Chapter 9
Managing the Global Sales
Territory
Sales Management:
A Global
Perspective
Earl D. Honeycutt
John B. Ford
Antonis Simintiras
Introduction
Sales territory environments constantly
change
With change, territorial decisions should
be revisited by the sales manager:
Sales force or agents?
Criteria for selecting partners
What is the correct sales force size?
Ethical dilemmas in sales force territory design
and management
Sales Force or Agent?
• Firm can use independent agents or
company sales force
– Outside U.S. about 72% of firms use agents
– Best choice when entering markets with small
sales or unknown potential
– Agents receive high commission, but only
when sales are made
– Agents must be expert in market situation and
customer base
Agent Attributes
• Agents are used when:
– Markets are geographically dispersed
– There are few customers in market
– Firm is inexperienced in global markets
– Product is new and demand is uncertain
– Firm wants to simplify business activities
• Concerns about agents include:
– Partner loyalty
– Product knowledge
Managerial Decisions
• Who should be hired for the position?
– Expatriates, host-, or third-country
• Expatriates – product knowledge &
control, but high cost of maintaining
• Host-Country – economical and market
knowledge; need product training
• Third-Country – culture and language
knowledge; training & identity problems
Breakeven Analysis
• Economically, sales manager can compute
the breakeven point (Q*) of using an agent
or a company sales force
• That is: Q* = Fixed Costs
CMsp – rCMa
Where Q* is the point of indifference
Fixed Costs = Obligated costs
CMsp & Cma = Contribution Margin
r = percent of time agent spends on product line vs.
a company salesperson
Breakeven Application
• Suppose a salesperson has $2,000 fixed costs, the
agent spends 50% of their time on the firm’s product line,
the contribution margin is $60 and $50, respectively, for
the salesperson and agent, we compute Q* this way:
•
•
•
•
2,000
(60-.5x50)
Or 2,000/35 = 57 units
If the sales manager forecasts sales of 100 units for a
company salesperson, then economically the firm should
use a company salesperson
Selecting Partners
• Partners will contribute directly to the
success or failure of a sales firm
• Partners should posses the following
attributes:
– Marketplace knowledge
– Marketplace status
– Similar goals and values
– View partnering as a “win-win” situation
Sales Force Size
• How many salespersons are necessary?
• Three methods available:
– Economic – a new salesperson should be
hired as long as the revenue produced by that
salesperson exceeds their cost
• Difficult to compute this point
• Can at best be estimated
• This suggests that a full commissioned
salesperson should always be hired
Breakdown Method
• Second method to compute sales force
size is the breakdown method
• Sales Force Size = Forecasted Sales
Average sales per SP
For example if forecasted sales in Euros
was 250 million and the average
salesperson sold 20 million Euros, then
12.5 salespersons would be needed
Computational Concerns
• When the breakdown is utilized, then one
must ask how accurate are the forecasted
sales figure and the average sales
numbers?
• Most sales forces have a number of
average salespersons, but also a few
superstars that raise the average higher
than what is accomplished by most
salespersons!
Composite Method
• A third method of computing sales force
size is the composite method
– Firms are prioritized into A, B, C categories
– The call frequency for each category determined
– To compute total calls multiply call frequency times
the number of firms in each category
– Next, compute total calls per salesperson
• Take average calls per day x days of week clients are called
upon x number of weeks worked per year
• E.g. 4 calls per day x 4 days per week x 45 weeks a year =
720 calls made per salesperson per year
Completing the Computation
• Suppose that there are 60A, 45B, and
310C accounts that have to be called upon
15, 10, and 6 times, respectively, per year
• This amounts to 4,210 accounts
• Divide 4,210/720 calls and this works out
to 5.847 salespersons needed
• However, if cold calling consumes 10% of
salespersons time, this must be factored in
Sales Force Size Summary
• Economic method teaches us that sales
manager must be aware of relationship
between costs and sales
• Breakdown provides an estimate that can
be biased by extreme performances
• Composite method takes many factors into
account and allows sales manager to set
service levels and additional duties
Sales Administration
• Sales manager must decide upon sales
force activities:
– Office hours, cold calls, reports, travel
frequency
– Will differ depending upon culture
– Some cultures expect firm to play a parental
role – high level of supervision and inspiration
– Firms have global data support and Customer
relationship management systems
Sales Management Control
• US firms assume “master of destiny” that
assumes salesperson responsible for their
actions and accomplishments = merit pay
• Many cultures view success as being out
of the individual’s control – Saudi Arabia
• Individual evaluations may cause
problems in a collectivistic culture
• Degree of authority delegated to overseas
offices must be determined
Travel Planning
• Travel can consume a salesperson’s time
– Must plan and work efficiently
• Best to start at most distant point and work back
toward the office or starting point
• Use a circuitous route the minimizes backtracking
• Employing a computer program that plans the
most efficient travel schedule
Ethical Issues
• A number of decisions arise when
designing sales territories
– Equitable opportunity
– Territory assignment process
– Account service levels
– Partner relations
– Switching from agents to salespersons
– Treatment of host- and third-country
salespersons
Distributors and Partners
• Industrial firms refer smaller customers to
distributor partners
– Allows small quantities to be purchased
– Relationship with distributors must be
coordinated, training must occur, and a
coherent sales strategy must be pursued
– Distributor serves smaller customers and
industrial firm concentrates larger customers
– This cooperation complements market service
Discussion Questions
• If a firm decides to expand into a new
territory with a high-tech product, which
form of the salesperson—expatriate, host-,
or third-country—is appropriate? For a
consumer good such as clothing?
• List and discuss the four criteria for sound
partner selection
• In what ways is the management of the
sales force impacted by ethical behavior?
Summary
• Territory management is an important duty of the
sales manager
– Sales force employed to insure control and increase
emphasis on company product line
• There are techniques for computing whether to
maintain an agent or go to a company
salesperson
• There are three methods to determine sales
force size
• Managers must ascertain sales force
administration and control issues
• Ethical issues influence sales territory
management decisions
Discussion Questions
• Are any sales training stages within the
process more important than another?
Why or why not?
• List as many reasons as possible why it is
difficult to objectively evaluate sales
training.
• Why is it important to conduct follow-up
training? How can high-tech methods help
with this responsibility?