McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 13 Sales Territories I think it’s fair to call this hostile territory. Captain Leo Davidson, Planet of the Apes

13-2 Sales Territory  Comprises a number of present and potential customers, located within a given geographical area and assigned to a salesperson, branch, or intermediary (retailer or wholesaling intermediary). –Key word: customers

13-3 Benefits of Good Territory Design  Enhances customer coverage  Reduces travel time and selling costs  Provides more equitable rewards  Aids evaluation of sales force  Increases sales for the sales organization  Increases morale

13-4 Procedure for Designing Sales Territories (Fig. 13-1) Select a Control Unit Determine Location and Potential of Customers Determine Basic Territories Assign Salespeople to Territories Set Up Territorial Coverage Plans Evaluate Effectiveness of Design

13-5 Territorial Control Units  States  Counties  Cities  Zip-code areas  MSAs (Metropolitan Statistical Areas)

13-6 Build-up Method of Territorial Design (Fig. 13-3) Management must determine: Desirable call patterns: Call frequency per account per year Total calls needed in each control group Workload capacity: Total calls possible per rep per year = number of daily calls x days selling Tentatively set territorial boundary lines by combining control units until total calls needed = total calls possible Modify territories as needed

13-7 Territory Design: Build-up Method Worksheet Control Units Illinois Iowa Kentucky Customer Call Calls Calls Calls class frequency Accounts per year Accounts per year Accounts per year A 2 per month B 1 per month C 1 every 2 months , Workload capacity for one rep: 6 calls/day x 5 = 30 calls/week x 50 = 1,500 calls/year Distribution of one rep’s calls 1, or 402 Possible control combinations 100% 70%or 100% Illinois Iowa Kentucky So, a territory could either be: 100% Illinois + 100% Kentucky, or 100% Illinois + 70% Iowa

13-8 Territory Size and Workload Factors Nature of Job: Lots of presale and post-sale activityDecreases Nature of product: A frequently purchased productDecreases A limited repeat-saleIncreases Market development stage: New market--fewer accountsIncreases Established market--more accountsDecreases Market coverage Selective coverageIncreases Extensive coverageDecreases Competition: IntensiveDecreases – unless market is oversaturated LimitedIncreases Workload FactorTerritory Size Increase/Decrease

13-9 Breakdown Method of Territorial Design (Fig. 13-5) Management must determine Company sales potential Sales potential in each control unit Sales volume expected from each sales person Tentatively set territorial boundary lines by combining control units total sales potential = total sales volume expected Modify territories as needed

13-10 Territory Design: Breakdown Method Worksheet Company sales potential = $200,000,000 Targeted volume rep = $ 10,000,000 Number of reps needed Company sales potential $200,000,000 Targeted volume/rep $ 10,000,000 Territory volume as Targeted volume/rep $ 10,000,000 Company sales potential $200,000,000 Each territory should comprise 5% of sales potential or $10,000,000 Combine adjacent control units until each sales potential of $10,000,000 = = = 20 5% ==

13-11 Sales Territories for Pharmaceutical Sales Reps Divide… The 48 states into 5-10 regionsThe 48 states into 5-10 regions Each region into several districtsEach region into several districts Each district into 8-12 territories (typically 1 rep per territory)Each district into 8-12 territories (typically 1 rep per territory)

13-12 Computers in Territory Design  Geographic Information System (GIS) –Combines multiple layers of information to provide in-depth understanding of a sales territory.  Elements of a complete GIS: –Software –Hardware –Data –Trained people

13-13 Sales Potential $500$750$1000$1250$1500 $10 0 Actual Sales in Territory $360- $340- Before Alignment (one small and one big territory) Total Sales Potential = $2,000 Total Sales = $100 + $360 = $460 After Alignment (two balanced territories) Total Sales Potential = $2,000 Total Sales = $340 + $340 = $680 $45 0 $25 0 Adapted from: Prabhakant Sinha, and Andris Z. Zoltners, “Sales-Force Decision Models: Insights from 25 Years of Implementation,” Interfaces, 31:3, Part 2 of 2, May-June 2001, pp. S8-S44. Figure 13-6

13-14 Routing the Sales Force  Routing is the managerial activity that establishes a formal pattern for sales reps to follow as they go through their territories.  Reduces travel expenses as it ensures a more efficient territory coverage.  Some reps resent it.  Best for routine sales jobs with regular call frequencies. x Area C Area B Area A Area B: Typically the “problem” area.

13-15 Case 13-1 Village Beds Current Sales Territories Realigned Sales Territories

Case 13-1 Village Beds Current Sales Territories Realigned Sales Territories