enable your small business to promote a consistent approach to selling your
products and services.

1. Analysis

Developing a training program for sales typically begins by defining the skills and knowledge
required to sell products and services at your company. For example, the American Society for
Training and Development publishes a sales competency model. This includes foundational
competencies related to partnering, providing insight, generating solutions and performing
effectively. During the analysis phase of your sales training development effort, assess all the
people in your sales force to determine their level of competency. To target your efforts, design
your training program to address the weaknesses in your sales force, such as handling
objections or selling comprehensive solutions.

2. Design

Designing course materials for a training program for sales usually starts by defining the
learning objectives for the program. These objectives should reflect specific, measurable,
attainable, realistic and time-constrained goals. Program goals typically involve increasing
productivity, improve morale, reducing turnover, improving customer relations and enhancing
selling skills for your products and services. Topics usually include market orientation,
company orientation, time and territory management, legal and ethical issues and competitive
analysis.

16
 3. Development

To develop course materials, create presentations and other resources, such as charts and
checklists, that help sales people provide potential customers with the critical information about
your products. Then, customers can make buying decisions based on how your product is used
in solving problems, how your product compares to others based on price, performance, cost of
ownership and quality. Sales training development activities also usually include the creation of
multiple-choice tests. These ensure that participants can recall and apply their knowledge.

4. Implementation

Implementing your training program for sales usually involves training instructors to deliver
the course materials. You may use internal resources or hire external trainers. Sales training
program agendas typically allow time for role-playing exercises so that participants can practice
selling skills, such as making their sales pitch and overcoming objections. For example, conduct
role-playing exercises to help participants learn to use open questions when gathering
information. After your course is over, evaluate your training program to determine the
participator's reactions, knowledge retention, observable behavior back on the job and impact
on operational metrics. By asking participants for their feedback on the training program, you
can incorporate their comments into subsequent offerings of your workshops to improve overall
effectiveness.

UNIT=3

SUPERVISION OF SALES FORCE

Management controls sales personnel through supervision. Regardless of who does the
supervising, the objective is to improve the job performances of sales personnel. Executives
supervise the sales personnel under them. The executive with supervisory responsibilities
establishes working relations with sales personnel for purposes of observing, evaluating, and
reporting on performance; correcting deficiencies; clarifying duties and responsibilities;
providing motivation; informing sales personnel of changes in company policies; and helping to
solve business and personal problems. Clearly, sales supervision is concerned mainly with the
action phase of control- action aimed at enhancing personnel contributions to the achievement
of objectives.

Supervising a Sales Force

1 Managers supervise Sales Representatives to – Improve the probability that they will make sales.
This objective should imply profitable sales; but not all Managers seem to appreciate this point.
Managers should remember that Sales Representatives can sell a product at a loss if the Repre-

17
sentative spends a very high proportion of their time selling one Prospect who has a low potential for
future sales.

2 This situation occurs less often in the retail selling field, but even here the technique of tactfully and
pleasantly disengaging oneself from the “window-shopping” type proves valuable.

How much supervision?

It is difficult to prescribe how much supervision is enough as too much is as bad as too
little. However, there are some conditions under which supervision is needed:

• Excessive sales turnover rate.

• High turnover of clients/accounts.
• Increased complaints from customers.
• Increase in mail orders or orders over phone without any particular reason.
• Low ratio of orders to sales calls.
• Total number of calls very low or very high.
• Increasing ratio of selling expenses to total sales.

Who should supervise?

Depending upon the company and its organization, sales force may be supervised by branch or district
managers, field sales executives, or field sales supervisors. Put another way, sales supervision may be
either through executives as one of their job responsibilities, or through

Specialists whose jobs are mainly supervising. If the sales force is small and experienced, sales
supervision is generally through the top sales executive. Companies having decentralised sales
structure normally assign supervision responsibility to branch or district managers. Sales supervisors
generally are selected from among the sales force, but besides having the qualifications required for
selling success, they need other qualifications. They must be good teachers. They must recognise
training needs, know how to train, be patient with those who have less skill, and be tactful in pointing
out better ways of doing things.

Supervisors must be skilled in handling people and be equipped to deal with many complex situations.
Beyond these supervisory duties, some companies expect sales supervisors to sell certain accounts
personally, this being one way to motivate them to keep up to date on field selling techniques.

The Need for Supervision

1. Even if all Sales Representatives had appropriate motivation and could see their own selling faults,
the need would still exist for someone to decide what each Representative should do in relation to all
other personnel – in order that the Company achieves its Sales objectives.

2. Supervision primarily entails giving direction to each person’s work and in relation to the work of
others. It should ensure that people do what they should do and do not do useless things or activities
which harm overall Company objectives. Good supervision will also: (a) provide guidance to improve
the abilities and activities of Sales Representatives in their work and (b) encourage and help them so
that they can more easily help themselves.

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3. Sales Representatives have difficulties peculiar to their occupation since most of their work
involves dealing with other people. Success or failure in a sale depends on decisions made by other
people. While Representatives can influence the decisions they must face rebuffs, disappointments,
rudeness, and “brush-offs”. Supervisors need to offer encouragement and support to maintain high
morale in their Sales force.

4. Supervision of outdoor Sales Representatives has special difficulties. They work over a wide area
and often they see no one from their Company for several days at a time. They spend a fair proportion
of their time travelling, often alone. Sometimes they have to put up with unsatisfactory accom-
modation and meals. They frequently have to travel away from their families for long periods. In
these circumstances – especially after an unsuccessful day – Sales Representatives can rate their work
as unrewarding. These difficulties mean that Managers need to offer a high quality of supervision.
The fact that travelling time restricts contact between Supervisor and Sales Representatives makes the
task even more difficult.

Major Factors in Supervision

• Supervision in the sales field (as in all other managing activities) has the following three
activities – planning, directing and checking. In particular, Supervisors should:

(a) Assign a definite amount of work for Representatives to do.

(b) Set required standards of performance.

(c) Evaluate each Representatives performance against the standards.

• Supervisors should also divide the available market area into appropriate territories, assign
these territories to particular Representatives, and ensure the Representatives set targets for
sales in each of their territories.

Four different groupings exist for standards:

(a) Volume – How much does the Sales Representative sell?

(b) Expenses – How much money does it cost to make the sales?

(c) Profit – What gross profit does each Sales Representative make?

(d) Activities – What does the Sales Representative actually do? (Examples. How many Prospects
seen? How many calls made?)

To effectively evaluate the performance of Sales Representatives, Supervisors must obtain details
either by: (a) observation or (b) from reports and records.

• To achieve the objective – Increase the probability that Sales Representatives will make
sales, Supervisors must continually give guidance to their Representatives. Since they cannot

19
 work with their Sales Representatives all the time, they must try to encourage the Sales
Representatives to give of their best even when not under direct supervision.
• Supervisors aim to form such an attitude and feeling in Sales Representatives appropriate that
they “supervise” themselves. If Representatives have the appropriate motivation and know
what they should do, their own attitude and desire for satisfaction can prove an excellent
substitute for any other person’s supervision. In the long run, it may prove more important
since, even with excellent supervision, Representatives with inappropriate motivation will
not feel amenable to supervision.
• All these factors inter-relate. Giving guidance can contribute to gaining appropriate
motivation, depending on how someone gives guidance; and Representatives with
appropriate motivation may set a higher standard of accomplishment for themselves.

Methods of guiding Sales Representatives

A variety of ways exist which Supervisors can use to help Sales Representatives improve their work.
A logical classification will help to consider them. Methods available include:

(a) Personal contact with individual Sales Representatives

On the job , In the office , Over the phone

(b) Personal contact with a group of Sales Representatives Meetings, conventions, and conferences.

(c) Personal correspondence (d) Literature for all Sales Representatives

Manuals

Sales Bulletins House Journals

Giving Guidance by Personal Contact – On the Job

• This method provides most flexibility. Physical presence of the two persons allows
Supervisors to see the reactions of their attempts at guidance. Thus they can adjust them
accordingly. They can observe reactions to instructions and take steps to ensure the
Representatives understand them. Supervisors can influence selling techniques soon after
they have seen the Representatives use them. They can make suggestions, praise useful
approaches, point out faults in others, and give information on new products. The personal
contact also enables Supervisors to get to know their Representatives – the way they think,
their family background and problems, and their aims and desires. Likewise the Sales
Representatives can get to know their Supervisors.

• All this information will assist to find better ways of improving a Representative’s work and
it will help Supervisors understand and predict the reaction each Sales Representative will
have to particular supervisory approaches. Supervision in the field means that Supervisors
have taken the trouble to visit their Representatives. This point in itself will often help the
morale of such Representatives and they will feel better about accepting advice and guidance.
Although it proves expensive in travelling time, all Sales Supervisors should spend a
significant part of their time out of their offices and in the field. Supervisors who say they
have not time to do so (even though they class it as a good thing) cannot do an adequate job
of supervision.

20
 • Even in the retail field, Supervisors can spend too much time in their office. Sometimes a
word on the job often has a much-more-beneficial effect than something said in a formal
office interview.

Supervision in the Office

• Office Interviews imply that Representatives come to the Supervisors. In many Companies,
Sales Managers or Sales Supervisors have regular inter views with their Sales Representatives
so they can give instructions, discuss the territory of the particular Representative and their
work, and generally provide a means of communication for whatever information the
Company and the Representative have to pass on.
• This method usually has more formality than the “on-the-job” approach. With outdoor
Representatives it allows Supervisors to plan and make the most use of their time, rather than
spending time travelling between Representatives; but it will not substitute for getting out and
seeing Representatives in action on the job.
• For carrying out counselling interviews, especially those that involve reprimands, the office
interview may have an advantage over the on-the-job interview. It should provide a formal
setting within the firm, in a place free of interruptions. However Supervisors should
remember that a chat in a Representative’s car or home or “over a beer” may rate as just the
place if the interview requires an informal approach and atmosphere.

Supervision by Telephone
• People can talk to each other by phone very easily. This method allows Supervisors to give
instructions quickly. However, the communication between the parties can only use aural
signals which do not always help people to know accurately the reactions of the other party to
what they have said. In general, it helps to let Sales Representatives know that the office has
an interest in their doings and to restrict actual business to the giving and receiving of routine
information and factual details concerning territories and the Company. Supervisors should
leave controversial matters in the guidance of Sales Representatives to a more personal
contact.

Supervision by Contact with a Group of Sales Representatives

• The words: “meetings”, “conventions”, and “conferences” aim to describe all the means of
giving guidance to Representatives when they come together. This approach saves the time of
Supervisors; however, it still proves expensive to gather Representatives together –
particularly for outdoor Representatives. Calling Sales Representatives together in a group
proves appropriate for giving important instructions and information about the Company such
as launching of a new product or a new advertising campaign.
• In the retail field, meetings of sales staff cost considerably less. Therefore Companies can use
them more frequently. For less formal purposes, two or more small groups in their
department may prove convenient, time saving, and provide a means of quickly determining
group reaction to a new instruction or selling idea.

Personal Correspondence with Individual Sales Representatives

• A letter offers Supervisors a personal method of communicating with each Representative.

Supervisors should use it when it proves impractical to communicate with each
Representative by personal verbal contact.
• Letters do not prove suitable for conveying emotionally-charged information (e.g. reprimand
or criticism). Even so, some weak Supervisors do use them to tell a Representative something

21
 which they will not discuss face-to-face. This weak approach reaps it own reward in
inappropriate motivation and lack of respect for the Supervisor.
• Letters, however, will prove quite useful for answering specific queries where a phone call
will not prove appropriate. They give a permanent record and Representatives can study them
at leisure. In some cases a carefully-composed letter may help to give a clearer
communication than a personal interview.
• In using letters, Supervisors should avoid such faults as not signing them, writing too many,
and writing when they have no real purpose to achieve, dictating and/or checking them so
hurriedly that their meaning gets lost. The area of effective letter writing rates as a subject on
its own; but many Executives can improve themselves quite considerably if they take the
trouble to read over their letters carefully and try to see how they would feel if they received
such a letter.

Literature for all Sales Representatives

• This literature consists of sales manuals which allow Representatives to have permanent
written record of such matters as – Company history and back-ground; policies regarding
sales, returns, credits; and any other details useful for Representatives to know. The term also
applies to a manual which the outdoor Sales Representative carries as an aid to sales. It may
contain price lists, photographs, and technical specifications. Sales bulletins, house
magazines, newspapers, etc. also prove a means of communicating with Representatives for
the purpose of giving guidance and encouraging better motivation.

Motivating the Sales Team

Sales Professionals play a pivotal role in generating revenues for the organization. They are the ones
who are responsible for product promotion and making a particular brand popular amongst the end
users. In simpler words, sales representatives are the true face of an organization.

The individuals representing the sales and marketing vertical must be satisfied with their organization.
A sense of belonging at the workplace is important.

Superiors must motivate the sales team from time to time to extract the best out of them.

Let us go through various ways to motivate the sales team:

1. Regular Interaction
▪ The management must interact with the sales team more often to understand their
needs and expectations from the organization.
▪ The sales representatives must have an easy access to the boss’s cabin at the times of
queries. Transparency is essential at all levels.
▪ The sales manager must sit with his team once in a week to address their grievances.
No issue should be left unattended.
▪ Healthy communication between the management and sales team is a good way to
motivate the individuals. The sales executives must be aware of the latest
developments at the workplace.
▪ Take them out once in a while for picnics, outings or dinners. Such activities bind the
team members together and motivate them to work as a single unit.
2. Roles and responsibilities
▪ Roles and responsibilities must not be imposed on any of the members. Let them
accept responsibilities on their own. It is for the superiors to understand which
employee can perform which function in the best possible way. Job mismatch leads to
demotivated employees.
▪ They should be aware of their KRAs from the very beginning. The management
should make it very clear that a sales representative is expected to go out and meet

22
 clients. No individual should have unrealistic demands. It leads to problems and
confusions later on.
▪ A sales professional must be aggressive, smart and a little diplomatic. They must be
excellent in follow ups. Impatient individuals find it difficult to do well in sales.
3. Realistic Targets
▪ Targets for the sales team must be realistic and achievable. Don’t ask for anything
which you yourself know is not possible.
▪ Don’t expect miracles overnight.
4. Incentives and Monetary benefits
▪ Handsome incentive plans go a long way in motivating the sales professionals.
Nothing works better than money. Attractive incentive schemes prompt the
employees to work hard and make the maximum use of their ability.
▪ Performers must be rewarded with attractive gifts, coupons, cash prizes or certificates
for them to feel motivated and deliver the same performance every time.
▪ Acknowledge the hard work of employees.
5. Appreciation
▪ Appreciation plays an important role in motivating the employees. Praise the ones
who perform exceptionally well. A pat on their back can actually do wonders. Let
them feel special and indispensable for the team as well as the organization. Give
them their due credit.
▪ Display their names on the notice boards for everyone to get a glimpse. Give them
badges to flaunt.
6. Involvement
Involve the team members in the company’s strategies. Let them participate in important discussions.
Don’t criticize their ideas or views.

SALES MEETINGS

Meeting is the session of sharing ideas, notion, facts and experiences from one to another colleagues.
In the sale organisation, the meeting on sales and related matters are to be held. The sales meetings
are important both for communication and motivational purposes among the sales people at the top or
lower level in the management. When sales personnel are on the road without the day-to-day
opportunity for employer communication and supervision, periodic group meetings are valuable for
exchanging information and idea. They also provide occasions for motivating individual sales
personnel through group pressures. Most important, they provide occasions for management to
stimulate the group to raise its standards as to reasonable and acceptable performance.

SALES MEETINGS: PLANNING AND STAGING

For the purpose of planning for a sales meeting; the five major decisions:

(i) defining the specific training aims; (ii) deciding meeting content; (iii) determining methods of
conducting the meeting; (iv) deciding how to execute (hold) the meeting; and (v) deciding how to
evaluate the results; are taken. Thus, once again, the A-C-M-E-E approach also assures that sales
meetings, like sales training programs, are fully planned and effectively staged.

TYPES OF SALES MEETINGS

The following are the types of sales meeting:

1. National sales meetings

23
To elaborate the burning issues in competitive market, the national sales meetings are to be held by
the sales organisations. The costs of bringing the entire sales force to a central site are substantial, but
national sales meetings are sometimes appropriate. If, for example, comprehensive changes in
marketing or sales policies are being made, a national meeting can introduce these changes rapidly
and uniformly, providing standardized explanations and answers to questions. Moreover,
major executives attend a national meeting but not a series of decentralized meetings-and their
attendance provides more stimulation than written or recorded messages at decentralized
meetings.

2. Regional sales meetings

In the present scenario, the sales organisations are not giving stress to hold the national and regional
sales meetings. There are so many reasons: the conversion of sales force from field to centralized
office; attending the decentralised meetings by headquarters’ sales executives and personnel; reducing
the total travel cost and lowering the lost selling time. Headquarters’ sales executives and personnel;
brought
into direct contact with field personnel; learn about the current problems at the firsthand. Each
regional meeting may have a program designed to emphasize unique problems of that region. The
smaller attendance should increase participation time per person attending.

3. National and regional sales meetings: executive resistance

In many cases, sales executives oppose both national and regional sales meetings. Some results do not
justify expected costs, but they admit that many benefits, such as the effect on sales force morale
cannot
be measured in monetary terms. Other executives, especially those in industries without slack selling
seasons, contend that they can ill afford to have sales personnel away from the field, even for a week.
Still others object to the demands on their own time. Ina few cases, sales executives oppose national
or regional meetings because of low sales force morale. They fear that sales personnel will use the
meeting to compare complaints and to strengthen their convictions that the company is a bad place to
work.

4. Local sales meetings

District sales managers conducted local sales meetings weekly or biweekly and from fifteen minutes
to several hours. The strength of the local sales meeting is its informality, each salesperson having an
opportunity to pose questions and to state personal views. Local sales meetings are occasions for sales
personnel to get together, become better acquainted, and strengthen group identity.

5. Travelling and remote-control sales meetings

To reduce cost and time expenditure certain forms of sales meetings are conducted by c1osed-circuit
television, sales meetings by telephone, sales meetings at home, and as the travelling sales meeting.

• Closed-circuit television: Closed-circuit television enables a Company to hold. Several sales

meetings.

• Sales meetings by telephone: Telephone conference calls are used for small group meetings
and discussions. Users say the group should be no larger than twenty.

• Sales meetings at home: Seeking to reduce the time and costs of sales meetings, some
company’s mail recordings or printed materials, to sales personnel at their homes.

• Travelling sales meetings: Certain meetings require numerous physical props. For instance, a
manufacturer introducing a new product line may want to display and demonstrate each new
product.

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 SALES CONTESTS

A special selling campaign offering incentives in the form of prizes or awards beyond the
compensation plan called sales contest. The purpose of sales contests is to provide extra incentives to
increase sales
volume, to bring in more profitable sales volume, or to do both. Corresponding to Herzberg’s
motivation-hygiene theory; sales contests aim to fulfil individual needs for achievement and
recognition-both
motivational factors. In terms of Maslow’s hierarchy of needs, sales contests aim to fulfil individual
needs for esteem and self-actualization both higher-order needs. In addition, sales contests develop
team spirit,
boost morale by making jobs more interesting, and make personal selling efforts more productive.

OBJECTIVES OF SALES CONTESTS

Sales contests are aimed to accomplish the following objectives:

I. To obtain new customers.
II. To secure larger orders per sales call.
III. To push slow moving items, high-margin goods, or new products.
IV. To overcome a seasonal sales slump.
V. To sell a more profitable mix of products.
VI. To improve the performance of distributors’ sales personnel.

VII. T o promote seasonal merchandise.

VIII. To obtain more products displays by dealers.
IX. To get reorders.
X To promote special deals to distributors, dealers, or both.

FORMATS OF CONTEST
Basically, the contest formats are classified into two groups: direct and novelty. A direct format has a
contest theme describing the specific objective, such as obtaining new accounts, for example; Let’ s
go after new customers. A novelty format uses a theme, which focuses upon a current event, sport, or
the like, as in Let’s hoot for hidden treasure (find new customers) or Let’s start panning gold (sell
more profitable orders). Some executives say a novelty format makes a sales contest more interesting
and more fun for the participants. Others say that novelty formats are insults to mature people. A
format should be timely, and its effectiveness is enhanced if it coincides with an activity in the news.
The
theme should bear an analogous relationship to the specific contest objective-for example, climbing
successive steps on a ladder can be made analogous to different degrees of success, experienced at
different timesin persuading dealers to permit the erection of product displays. Finally,
the theme should lend itself to contest promotion.

Contest prizes

There are four kinds of contest prizes: cash, merchandise, travel, and special honors or privileges.
Cash and merchandise are the most common prizes. Many sales contests feature more than one kind
of prize,
for example, travel for large awards and merchandise for lesser awards.

Some contests give participants the option of accepting one prize rather
than another.
1. Cash: The cash as an incentive weakens as an individual’s unfulfilled needs; which are pushed
farther up in the need of hierarchy.

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Merchandise: Merchandise is superior to cash in respects. Winners have permanent evidence of their
.achievement.

Travel: Travel awards are popular. Few things can be glamorized more effectively than a trip to a
luxury resort or an exotic land. The lure of a trip of a lifetime is a strong incentive, especially for the
person to escape the job’s routine.

Special honours or privileges: This award has many forms: a letter from a top executive recognizing
the winner’s superior performance, a loving cup, a special trip to a home office meeting, or
membership in a special group or dub has certain privileges.

Awarding the prizes for sales contests

It is a good idea to make it possible for everyone to win to stimulate widespread interest in the
contest. This means that the basis for awards should be chosen with care. Contest planners
recommend that present performance levels be taken into account-to motivate the average or
inexperienced salesperson along with the star performer-and the basis of award be for improvement
rather than total performance. Hence, total sales volume is less effective as an award basis than, for
example, percent of quota achieved or percent of improvement in quota achievement. Many contests
offer awards to all showing improvement, but the value of individual awards varies with the amount
of improvement. The danger in offering only a few large prizes is that the motivational force will be
restricted to the few who have a real chance of winning-the rest, knowing they have no chance to win,
give up before they start.

1. Contest Duration: Contest duration is important in maintaining the interest of sales personnel.
Contests run for periods as short as a week and as long as a year: but most run from one to four
months.

Contest Promotion: Effective contest promotion is important. To most sales personnel a contest is
nothing new. A clever theme and attractive prizes may arouse interest, but a planned barrage of
promotional material develops enthusiasm.

Evaluation of contests

There are two times when management should evaluate a sales contest-before and after. Revaluation
aims to detect and correct weaknesses, Post-evaluation seeks insights helpful in improving future
contests. Both pre- and post evaluations cover alternatives, short- and long-term effects, design,
fairness, and impact upon sales force morale.

The contest versus alternatives: If serious defects exist in

key aspects of sales force management, a sales contest is not likely to provide more than a temporary
improvement.

Short and long term effects: A sales contest accomplishes its pose if it increases sales volume,
brings in more profitable volume, or does both in the short and the long nm. No contest is a real
success if it
borrows sales from preceding months, succeeding months, or both.

Design: A well-designed contest provides motivation to achieve the underlying purpose, while
increasing the gross margin earned on sales volume by at least enough to pay contest costs.

Fairness: All sales persolli’1el should feel that the contest format and roles give everyone a fair
chance of winning the more attractive awards. While the contest is on, all sales personnel should
continue to feel that they have real chances of winning something.

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Impact upon sales force morale: Successful sales contests result in permanently higher levels of
sales force morale. If the contest format causes personal rivalries, it may have the counterproductive
effect
of creating jealousy and antagonism among the sales force.

Objections of sales contests

Only one- fourth departments use sales contests. The remaining give the standard objections:

1. Salespeople are paid for their services under provisions of the basic compensation plan, and there is
no reason to reward them further for performing regular duties.

2. High-caliber and more experienced sales personnel consider sales contests infantile and silly.

3. Contests lead to unanticipated and undesirable results, such as increased returns and adjustments,
higher credit loss, and overstocking of dealers. 4. Contests cause salespeople to bunch sales during the
competition, sales slumps occur both before and after the contest.

5. The disappointment suffered by contest losers cause a general decline in and safes force morale.

6. Contests ate temporary motivating devices and, if used too frequently, have a narcotic effect. No
greater results in the aggregate are obtained with contests than without them.

7. The competitive atmosphere generated by a sales contest weakens team spirit.

The foremost objection indicates misunderstanding Of both personne1 motivation and contest design,
and the second mayor may not be true in individual situations. All the other objections are overcome
through good contest design, intelligent contest administration, and proper handling of other aspects
of sales forces management. Assuming that sales management is competent, thorough planning and
effective administration of a contest can produce lasting benefit for both sales personnel and
company. If a contest is used as a substitute for management, it is likely to have bad results. Under
some circumstances, nevertheless, sales contests are ill advised. When a firm’s products are in short
supply, for instance, it is ridiculous to use a contest to stimulate orders, but the same firm might find a
contest appropriate to lower selling expense or improve sales reports.

What is a Sales Territory?

A sales territory refers to a geographical area assigned to a salesman for the purpose of marketing the
products of his concern. Generally, a firm divides the markets into specific geographical zones or
areas and assigns each salesman a specific zone in which he has to carry out his selling operations.
The specific geographical zone or area assigned to a salesman becomes his sales territory. Each of the
territory is served by one or more salesmen.

Allocation of Sales Territory

Allocation of sales territories to a salesman is one of the important duties of the sales manager. The
allocation of sales territories must be given serious thought by the sales manager as it is one of the
important tools of control. It does not pose a problem for the small-organization because their market
is limited.

However, for big organizations having nation-wide coverage, it poses a big challenge to the sales
management.

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 Objectives of Allocation of Sales Territory

The main objective of allocation of sales territories can be summarized as:

1. To hold the salesman responsible for sales and services.

2. Supervise and control over the sales force.

3. To meet competition easily.

4. To save time and expenses.

A sales territory comprises a group of customers or a geographical area assigned to a salesperson.

The territory may or may not have geographical boundaries. Typically, however, a salesperson is
assigned to a geographical area containing present and potential customers. Assigning sales territories
helps the sales manager achieve a match between sales efforts and sales opportunities. The total
market of most companies is usually too large to manage efficiently, so territories are established to
facilitate the sales manager’s task of directing, evaluating, and controlling the sales force. The
emphasis in sales territory concept is upon customers and prospects rather than only upon the area in
which an individual salesperson works. Customers and prospects are grouped in such a way that the
salesperson serving these accounts can call on them as conveniently and economically as possible.
Operationally defined, a sales territory is a grouping of customers and prospects assigned to an
individual salesperson. Many sales executives refer to sales territories as geographical areas. But, in
contrast, in some companies particularly in which technical selling style is predominant, geographical
considerations are ignored and sales personnel are assigned entire classes of customers, regardless of
their locations. When sales personnel sell mainly to personal acquaintances, as in selling property,
insurance, and investment securities; little logical

base exists for dividing the market geographically. Small companies, and companies introducing new
products requiring the use of different marketing channels, often do not use geographically defined
territories at all, or if they do, use rough divisions such as entire states or census regions: In these
instances, there is no reason to assign territories, since existing sales coverage capabilities are
inadequate relative to sales potentials.

REASONS FOR ESTABLISHING TERRITORIES

The primary reason for establishing sales territories is to facilitate the planning and controlling of the
selling function. Well-designed sales territories, however, may result in increased motivation, morale,
and interest of the sales force, improving the total sales performance. But sales managers typically
have more specific reasons for establishing territories.

(i) To obtain thorough coverage of the market: Sales territories help in proper market coverage. A
salesperson’s calling time is planned as efficiently as possible in order to ensure proper coverage of
present as well as potential customers.

(ii) To Establish Salesperson’s Job and Responsibilities: Sales territories help in setting the tasks and
responsibilities for the sales force. Salespeople have to act as business managers for their territories.
They have the responsibility of maintaining and generating sales volume in their territories.

(iii) To evaluate sales performance: Sales territories help in the evaluation of sales performance of a
company. Actual performance data can be collected, analyzed, and compared with expected

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performance goals. Even present sales figures can be compared with past figures to judge the
performance over the years.

(iv) To Improve Customer Relations: Properly designed sales territories allow sales people to spend
more time with present and potential customers and less time on the road. Customer goodwill and
increased sales can be expected when customers receive regular calls.

BASES FOR TERRITORY DEVELOPMENT

The objectives & criteria for sales territory formation are directly related to the bases used in creating
the territories. The actual division of a firm’s customer base into individual territory can be achieved
by means of several methods, depending on which of the three alternative types of bases used. The
three important bases are- geography, potential and servicing requirements, & work load.

(a) Geography: For the establishment of territories, geographical considerations are the most
frequently used base. This base is simple, as it tends to adopt existing geopolitical boundaries such as
states, countries, or cities. The major advantage of the geographic approach is the ready availability of
secondary data from different sources.

(b) Potential and servicing requirements: The potential approach refers to splitting up a firm’s
customer base according to sales potential. It would seem to provide equality of opportunity and thus
bring out the best in sales people..

Workload: The third sales territory base, workload, goes one step further. It not only considers
individual account potential & servicing requirements in creating territories, but also reflects
differences in coverage difficulty caused by topographical features, account locations, competitive
activity & so forth.

APPROACHES OF DESIGNING TERRITORIES

Three approaches may be used to design the sales territories.

• The building up approach of designing territories involves combining enough pieces of a

company’s overall market to create units presenting sufficient sales challenges. To use this
approach, actual & potential customers have to be identified and their individual sales
volumes assessed. After classifying them according to desirable call frequencies &
determining how many calls a salesperson can reasonably be expected to make, account
mixes can be created to satisfy the dual goals of adequate consumer coverage. This method is
favored by many consumer goods manufacturers looking for intensive distribution.
• The breakdown approach proceeds in the opposite direction. It starts with the overall sales
forecast for the entire company, which is in turn derived from a projection of the total market
potential and an estimate of the company’s likely share of it. The method then sets an average
sales figure per salesperson to reach at the number of territories to be formed using this as
divisor to total market potential. Such an approach may prove satisfactory for industrial goods

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 producer that desire selective distribution. The method, however, suffers from a severe
conceptual paradox: Instead of viewing sales as a result of sales force effort and then
forecasting sales accordingly, the number of members in the sales organization is determined
by the expected overall sales. This can lead to a self-fulfilling prophecy.
• The incremental approach is conceptually the most appealing. With this approach,
additional territories are created as long as the marginal profit generated exceeds the cost of
servicing them. Administrative difficulties, however, hamper the method’s applicability since
it requires a cost accounting system capable of determining sales, costs, and profits associated
with various levels of input. If a company can determine this kind of information, profits can
be maximized by increasing the number of territories up to the point of negative returns.

PROCEDURE FOR SETTING UP SALES TERRITORIES

A sales territory should not be so large that the sales person either spends an extreme amount of time
travelling or has time to call on only a few of the scattered customers. On the other hand, a sales
territory should not be so small that a sales person is calling on customers too often. The sales
territory should be big enough to represent a reasonable workload for the ales force but small enough
to ensure that all potential customers can be visited as often as needed.

Whether a company is setting up sales territories for the first time or revising ones that are already in
existence, the same general procedure applies:

(1) Select a geographic control unit, (2) make an account analysis, (3) develop a salesperson
workload analysis, (4) combine geographic control units in to territories, and (5) assign sales
personnel to territories.

1. Select Control Point

As the name suggests, the management has to select a geographical control point. The control points
can be classified on the basis of district, pin codes, areas, states and cities.

At the time of selecting the control unit, the management should aim to select as small a control unit
as possible.

The following are the reasons behind selecting small control units.

Reason 1
If the control unit is too large, the areas with low sales potential will be hidden by the areas with high
sales potential. The areas with high sales will be concealed if the areas with low sales potential will
be included.

Reason 2
In case of any changes required in future, they can be done smoothly. Example − A company wants
to allot some territory to Mr. A. This part of territory had earlier been assigned to Mr. B. It can be
done easily, as the unit is small.

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If the sales potential for the company is located in urban areas, the city can be used as a control
point. But there are some disadvantage also, as the adjacent areas to cities also possess sales but they
are covered by paying additional cost to the salesperson.

The control point can also be set up according to the trading areas. It is a sensible decision to set up
the control point according to the trading area. It is based on the flow of goods and services rather
than economic boundaries.

Example − the wholesaler or retailer use trading area as the control point.

Trading area can be considered as the geographical region that consists of a city and the surrounding
areas; this region works as the main retail or wholesale center of the region. Generally, the customers
from one trading area do not go outside the boundaries to buy goods.

Even an outsider customer will not enter the trading area to purchase a product. The main advantage
of the trading area is that the salesperson is aware of the buying habits of the customers and the
pattern of trade. It also helps the management in planning and control.

The control point can be decided on the basis of states. A state may be a capable control unit when
the organization has small sales force that is covering the market selectively.

Example− A company sells its products in the country in all states; in this case, the territory
boundaries could be based on states. It is less expensive and convenient to gather data and make
evaluation.

2. Making an Account Analysis

The next step after selection of geographical control unit is to plan an audit of each geographical
unit. The reason for performing this audit is to analyze the customer prospects and find out the sales
volumes for each account.

Accounts can be recognized by names; in recent times, there are many sources to pull out the data,
for example, the yellow pages. We can also collect the data through the past sales of the company.
After collecting the data, the next step is to estimate the sales for each geographical unit. The sales
manager estimates the sales volume that the company is expected to get in the following years.

There are many factors to contribute such as competition, advantage of the company in that
geographical area, etc. Now there are many software available for calculation and the final result.
This can be done much quickly as compared to when it is done by the sales manager manually.

After the sales potential estimates have been taken, the system divides into three types, which is done
through ABC analysis. This is one of the most common analyses used by companies. Where the
sales potential is greater than expected, it is classified as “A Category”. Average potential is
classified as “B Category” and the sales potential below average is classified as “C Category”.

3. Developing a Salesperson Workload Analysis

The salesperson workload analysis is done on the basis of the time and effort taken by a salesperson
to cover a geographical unit.

The following are a few points needed to estimate workload −

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 • Frequency of calls
• Duration of calls
• Travel time
The estimates workload is calculated by considering these factors.

The most important factor is the duration of calls. These depend on the customers and issues. If the
problem is severe, it may take time to resolve and tackle the question from customers.

Another important factor is the travel time; this differs from one area to another depending on the
factors transportation, condition of roads, weather condition etc. The sales manager tries and plans
accordingly to reduce the travel time taken by the salesperson and utilizes the time to call more
number of accounts/clients.

4. Combining Geographical Control Units into Sales Territories

In the first three steps, the sales manager works on the geographical control units; now he has to
combine the control units into territories.

Initially the sales manager used to manually develop a list of territories by combining the control
units. It was a time consuming procedure and also the result was not accurate, as it was done
manually. Now computers handle this activity and complete it in a much shorter period of time with
accurate results. The operational error is reduced here.

All the salespersons cannot be considered equal and competitive; it depends on the basis of
experience and skills. The salespersons are assigned territories by the sales manager depending on
the basis of sales. The geographical areas with high sales are assigned to the salesperson with
experience, who can handle the workload. The new or less effective sales people are assigned the
areas with less sales potential.

• Territory Shape
The sales manager has to decide the shape of the territory. The territory shapes affects the selling
expenses and also helps for sales coverage. There are four types of shapes, which are used widely.

• The wedge
• The circle
• Hopscotch
• The cloverleaf
Let us discuss these types one by one.
The Wedge

This shape is suitable for the territories, which contain both the urban and non-urban areas. The
radius starts from the most populated urban center. Wedges can be divided into many sizes and the
travel time can be maintained by balancing between the calls of urban and non-urban areas.

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The Circle
When the clients are distributed evenly throughout an area, the sales manager chooses the circle
shape. The salesperson starts from the office, moves in a circle of stops until he reaches the office
again. This helps the salesperson to come near to the customer as compared to the wedge.

Hopscotch
In this shape, the salesperson begins from the last point from office and reach out the customers
while coming back to the office. While going, the salesperson does not stop anywhere and attends
calls in one direction while coming back to the office.

The Cloverleaf
When the accounts or client are located randomly in a geographical area, the cloverleaf shape is
used. This type of shape is more often found in industrial markets than in consumer markets.

5. Assigning Sales Personnel to Territories

Once the sales territory has been designed, the last step is to assign sales personnel to the territories.
All the salespersons are not equal in terms of ability, initiative, etc.; the workload of one salesperson
may be overload to another and may cause frustration.

The sales manager must rank the salespersons accordingly before assignment of territories. The
ranking should be done on the basis of ability, knowledge, communication, etc. The other points,
which the sales manager should look at, are the cultural characteristics of the salespersons and how
they match with the territory.

Example − If a salesperson is born and brought up in rural area, he would be able to do more
effective sales in that particular area as compared to urban area.

We can now conclude that the goal of a sales manager is to assign the geographical area to the
salesperson who would maximize the territory sales and where the customers are comfortable with
the salesperson.

Establishing the sales territory helps in planning and controlling the sales operations. A well
designed sales territory helps to increase sales volume and market coverage and provide better
services to customers. Once the sales territory is allocated to the salesperson, he is responsible for
making things happen.

Advantages of Designing Territories Advantages of Designing Territories and Allocating Sales

Efforts and Allocating Sales Efforts

1. By appointing a salesman or a group of salesmen for a particular territory, the company is able to
serve his customers more satisfactorily.

33
2. Comparison among salesmen is possible and can be easily made. This is so because there is
equitable distribution of territories among equally competent salesmen.

3. By allocating sales territories, the entire sales field of a particular organisation can be covered
quickly.

4. Assignment of a particular territory to a particular salesman makes the sales force to work hard,
as the man working in a particular territory has fixed selling targets before him.

5. By assigning pre-determined sales territories, the sales manager instils the element of
competition among the sales force. Competition among salesmen definitely results in more sales.

6. The inefficient salesmen are easily found out by the sales organisation.

7. The organisation is able to know sales potentialities of each area. Therefore comparison among
sales areas is possible.

8. The allocation of sales territories restricts the area of operation of the salesman to given
geographical area. This helps to develop friendly relationship between the salesman and the
customers. This helps the salesmen to increase their sales volume.

9. Market survey can be easily and quickly done when a company has its sales territories properly
divided among its salesmen.

10. Allocation of sales territories ensures adequate market coverage and avoids duplication of sales
efforts.

Factors Determining Allocation of Sales Territories

The allocation or division of sales territories among the salesmen is based upon several considerations
or factors, such as the nature of the product, the potential demand for the product in the area, the
extent of competition present in the area, transport and communication facilities available, channels of
distribution, types of customers, the capacity of the salesmen, the types of customer services to be
provided, the sales expenses ratio, etc. Each of these factors are explained in detail.

1. Nature of the product

First, the nature of the product is of utmost importance. There are certain consumer items which have
constant demand in the market. They are high turnover goods and they need little selling efforts. Thus,
for such products a large territory can be assigned. For luxurious, bulky and durable articles, which
need concentrated selling efforts small sales territory can be assigned.

2. Demand for product

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While allocating sales territories to salesmen, the demand for a particular product should also be taken
into account. If the demand for a particular product is constant and frequent, then the whole sales filed
can be divided into small sales territories. However, in case of low demand and infrequent purchase of
articles, the size of the sales territory should be large.

3. Transport facilities

The marketing of a particular product depends to a large extent on the availability of transport
facilities. If the transport facilities like road, railway and air links etc., are satisfactory, then large sales
territories can be allotted to salesmen. However, areas having poor transport facilities should be
divided into very small sales territories. If the company provides vehicles such as a car or motor cycle
for the salesmen, then larger sales territories can be assigned.

4. Competition and Frequency of Contact

Competition cuts the size of the territories and increases the frequency of contact. In other words, the
salesman has to meet dealers and customers very frequently in highly competitive areas. On the other
hand, limited competition or near monopoly situation lengthens the frequency of contacts between the
salesmen and the dealer/customer. In such situations, the salesmen can be assigned larger sales
territories.

5. Population

The density of population in a particular area determines the size of the territories. In other words, if
particular area of a territory is thickly populated, there arises the need to divide the sales field into
small sales territories. On the other hand, if the area is thinly populated, then larger sales territories
can be allocated to salesmen.

6. Distribution System

Very often the distribution system of a particular organization determines the size of its sales
territories. In case the company sells through middlemen like wholesalers, dealers, retailers etc., larger
sales territories can be allocated to salesmen. On the other hand, if the product is sold directly to
consumers or very few middlemen are used, then small sales territories can be assigned to salesmen.

7. Advertising and Sales Promotion Activities

Companies which have widespread advertising and other sales promotionactivities, can assign small
sales territories to each salesmen in view of the demand for the product created by advertisements.
This enables them to sell extensively in territories allotted. On the other hand, low advertised products
need large sales territories for each salesman.

8. Ability and Experience of Salesman

The size of the sales territory also depends on the ability and experience of the sales force.
Experienced and talented salesmen are able to sell more and, therefore, they can easily be allotted
large sales territories. New and inexperienced salesmen are usually allocated small sales territories as
their ability to sell is limited. A salesman is expected to produce maximum sales turnover from his
area with the minimum amount of time and effort. The commonly used division are states, districts,
cities and trading areas.

35
The allocation of sales territories is often followed by the planning of the route which a salesman
should follow within his sales territory. The planning of the route involves the determination of places
to be visited (including exploration of new markets), the number of customers to be contacted and the
number of calls to be made every day by the salesman.

Sales quota
Sales quota can be defined as the sales target, which is assigned to any sales unit for a particular
duration of time; here sales unit can be a person, region, distributor etc. Sales quota provides a target
to be achieved in particular duration, which increases the productivity.

Commercial firms set up sales quotas in order to improve sales volume and increase the net profit of
the organization. It can also be viewed as a standard to determine the effectiveness of sales unit. Sales
quota is determined using various factors such as market potential, marketing method, past sales
record etc., with effective projection of market sentiments. For planning sales quota, control of sales
operations can be an effective method.

Objectives
Sales quota is imposed in an organization to fulfill various objectives required to increase the sales of
product and maximize profit.

Sales objectives help an organization in the following ways −

They provide a standard to measure the performance.

They help to control sales expenses for customer acquisition.

They help define a target; this further facilitates motivation and enhanced performance.

These help to identify and monitor the performance of salespersons.

These are some of the primary objectives of sales quota for an organization. Further, sales quota can
be divided in different types according to the requirement.

Types of Sales Quota

Sales quota is divided into four different categories according to the difference in forecasting and cost
allocation procedure, management goals, selling issues and executive decision.

The following are the different types of sales quota.

Sales and Volume Quota

Sales and volume quota is allocation of sales quantity for salesperson, geographical regions,
distribution outlets etc. This quota can be implemented according to sales performed or revenue
earned by respective units.

36
The combination of both the criteria can also be used for the implementation of this quota. The
quantity of sales and revenue earned can be allocated to the respective unit (salesperson, region) and it
has to fulfil at least one of them.

Financial and Budget Quota

Financial and budget quota is used to determine and restrict expenses on sales to attain desired net
profit planned.

It is implemented on various segment of sales organization to control the expenses accordingly. The
aim of these quota is restriction of expenses for making sales so that profit can be increased.

Activity Quota

In competitive market, the effective performance of sales group is required. It can act as a long term
benefit for the organization. Organizations set up activity quota for sales force for efficient results.
These can be performed by allocating sales target to salespersons.

The following are the activities listed under sales quota −

Number of accounts opened through the salesperson

Number of sales calls made to potential customer

Number of demonstrations made to show the product

Number of maintenance activities performed

Activity quota is planned on the basis of these activities performed by the salesperson. By setting
quota for the activities, efficient performance and controlling can be managed.

Combination Quota

It depends on product type and market condition, issues related to sales of product and the challenges
faced during the sales of a product. Organizations set up quota with combination of sales volume and
activity quota in order to increase sales.

Methods for Setting Sales Quota

Sales quota for any unit like salesperson, region, etc., should be a reasonable and an achievable goal,
for it to be fulfilled at the provided time span. At the same time, quota should not be such that it
doesn’t take much effort to achieve.

The following are some of the methods for setting the sales quota −

Total Market Estimate Method

Total market estimate method is used to determine sales quota in places where the management
doesn’t have any data about the market potential. It can be determined by dividing the company’s
sales quota with respect to regions or dividing sales quota according to relative sales opportunity as
per region.

Territory Potential Method

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Territory potential method directly relates territorial sales potential to sales quota. The potential here
is total industry’s sales for that segment. Sales potential represents the maximum market size of the
product; size of the market reflects the sales potential. This method gives precise results if territorial
sales potentials are used with a combination of territorial design.

Past Sales Experience Method

Past sales experience method determines the sales quantity based on the previous year sales.
Managements of organizations set this up by increasing some percentage from the previous sales
record.

For more precision in the approach, managements most commonly use an average of several years as
a base line for the measurement. This method is simple and doesn’t take much effort to implement.

Executive Judgement Method

In this method, sales quota volume is determined by the management, but it is more likely to be a
guess. The management decides the sales quantity and no fixed procedures are involved.

This method is not precise and it’s mostly not used by organizations to determining the sales quota.
This method doesn’t provide any estimate for territorial based sales volume.

Sales People Estimate Method

In this method, the sales quota is determined by the salesperson of the organization. Through this
approach, a more relevant sales estimate can be maintained, which can be achieved by the
salesperson.

Salesperson have better knowledge of the market conditions, so they can set the target as per their
standards, and if the standards are set by the salesperson themselves rather than imposed by the
management, their fulfillment is more likely possible.

Compensation Plan Method

Compensation method is based on management’s view of what a particular salesperson should receive
as revenue; this method does not take into account the sales projection or territorial volume.

EVALUATION OF SALES FORCE

In general sense, the evaluation process consists of comparing actual performance with planned
performance. Evaluation implies a process of systematically uncovering deviations between goals and
accomplishments. When weaknesses are identified, the firm will devise

and implement corrective methods through supervision and other control devices. When strengths are
indicated, by the discovery of deviations in a favourable direction, management will use this
information as a valuable aid in the anticipating and dealing with problems in future periods. This
may take the form of revising performance standards and generally

reappraising present policies, procedures, marketing communication methods, and potential

opportunities for the firm. Thus, the evaluation process aims at both prognosis and diagnosis and is

38
considered to be a preventive and curative marketing device. Evaluation system should do three
essential things for the sale manager and sales-people:

• Provide feedback to each salesperson on individual job

performance.
• •Help salespeople modify or change their behavior toward
effective work habits.
• Provide information to sales managers on which to base
decisions on promotion, transfer and salespeople.

1.TIME HORIZON FOR EVALUATION

Sales evaluation normally is of three types:

1. Short run evaluation- In this, performance is evaluated over one year and the focus is on the
achievement of targets in terms of sales.

2. Intermediate run evaluation- The performance is judged over 2 to 4 years time period and focus
is on evaluation in terms of creating and identifying new opportunities while

adapting to competitive and environmental threats.

3. Long run evaluation- This is on long-term basis and focus on evaluation in terms of surviving in
an uncertain and increasingly competitive world.

1. STANDARDS OF PERFORMANCE
Performance standards are designed to measure the performance of activities that the company
considers most important. Setting standards of performance requires consideration of the nature of the
selling job. In other words, sales job analysis is necessary to determine
job objectives, duties and responsibilities, and the like. These, in turn, depend upon selling strategy.
Setting performance standards for new business sales personnel requires different measures from
those for trade-selling sales personnel. Setting sales performance standards requires considerable
market knowledge. These items all bear on the setting of performance standards, especially
quantitative standards.
MEASURES OF PERFORMANCE
a. Quantitative Performance Standards

Most companies use quantitative performance standards. The particular combination of standards
chosen varies with the company and its marketing situation. Quantitative standards, in effect, define
both the nature and desired levels of performance. Quantitative standards provide descriptions of what
management expects. A single quantitative standard, such as one for sales volume attainment,
provides an inadequate basis for appraising an individual’s total performance. In the past the
performances of individual sales personnel were measured solely in terms of sales volume.

Each company selects the combination of quantitative performance standards that fits its
marketing situation and selling objectives. If necessary, it develops its own unique standards
designed best to serve its objectives. The standards discussed here are representative of the
many types in use.

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(i) Sales Quotas

A quota is a quantitative objective expressed in absolute terms and assigned to a specific

marketing unit. The terms may be rupees or units of product; the marketing unit may be a
salesperson or a territory. As the most widely used quantitative standards, quotas specify
desired levels of accomplishment for sales volume, gross margin, net profit, expenses,
performance of non-selling activities, or a combination of these and similar items. “When
sales personnel are assigned quotas, management is answering the important question: How
much and for what period? The assumption is that management knows which objectives, both
general and specific, are realistic and attainable. The validity of this assumption depends
upon the market knowledge management has and utilizes in setting quotas. When sales
volume quotas are based upon sound sales forecasts, in which the probable strength of
demand has been fully considered, they are valuable performance standards. But
when sales volume quotas represent little more than guesses, or when they have been chosen
chiefly for inspirational effect, their value as control device is dissipated.
(ii) Selling expense ratio
Sales manager uses this standard to control the relation of selling expenses to sales volume.
Many factors, some controllable by sales personnel and some not, cause selling expenses to
vary with the territory, so target selling expense ratios should be set individually for each
person on the sales force. Selling expense ratios are determined after analysis of
expense conditions and sales volume potentials in each territory. An attractive feature of the
selling expense ratio is that the salesperson can affect it both by controlling expenses and by
making sales.
(iii) Territorial net profit or gross margin ratio

Target ratios of net profit or gross margin to sales for each territory focus sales personnel’s
attention on the needs for selling a balanced line and for considering relative profitability.
Managements using either ratio as a quantitative performance standard, in effect, regard each
sales territory as a separate organizational unit that should make a profit contribution.
(iv) Territorial market share

This standard controls market share on a territory by territory basis. Management sets target
market share percentages for each territory. Management later compares company sales to
industry sales in each territory and measures the effectiveness of sales personnel in obtaining
market share.
(v) Sales coverage effectiveness index

This standard controls the thoroughness with which a sales person works in the assigned
territory. The index consists of the ratio of the number of customers to the total prospects in a
territory. To apportion the sales person’s efforts more among different classifications of
prospects, individual standards for sales coverage effectiveness are set up for each class and
size of customer.
(vi) Call frequency ratio

A call frequency ratio is calculated by dividing the number of sales calls on a particular class
of customers by the number of customers in that class. By establishing different call

40
frequency ratios for different classes of customers, management directs selling effort to those
accounts most likely to produce profitable orders. Management should assure that
the interval between calls is proper, neither so short that unprofitably small orders are
secured, nor so long that sales are lost to competitors. Sales personnel who plan their own
route and call schedules find target call frequencies helpful, in as much as these standards
provide information essential to this type of planning.
(vii) Calls per day

In consumer product fields, where sales personnel contact large numbers of customers, it is
desirable to set a standard for the number of calls per day. Otherwise, some sales personnel
make too few calls per day and need help in planning their routes, in setting up appointments
before making calls or simply in starting their calls early enough in the morning
and staying on the job late enough in the day.

(ix) Average cost per call

To emphasize the importance of making profitable calls, a target for average cost per call is
set. When considerable variation exists in cost of calling on different sizes or classes of
accounts, standards are set for each category of account.
(xi) Non-selling activities

Some companies establish quantitative performances standards for such non-selling activities
as obtaining dealer displays and cooperative advertising contracts, training distributor’s
personnel, and goodwill calls on distributor’s customers.

b. Qualitative performance criteria

Qualitative criteria are used for appraising performance characteristics that affect sales results,
especially over the long run, but whose degree of excellence can be evaluated only subjectively.
Qualitative criteria defy exact definition. Many sales executives do not define the desired qualitative
characteristics with any exactitude; instead they arrive at informal conclusion regarding the extent to
which each sales person possesses them. Other executives consider the qualitative factors fom1al1y,
one method being to rate sales persoIl.l1el against a detailed checklist of subjective factors such as
given below:

Job Factors

• Product knowledge • Customers’ knowledge • Competitor’s knowledge • Handling sales

presentations • Customer satisfaction • Time management
Personal Factors

• Punctuality • General Attitude • Dress and Appearance• Co-operation • Adaptability

• Reliability • Communication skills • Decision-making ability • Initiative

An executive judgment plays the major role in the qualitative performance appraisal.

2. MEASURING ACTUAL PERFORMANCE

Sales management’s next task is to measure actual performance. There are two basic sources of
performance information: sales and expense records and reports of various sorts. Almost every
company has a wealth of data in its internal sales and expense records, but this purpose.

41
 Field sales reports

The fundamental purpose of field sales reports is to provide control information. They provide a basis
for discussion with sales personnel.
Purposes of field sales reports

The general purpose of all field sales reports is to provide information for measuring performance;
many reports, however, provide additional information. They provide a basis for discussion with sales
personnel. They also indicate the matters on which sales personnel need assistance.
Purposes of field sales reports
The general purpose of all field sales reports is to provide information for measuring performance;
many reports, however, provide additional information. Consider the following list of purposes served
by field sales reports:
• To provide data for evaluating performance- for example, details concerning accounts and
prospects called upon, number of calls made, orders obtained, days worked, miles
travelled, selling expenses, displays erected, cooperative advertising arrangements made,
training of distributor’s personnel, missionary work, and calls made with distributors
sales personnel.
• To help the sales person planthe work- for example, planning itineraries, sales
approaches to use with specificaccounts and prospects.
• To record customers’ suggestions and complaints and their reactions to new products,
service policies, price changes, advertising campaigns, and so forth.

Types of sales force reports

1 Progress or call report: Most companies have a progress or call report. It is prepared
individually for each call or cumulatively, covering all calls made daily or weekly.
2. Expense report: The purpose is to control the nature and amount of salesperson expenses.
3. Sales work plan: The salesperson submits a work plan (giving such details as accounts
and prospects to be called upon, products and other matters to be discussed, routes to be
travelled, and hotels or motels) for a future period, usually a week or a month.
4. New-business or potential new-business report: This report informs management of
accounts recently obtained and prospects who may become sources of new business.
5. Report of complaint and/or adjustment: This report provides information for analyzing
complaints arising from a salesperson’s work, complaints by class of customer, and cost of
Complaint adjustment.

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 UNIT – 4

OVERVIEW OF MARKETING CHANNEL

Marketing channels are set of mutually dependent organizations involved in the process of making
product or service available for utilization. It is established in academic studies that Marketing
channels are the means by which goods and services are made available for use by the customers. All
goods go through channels of distribution, and marketing will depend on the way goods are
distributed. The direction that the product takes on its way from production to the consumer is
imperative because a marketer must choose which channel is best for his particular product. It can be
said that channel is the link between manufactures and purchasers. Decisions about the marketing
channel system are decisive for management.

The marketing channels chosen by marketers influence all other marketing decisions. The firm’s sales
force and advertising decisions depend on how much training and inspiration dealers need. Further,
channel decisions involve comparatively long-term commitments to other firms. Holistic marketers
guarantee that marketing decisions in all these different areas are made to jointly maximize value.

Marketing Channels
arketing channels are channels used by any company to reach their end customers. These channels are
generally interdependent on each other and interact with each other so as to ensure that
the product reaches from the company to the end customer.

Definition of Marketing Channels

Marketing Channels can be defined as the set of people, activities, and the intermediary organizations
that play a crucial role in transferring the ownership of the goods from the point of production or
manufacturing to the point of consumption. Basically, they are the various channels or platforms
through which the products reach to the consumers or the end-users. They are also known as the
distribution channels.

4 types of Marketing Channels :

1) Manufacturer to Consumer

This is one of the most simple and effortless types of the Marketing Channels as the goods produced
reach to the consumers directly from the house of manufacturer. It works as cost-effective and
profitable for both the parties involved as there is no further involvement of the middlemen such as
retailer, wholesalers, and agents that charge their commission increasing the overall price of the
products.

2)Manufacturer to Retailer to Consumer

This type of Marketing Channels is one of the highly adopted and preferred channels in the industry.
The manufacturers who specialize in the manufacturing of the shopping goods such as shoes,
furniture, and fashion apparels amongst others opt for this Marketing Channel.

43
3) Manufacturer to Wholesaler to Consumer

This category of Marketing Channel is usually adopted by the consumers who are looking out for bulk
purchases of the specific items and procuring the same from the wholesaler works out quite easy and
cost effective for them owing to the economies of scale factor plus no involvement of other
intermediaries. The wholesaler reduces the cost to the consumer such as service cost or sales force
cost making the items available to the consumer at cheaper rates.

4) Manufacturer to Agent to Wholesaler to Retailer to Consumer

This type of Marketing Channel involves more than one middlemen or intermediary making the goods
reach to the consumers. The agents or the middlemen helps and assists with the sale of the goods and
charge their commission from the manufacturer. They are quite helpful when the goods need to reach
the consumers in a short span of time.

Importance of Marketing Channels :

1) Information provider

The first and foremost aspect in the list of the importance of the Marketing Channels is that the
middlemen such as agents provide the vital and crucial market information to the manufacturer that
helps him to plan his production and other related business strategies accordingly. Developments in
the market such as the change in the preferences in the taste of the consumer, entry of new
manufactures in the market, shift in the government policies, and the various pricing points of the
other manufacturers are given to the manufacturer without any additional cost owing to their
relationship and working association with the manufacturer.

2) Stability of the price

Yet another important function that is performed by the middlemen is that they maintain the stability
of price by absorbing the increment along with keeping the overheads cost low and charge the
consumers with the old price of the products. Their main motive behind this strategy is to have a
strong foothold in the market due to the completion from the other middlemen in the market.

3) Promotion

Another aspect in the importance of Marketing Channels is that the middlemen perform the function
of promoting the goods of the manufacturer by planning and designing their own sales incentive and
customer loyalty programs to attain their sales targets and increased market share objectives. This
ultimately works for the benefit of the manufacturer and all the parties involved in the process.

4) Pricing strategy

As the middlemen and the agents are at the sales field on a daily basis and have a thorough knowledge
about the marketing dynamics and the customer preferences, many manufacturers ask for their
suggestion whilst deciding on the pricing of the various products. The pricing and the features of the
products are also customized for the different set of target markets and consumers along with the
channel of distribution.

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 5) Matching the demand and supply of the products

The main and significant function of the middlemen and commission agents in the Marketing
Channels is to match the demand and supply of the products in the target market. They should provide
the manufacturers with the crucial information on how to assemble the goods to match the taste and
preferences of the targeted consumers that result in the ease of sales and attainment of the sales
objectives of the manufacturer.

Characteristics of Marketing Channels

• Link between Producer and Consumer.
• Flow of Goods
• Remuneration.
• Classification-Direct and Indirect.
• Activities- Financing, Credit Facility
It is important to consider some factors when choosing appropriate marketing channel such as
product, market, company. It is observed that middle man plays vital role in distribution of product in
market channel. The core responsibility of intermediaries is to deliver products to customers in their
desired location. To accomplish this objective, they purchase goods and store these and then ship to
customers.

STRUCTURE OF MARKETING CHANNELS MARKETING

MANAGEMENT

The marketing channel has two basic aspects:

1. the placement of intermediary types of channel in relation to each other i.e. the order in which they
occur;
2. the number of different intermediary levels or stages in the channel i.e. how many different separate
types of intermediary are involved, so types of intermediary and number of levels determine the
structure of a marketing channel.

Marketing Channels Structure

There are several types of channel structure, dependent on the type of goods. An example of a
structure for consumer goods such as food and clothing. This figure is based on three assumptions:

1. The channel consists of complete organizations.

2. Manufacturers’ agents and selling agents are included with the merchants even though
they do not take title to the goods.
3. Physical movement follows exactly the movement of ownership.

We must understand the underlying reasons for the emergence of channel structures. Four logical
steps can be identified:

45
 1. The efficiency of the process can be increased via an intermediary.
2. Channel intermediaries arise to adjust the discrepancy of assortments through the
performance of the sorting processes.
3. Marketing agencies remain together in channel arrangements to provide the routine of
transactions.
4. Channels exist to facilitate deliveries and to avoid inventory stock-outs.

Rationale for intermediaries

As numbers of transactions increase, the need for intermediaries becomes greater. The marketing
channel is a ‘canal’ which contains the physical flow of products. Because of the complex array of
intermediaries operating within a channel, which may be involved in one or all aspects of channel
function, the channel may also be visualized as a chain-link arrangement where each intermediary unit
is effectively a link.

Manufacturers are dependent on the effectiveness of their intermediaries if their channels of

distribution are to meet their marketing goals. Intermediaries of a channel specialize in more than one
function. Their inclusion primarily depends on their superior efficiency in the performance of basic
marketing tasks. Such intermediaries, through their experience, specialization, contacts and scale of
operation, offer other channel members more than they can achieve on their own. However, this type
of specialization leads to some important behavioural concepts.

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Position and role

Each channel member chooses a position or location in the channel. ‘Role’ refers to the functions and
degree of performance expected of the firm filling a position. Channel intermediaries perform the
distribution function at a lower unit cost than the manufacturer who is the intermediary most distanced
from the consumer, and they balance the production efficiencies of the supplier to the purchasing
needs of the customer.

Another reason is to break down large volumes into smaller quantities, termed ‘breaking bulk’, e.g. a
furniture retailer places an order for 100 tables, but the individual buys only one. When we consider
the selling process, the number of intermediaries can reduce the number of transactions contained
within the selling process.That there are four manufacturers and ten retailers who buy goods from
each manufacturer. Here the number of contact lines amounts to 40 (i.e. 4 _ 10). If all four
manufacturers sell to 10 retailers through one intermediary, the number of contacts is reduced to 14
(i.e. 4 _ 10). The number of contacts increases as the number of intermediaries increases, e.g. when

47
the number of wholesalers is increased to 2, contacts will increase from 14 to 28 (i.e. [4 _ 2] _ [10 _
2]). Thus, greater numbers of intermediaries result in diminishing returns per contact.

Assortment and sorting

In addition to increasing the efficiency of transactions, intermediaries smooth the flow of goods and
services by creating what economists refer to as ‘possession’, ‘place’ and ‘time’ utilities. This
smoothing requires that intermediaries perform a sorting function to overcome the discrepancy that
arises between goods produced by manufacturers and goods demanded by the consumer. In addition,
intermediaries bring together a range of similar or related items into a large stock, thus facilitating the
buying process. A supermarket will buy in thousands of lines to provide shoppers with choice, and a
builders’ merchant will provide everything from sand and gravel to light fittings that the builder can
use. In this way, intermediaries play an important role in facilitating the flow of products from the
manufacturer to the consumer.

Routine transactions

The cost of distribution can be minimized if transactions are routinized. In effect, through
routinization, a sequence of marketing agencies is able to hang together in a channel arrangement or
structure. A good example is automatic ordering, whereby the cost of placing orders is reduced when
retail inventory levels reach the necessary re-order point.

Searching

Buyers and sellers are often engaged in similar activities within the marketplace. There is a degree of
uncertainty if manufacturers are unsure of customer wants and needs, and consumers are not always
sure what they will find. In this respect, marketing channels facilitate the searching process in two
ways:

Wholesale and retail institutions are organized by different product groups; for example, fashion,
hardware, grocery.

Many products are widely available from wide ranging locations

What Are the Kinds of Marketing Channel Functions

Marketing channels, such as distributors, wholesalers and retailers, provide your business with three
kinds of functions: buying products for resale to customers, distributing products to customers and
supporting sales to customers through financing and other services. The channel functions supplement
your own direct sales operations and extend your market coverage to a wider group of customers.

Transactional Functions

Your channel partners offer you important transactional functions. They buy products from you and
sell them to their own customers, increasing the total revenue from your product range. At the same
time, they minimize your transaction costs. You only deal with a channel partner; they deal with a

48
large number of customers. They also take the risk of holding inventory on your behalf, reducing your
stockholding costs and your risk of holding unwanted inventory.

Added Value

In certain markets, channel partners add value to a transaction. They may increase the value of a
product, for example, by customizing it for customers in specific industries -- a process that could
prove expensive for your business. Channel partners can also add value by grouping related products
and services into packaged solutions that enable customers to obtain all their needs from a single
source. Distributors that add value enhance your reputation by meeting customers’ needs effectively.

Logistical Functions

Distributors and wholesalers provide an important logistical function in your channel to market. Some
channel partners take responsibility for the physical distribution of products to your customers. They
store the products and provide transport to fulfill customers’ orders. Other partners may take bulk
deliveries from your company and split them into the smaller quantities that customers order. By
taking on this function, they reduce the burden on your logistics operations.

Facilitating Functions

Channel partners provide a range of services that facilitate and support sales of your products. They
use their sales force to deal with customers, negotiate sales and provide customer service. The sales
force also gathers market intelligence, which can help you to market products more effectively. In
some cases, channel partners may provide credit and other forms of financing to make it easier for
customers to buy.

Support

If your products are complex and require support, you can allocate responsibility to your channel
partners. They can set up service operations that can install, maintain, service and repair your products
in their territories. This support reduces the workload for your service teams and ensures that
customers can obtain prompt, local support when they need it.

Intermediaries
Intermediaries, also known as distribution intermediaries, marketing intermediaries, or middlemen,
are an extremely crucial element of a company’s product distribution channel. Without intermediaries,
it would be close to impossible for the business to function at all. This is because intermediares are
external groups, individuals, or businesses that make it possible for the company to deliver their
products to the end user. For example, merchants are intermediaries that buy and resell products.

There are four generally recognized broad groups of intermediaries: agents, wholesalers, distributors,
and retailers.

Types of Intermediaries

These are the middlemen that ensure smooth and effective distribution of goods over your chosen
geographical market. Middlemen are a very important factor in the distribution process. let us take a
look at the types of middlemen we usually find.

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1] Agents

Agents are middlemen who represent the produces to the customer. They are merely an extension
of the company but the company is generally bound by the actions 0of its agents. One thing to keep
in mind, the ownership of the goods do not pass to the agent. They only work on fees and
commisions.

2] Wholesalers

Wholesalers buy the goods from the producers directly. One important characteristic of wholesalers
is that they buy in bulk at a lower rate than retail price. They store and warehouse huge quantities of
the products and sell them to other intermediaries in smaller quantities for a profit.

Wholesalers generally do not sell to the end consumer directly. They sell to other middlemen like
retailers or distributors.

3] Distributors

Distributors are similar to wholesalers in their function. Except they have a contract to carry goods
from only one producer or company. They do not stock a variety of products from various brands.
They are under contract to deal in particular products of only one parent company

4] Retailers

Retailers are basically shop owners. Whether it is your local grocery store or the mall in your area
they are all retailers. The only difference is in their sizes. Retailers will procure the goods from
wholesaler or distributors and sell it to the final consumers. They will sell these products at a profit
margin to their customers.

In the reality of the market, all producers rely on the distribution to channel to some extent. Even
those who sell directly may rely on at least one of the above intermediary for any purpose. Hence
the distribution channel is of paramount importance in our economy.

50
 Difference Between Wholesale and Retail

Definition of Wholesale

Wholesale refers to the selling of goods to the customers like retailers, industries, and others in bulk,
at a low price. It is a type of business in which goods are being purchased from the producers by the
wholesaler in big lots, and then the bulk is split into comparatively smaller lots. Finally, they are
repacked and resold to the other parties.

Wholesalers do not pay much attention to the location of the shop and its appearance, and display of
goods because they sell only a specific type of items, and their customers are generally retailers or
other businesses who purchase the goods for the purpose of resale. These things do not matter to them
at all.

In wholesale business, the wholesaler gives more emphasis on the quantity of goods, not on the
quality. For starting a wholesale business, there is a huge capital requirement as the business size is
large. It does not require any publicity or advertisement.

However, the customers of a wholesale business are spread in various cities, towns or even in
different states. Most goods are sold on credit to the customers of the wholesale business. The price of
purchased on wholesale is lower as it consists of less profit margin.

Definition of Retail

Retail means selling goods in small lots. When the goods are sold to the final customer, for
consumption and not for the purpose of resale, in small quantities, then this business type is known as
Retail. Retailers are the middleman between wholesalers and customers. They purchase goods from
wholesalers in bulk and sells it to the ultimate consumer in small lots.

The prices of goods purchased in retail are relatively high. The first and foremost reason behind this is
the advertisement cost, and the profit margin is high. Moreover, they include other expenses in the
price of goods on a proportionate basis, like the rent of premises, salary to the workers, electricity
expenses, etc.

Due to extreme competition, it is quite difficult to retain customers for a long time, so the retailer
should know the techniques of handling different kinds of customers. In this way, shop location, the
appearance of the shop, goods displayed, quality of products and service provided is given much
importance because it leaves an impact on the customer’s mind. Moreover, the goodwill of the retailer
depends on these parameters. By virtue of this, the retail business person always goes with the quality
products. They reject the defective or inferior quality products and pick the best one.

Key Differences Between Wholesale and Retail

The points goiven below elaborates the fundamental differences between wholesale and retail
trade:

1. Wholesale means the sale of goods in voluminous quantity, at a low price. The business of
selling goods to end consumers in small lots at a profit is known as Retail.
2. Wholesale creates a link between the manufacturer and retailer whereas Retail creates a link
between wholesaler and customer.

51
 3. There are wide differences between wholesale and retail price of a particular commodity, i.e.
the wholesale price is always less than the retail one.
4. In wholesale business, there is no requirement of an art of selling the goods which are a must
in case of retail business.
5. The size of a wholesale business is larger than a retail business.
6. In the retail business, the retail shopkeeper can choose the goods freely which is not possible
in wholesale business because the goods are to be purchased in bulk.
7. In wholesale business, the capital requirement is higher than in retail business.
8. The location is of utmost important in retail, but in wholesale, the location does not matter at
all.
9. While selling the goods in retail the appearance of the shop and the display of items should be
good to attract more and more customers. However, in wholesale, there is no such kind of
need.
10. There is no requirement of advertising in wholesale but retail business requires advertising to
grab the attention of customers.

Designing a Marketing Channel System

Designing a marketing channel system entails factors such as analysing customer needs, establishing
channel objectives, identifying major channel alternatives, and evaluating major channel alternatives.
Analysing Customers’ Desired Service Output Levels: The marketer must recognize the service
output levels which its target customers want. Channels produce five service outputs:

1. Lot size: The number of units the channel allows a particular customer to buy at one time.
2. Waiting and delivery time: The average time consumers of that channel wait for receipt of the
goods. Customers generally prefer fast delivery channels.
3. Spatial convenience: The extent to which the marketing channel facilitate for customers to
obtain the product.
4. Product variety: The variety provided by the channel. Usually, consumers prefer a greater
collection, which enhances the chance of finding what they need.
5. Service backup: The add-on services such as credit, delivery, installation, repairs provided by
the channel.

Providing greater service outputs denotes increased channel costs and higher prices for consumers.
The triumph of discount resellers (online and offline) designates that many consumers will accept
lower outputs if they can save money.

Establishing Objectives and Constraints

Another factor in designing a marketing channel system is that marketers must declare their channel
objectives in terms of targeted service output levels. In competitive conditions, channel institutions
should coordinate their functional tasks to reduce total channel costs and still offer desired levels of
service outputs. Generally, planners can recognize several market segments that want different service
levels. Successful planning needs to determine which market segments to serve and the best channels
for each. Channel objectives differ with product characteristics. Channel design is also affected by
numerous environmental factors as competitors’ channels, monetary conditions, and legal regulations
and limitations.

Identify Major Channel Alternatives

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Other decisive factor in developing market channel is to recognize alternatives. Companies may
select array of channels to approach customers, each of which has distinctive strengths as well as
limitations. Each channel alternative is explained by (i) the types of available intermediaries (ii) the
number of intermediaries needed; and (iii) the terms and responsibilities of each channel member.
Types of Intermediaries entails a firm needs to discover the types of intermediaries available to run
its channel work. Some intermediary merchants such as wholesalers and retailers buy, take title to,
and resell the products. Agents such as brokers, manufacturers’ representatives, and sales agents
chase customers and may bargain on the producer’s behalf but do not take title to the merchandise.
Facilitators, including transportation companies, independent warehouses, banks, and advertising
agencies, help in the distribution process but neither take title to goods nor negotiate purchases or
sales.

Companies should recognize pioneering marketing channels. Number of Intermediaries indicates

that to choose intermediaries to use, companies can adopt one of three strategies: exclusive,
selective, or intensive distribution. Exclusive distribution means severely limiting the number of
intermediaries. Selective distribution depends on more than a few but less than all of the
intermediaries willing to carry a particular product. In intensive distribution, the producer places the
goods or services in as many outlets as possible. This strategy is usually used for items such as snack
foods, newspapers, and gum. Terms and Responsibilities of Channel Members signify that each
channel member must be treated courteously and given the opportunity to be lucrative. The main
constituents in the “trade-relations mix” are price policy, conditions of sale, territorial rights, and
specific services to be performed by each party. Price policy assists the producer to ascertain a price
list and schedule of discounts and allowances that intermediaries see as equitable and sufficient.

Evaluating the Major Alternatives

The Company must assess each alternative against suitable economic, control, and adaptive criteria.
The firm should verify whether its own sales force or a sales agency will create more sales and it
estimates the costs of selling different quantities through each channel

Managing Marketing Channel

In order to maximize profit, companies must manage their marketing channel effectively.
Management of marketing channel refers to the process of analysing, planning, organizing and
controlling its marketing channel. In marketing channel two different activities occur. One is the
establishment of physical distribution system and other is management of marketing objectives.
Management of marketing channel involves all functions of marketing mix which include product,
price, physical distribution, program and people. The physical distribution system and channel
structure is established through which products flow in the marketing channel.

Marketing Mix Activities In Marketing Channel Management: (McCalley, 1996)

To Mange marketing channel, firms must adopt motivational strategies such as paying higher slotting
allowances, offering higher trade discount, providing strong promotional and advertising support,
training channel member sales people, giving high level logistic support. Management professional

53
stated that after a firm has selected a channel system, it must select, train, motivate, and evaluate
individual intermediaries for each channel. It must also modify channel design and arrangements over
time.

• Selecting Channel Members: For successful management, Companies must have to choose
talented channel members cautiously because for customers, the channels are the company.
Producers should decide what features distinguish the better intermediaries and scrutinize the
number of years in business, other lines carried, growth and profit record, financial strength,
cooperativeness, and service reputation of potential channel members. If the intermediaries
are sales agents, producers should assess the number and character of other lines carried and
the size and quality of the sales force. If the intermediaries want exclusive distribution, the
manufacturer should assess locations, future growth potential, and type of customers.
• Training and Motivating Channel Members: It is a major responsibility of a company to
examine its intermediaries in the same way it views its customers. It needs to establish
intermediaries’ needs and build a channel positioning such that its channel offering is tailored
to provide superior value to these intermediaries. To enhance intermediaries’ performance,
the company should offer training, market research, and other capability-building programs.
The company must also continually strengthen that its intermediaries are to jointly gratify the
needs of end users. Producers differ greatly in channel power, the ability to change channel
members’ behaviour therefore the members take corrective actions. Often, gaining
intermediaries’ collaboration is a major challenge. Sometimes, Producers try to forge a long-
term affiliation with channel members. The manufacturer must talk clearly what it expects
from its distributors in the way of market coverage and other channel issues and may
ascertain a compensation plan for adhering to these policies. Motivating channel members
takes numerous forms in order to gratify the requirements at each level in channel.
Profitability is major Motivational force for whole seller for product selection. When profit
motivation is satisfied, whole seller will look for marketing programs offered by producers to
sell products to retailers. Whole seller checks the credit option and terms of payment when
assessing the profit option for business when dealing with particular supplier. Retailers are
mainly concerned with maintenance of product supply and availability. It is observed in
market that when customers cannot get product in one retail shop, they immediately search
for it in another retailers. But retailers do not want to lose customers. Another interest of

retailers is profitability of the product.

• Evaluate Channel Members: To successfully manage market channel, producers must
assess intermediaries’ performance at regular intervals against such standards as sales-quota
attainment, average inventory levels, customer delivery time, treatment of damaged and lost
goods, and cooperation in promotional and training programs. A producer will occasionally
determine that it is paying particular intermediaries too much for what they are actually doing.
Producers should establish functional discounts in which they pay specific amounts for the
intermediary’s performance of each agreed-upon service. People who are not performing
must be given extra training or counselling.
• Modifying Channel Arrangements: Channel arrangements must be reassessed regularly and
altered when distribution does not work as planned, consumer buying patterns change, the
market develops, new competition occurs, inventive distribution channels appear, and the
product moves into later stages in the product life cycle. No marketing channel remains
successful over the entire product life cycle. Early purchaser might be willing to pay for high-
cost value-added channels, but later buyers will change to lower-cost channels. In highly

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 competitive markets with low entry barriers, the best channel structure will transform over
time. The company may add or drop individual channel members, add or drop particular
market channels, or develop a new way to sell merchandise. The process of adding or
dropping an individual channel member needs an incremental analysis to decide profitability
of company. Additionally, marketers adopt data mining to analyse customer shopping data as
input for channel decisions. The most complicated decision is whether to modify the overall
channel scheme. Channels can become old-fashioned when gap occurs between the existing
distribution system and the ideal system to gratify customer’s needs and wants.

The most challenging face of channel management is the maintenance of control over all parts of
distribution flow and marketing activities. Marketers have to undergo legal issues in controlling
marketing channels therefore they need to develop successful channel programs that will stimulate the
action planned without creating conflict among competitive channel members.

To summarize, market channel is medium through product from raw material move to costumer. In
designing market channel it is important to comprehend customer’s need. The task of managing
marketing channel falls to marketing and sales managers. These people directly involve with channel
members and company’s competitors. They know how to find valuable information for good
management decisions. To organize marketing channel, it is imperative to gather relevant information.
It assists in writing accurate and detail market profile statement. Most marketing channels are created
with one or more intermediaries between the manufacturer and consumer.

Channel information System

Channel information system is to collect and analyze data about the operations of channels in
order to assess the performance and take timely corrective actions to continuously improve
performance.

Advantages of having information System:

• It helps in marketing planning by making available reliable and timely information both on
the external environment and internal situation.

• It helps in tapping market opportunities.

• It keeps the marketing people alert against threats of competitions.

• By providing market information, it helps spot trends--favourable or otherwise.

• It helps develop action plans for growth.

• It keeps the marketing function aware of consumer needs to enable them to fine- tune
marketing distribution programmes.

Four Steps in Information System:

1. Collection- acquiring and placing the raw data.

2. Processing- is analyzing the data to get meaning out of it. Processing involves arranging,
modifying, and interpreting data by the user.

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3. Storage- keeping the information intact till it is needed.

4. Use- the application of the information for management decision making.

Why an Information System:

• The system is what makes raw data into usable information.

• In a system , the information can be used many times for different purposes.

• A system not only process data, but store it in easily retrievable formats.

Developing a Channel Information System --Channel MIS

• Decide what information is required.

• Organize information in a manner suitable for interpretation and action.

• Decide who will use the information when and for what purpose.

Some Basic Characteristics of Channel Information System:

• Be an integrated system to handle all regular data,

• Be useful decision support system,

• Reflect the style of the marketing organization,

Have to be user friendly and user oriented Channel information System

Channel information system is to collect and analyze data about the operations of channels in
order to assess the performance and take timely corrective actions to continuously improve
performance.

Advantages of having information System:

• It helps in marketing planning by making available reliable and timely information both on
the external environment and internal situation.

• It helps in tapping market opportunities.

• It keeps the marketing people alert against threats of competitions.

• By providing market information, it helps spot trends--favourable or otherwise.

• It helps develop action plans for growth.

• It keeps the marketing function aware of consumer needs to enable them to fine- tune
marketing distribution programmes.

Elements of a Channel Information System:

Market Information- this is the most critical part of the information for an operating sales
manager irrespective of whether he is selling industrial products, FMCG products, pharmaceutical

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products or automobiles.

Competition Tracking- this is more specific and focused extension of collecting market
information.

Distributor Profile and Database- is a one time exercise but the information has to be
updated at least once a year. It will contain all the details of the distributor including name, address
,location, name of the partners, number of years in business, numbers of years with the company,
name of contact person ,financial strengths ,name of the banker ,market standing immovable
properties, investment in the company business ,other business interests, last three years of the sales
performance, markets being covered, number of outlets being serviced, manpower and other
insfractracture provided.

Primary Sales- this is the sales done by the company to the distributor.This is the easisest
informationto compile.

Secondary Sales- this is the reflection of the true consumer off- take and the market shares
of the company products and is critical to be measured.

Retailer Cards- this is relevant only for FMCG and pharmaceutical kind of businesses
where the number of outlets to be covered every day by the channel member is larged.

Pricing Trends– these are used for any immediate correction required or to track the pricing
trends.

Promotion Evaluation- it is a mandatory for sales people to evaluate each promotion within
four weeks of the end of the promotion. The evaluation has to be done formally.

Secondary Freight- is the transport cost for sending the finished good from the company
deports or C&FAS to the distributor.

Promotion History- it includes promotions operated by product/pack –size during the year
,the objectives set and the actual sales achieved, the cost of the promotion and the reaction of the
competitors.

Inventory Control- inventory forms the biggest component of the working capital and has to
be effectively used to maximize sales( both primary and secondary).

Orders /Indents from Channel Partners- it is necessary for the C&FA or depot to keep
documented proof of all orders/indents received from distributors/dealers/stockiest.

Distribution Cost- the performance of the sales function is also judged by the distribution
cost of marketing channel used by the salespeople to achieved the results.

Distribution cost includes the following elements:

• The cost operation of company-owned depots or a C&FA

• The margin paid to the distributors

• Any subsidies given to the distributors for covering difficult territories or rural areas

• Cost of any credit extended to the channel partners or credit extended to any institutions

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• Cost of all damages,shortages and losses in the channel.

Distributor Return on Investment( ROI)-this is the critical parameter to be measured to be

keep distributors motivated to work effectively for a company.

Statutory Information and Reporting- these can be inspected any time by the government
authorities like sales/tax/VAT officials, Shops and Establishment Act,Prevention of Food Aulteration
Act and so on.

Distributor Payments Record- it shows the consistency of the distributor in making

payments in full and on time.

Channel Performance Evaluation

The frequency of channel member evaluation is based on the number of factors like:

• The degree of control the manufacturer has on the channel members.

• The importance of the channel member of the performance of the company itself.

• The nature of the product is also important in the evaluation frequency decision.

• The number of channel members----- more the number, the evaluation has to be more often to
ensure that at least the majority of them are performing well.

• The category of the channel members—is he a C&FA , a distributor. A stockist or an agent

for institutional business?

Channel Performance Evaluation Criteria - includes sales target achievement, coverage,

merchandising and supporting all promotional activities.

Criteria for Evaluation- it varies with their categories .The channel members to be evaluated
are, the company depot or C&FA , the distributor/dealer/stockist and the wholesalers and retailers.

Channel Implementation- is more relevant when the channel principal has the channel
which is bound by agreements end contacts and all the channel partners of the channel system.

• Intensive Distribution- allows the consumer the opportunity to shop anywhere he

pleases to look for the products of his choice.Is more expensive and requires more
supervision.

Selective Distribution- Some of the methods companies may use to support such as distribution
effort could include product specific training, service support, support with special handling facilities
or hosting promotions jointly with the channel partners.

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 UNIT-2

7 Steps to Designing a Winning Sales Compensation Plan

At the beginning of each new sales year the realization that sales compensation plans need to be
developed. The air begins to grow cold, no matter what time of year it is. The dreaded sales
compensation plan monster is in a particularly bad mood but we just may have the approach to
brighten his spirits. .

Designing, revising or revamping sales compensation plans is not a scary or daunting task but rather
one that can coalesce the key objectives of the company. There are seven fundamental steps to
designing a sales compensation plan:

Review the sales job description.

Most companies think they know what the job of sales is. In reality it is one of the most frequently
changing roles in the company. In order to achieve success a sales team must adjust to multiple
factors: internal, customer, competitive, economic, market, political and more. In this step, ask
stakeholders in sales, marketing, business partners, customers or others to independently define the
role of a sales person in your company; more stakeholders surveyed will yield a more complete
description.

Identify the plan objectives.

Start with the end in mind. Poll finance marketing, sales and human resources for the measurable
outcome they would like to see from sales people. Objectives will differ by group and will generally
fall into several useful categories such as business objectives (step 3), compensation level (step 4),
incentive objectives (step 5) and field assignment (step 6).

Identify controllable, measurable job elements

The outcome from this step is to establish the primary driver(s) for the sales compensation plan, also
known as targets, assignment, objectives or quotas. This is the most challenging step of the process.
Step two of the process provided key business objectives. Select one (and no more than three) key
objective that will drive the compensation plan. Work collaborative to unite the key departments
around the company objectives. Test the selected objectives: 1) Are they controllable by sales? 2) Are
they measurable by finance? 3) Are they challenging yet realistic?

Establish level of compensation

The outcome from this step is a compensation matrix with job position (or job responsibility) on one
axis; the other axis contains salary, incentive and TTC (total targeted compensation at 100% of plan).
Step two yielded critical information to determine compensation levels, such as: industry comp
averages, salary-to-incentive mix, cost of sales and past compensation levels.

Determine method of compensation

There are only three fundamental sales compensation plans: straight salary, straight commission or a

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combination. Today 75% of companies use a combination plan. Straight salary plans typically earn
less than straight commission or combination plans. There are four basic building blocks with options
to choose from in each:

• Salary
• Incentives, such as commission, draw, bonus, profit sharing, award travel, gifts, and stock
options
• Benefits, such as paid vacation, insurance, housing or moving expense, company car, tax or
legal assistance, pension or 401k matching, etc.
• Expenses, covering things like travel, cell phone, DSL, home office, supplies, laptop, airline
clubs, etc.

Test and establish administrative process

Involve Finance early in the process. Even the best comp plan will crumble if it cannot be
administrated. The acid-test is to take actual sales performance from the prior year and compute the
compensation impact with the new plan. Sales management involvement provides the sales test.

Install plan and distribute regular dashboard measurements

Comp plans should be designed to motivate sales people, stimulate sales and recognize achievement.
Create a dashboard that will be regularly updated that shows individual and group performance to the
objectives. Performance, achievement and recognition should be highly visible. Sales people thrive
on recognition for achievements, consideration as a valued employee and self-expression through
individual contribution.

COMPENSATION ADMINISTRATION

Compensation administration is a segment of management or human resource management focusing

on planning, organizing, and controlling the direct and indirect payments employees receive for the
work they perform. Compensation includes direct forms such as base, merit, and incentive pay and
indirect forms such as vacation pay, deferred payment, and health insurance. Compensation does not
refer, however, to other kinds of employee rewards such as recognition ceremonies and achievement
parties. The ultimate objectives of compensation administration are: efficient maintenance of a
productive workforce, equitable pay, and compliance with federal, state, and local regulations based
on what companies can afford.

COMPENSATION ADMINISTRATION
MODEL

A general model of compensation administration encompasses the creation and management

of a pay system based on four basic, interrelated policy decisions: internal consistency,
external competitiveness, employee contributions, and administration of the compensation
program. Compensation professionals work with these policy decisions according to
individual corporations' needs, keeping in mind the ultimate objectives of compensation
administration—efficiency, equity, and compliance. Companies develop their individual
compensation strategies by placing varying degrees of emphasis on these four policy
decisions.

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INTERNAL CONSISTENCY.

Compensation managers seek to achieve internal equity and consistency—rationalizing pay within a
single organization from the chief executive officer on down—through the analysis, description,
evaluation, and structure of jobs. This policy requires compensation managers to compare jobs or skill
levels to determine the contributions employees with different job titles or skill levels make toward
accomplishing company goals. Compensation managers, therefore, should consider internal
consistency when determining pay rates for employees who do the same work and employees who do
different work. The objective of internal consistency is for compensation managers to determine
equitable rates of pay by considering the similarities and differences in work content or job skills as
well as the different contributions employees with different jobs and skill levels make to a company's
goals.

EXTERNAL COMPETITIVENESS.

Achieving external competitiveness in the area of compensation means balancing the need to
keep operating costs (including labor costs) low with the need to attract and retain quality
workers. External competitiveness is how a company's rates of pay compare to those of its
competitors.
EMPLOYEE CONTRIBUTIONS.

This policy area involves the weight companies choose to place on employee performance in
determining a compensation program. Some companies may choose to pay all employees the same
wage, while others decide to reward employees for seniority and productivity. Companies that choose
the latter route tend to emphasize incentive and merit aspects of compensation programs. This
approach enables companies to give their employees a measure of control over their compensation
and ideally thereby influence their performance.

ADMINISTRATION.

The administrative policy refers to the tasks of compensation managers in designing and
implementing a pay program. Taking into consideration the previous three policies, compensation
managers must choose the components that they will include in a company's compensation program—
that is, which kinds of base pay, wage and salary add-ons, incentives, and benefits they will offer
employees with different jobs and skill levels. Administration also involves determining whether the
pay program will attract and retain needed employees successfully, whether employees consider the
pay program fair, how competitors pay their employees and if competitors are more or less
productive.

8 components of an effective employee compensation plan

1. Statement of overall objectives. This should explain how the rewards program supports the
needs of the business, employees, shareholders and/or customers. Each reward element
should have a defined role.
2. Relative importance of compensation. The compensation plan should explain how the
rewards compare with other company identifiers. In other words, is your company known for
something such as technology, culture, size, or leadership? Is your company known for its pay
programs? Do you want it to be? Do you consider your compensation plan to be an important
part of your company’s reputation?

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3. Performance measures. The compensation plan should identify the performance criteria to
be rewarded and should define the measurement levels. It should outline the degree that
rewards are expected to drive employee actions.
4. Competitive reference points. The plan should describe the comparative group for your
rewards package. This might be your industry and/or geographic competitors, for example.
The key is to define the program benchmarks.
5. Competitive positioning. Describe your desired position vs. the market described in the last
point. For example, do you want to provide salaries consistent with the industry average? Or
do you want to establish yourself as a company who provides premium pay over the
competition? No matter your position, be transparent and state the intent. If your intended
positioning is below the industry average, be sure to explain why. Lack of information will
only allow rumors to circulate.
6. Internal equity and consistency. Will your strategy be consistent? Will it apply to all
employee groups? Employees will look for fair and uniform treatment without favoritism
between groups. You also need to decide whether you will choose between internal and
external consistency or try to balance the two.
7. Communication and involvement of employees. How much program information will be
disclosed? "While the devil may be in the details, you shouldn’t worry about getting into the
weeds over point-by-point program specifics when laying out your rewards strategy
statements. The focus instead should remain zeroed-in on establishing and communicating the
key elements." Csizmar explained. It should also be understood who has responsibility (HR
vs. management) for program design and ongoing administration.
8. Governance. The program should be reviewed and refreshed; the frequency and
responsibility for review needs to be established up front.

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