Sales Territory DevelopmentSales Territory - Defined

• In any sales organization, salespersons are assigned group of existing and potential customers to handle. This group assigned to a sales person is known as sales territory.

• These group may be based in a particular geography or area, but this classification is not based on area, rather it is based on the customers.

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Whose responsibility is territory development?

Territory Management

It is the responsibility of the sales manager.

It is defined as planning, implementation, and control, of sales persons activities with the goal of realizing the sales and profits potentials of their assigned territories.

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Important Terms in TM: Major Accounts

• These are the customers who are significant to the company’s business and require special attention and experience.

• Major accounts are also termed as ‘key accounts’

• They are usually called on either by special sales people “senior sales representative” or “key accounts manager”, or by regional or district sales managers.

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Direct Accounts

• Large accounts involving special arrangements in terms of pricing, credit or product design. For e.g central buying offices of a multinational firm.

• These are also called “House” or “National” accounts those served by home office personnel or executives.

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Reasons for establishing sales territories

• Companies form sales territories mainly to maximize sales and profits. Some other reasons are:-

• Increased market coverage• Controlling selling expenses• Better evaluation of sales force• Improved customers relationship• Increased sales force effectiveness• Improved coordination

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Guiding principles for territory creation

• There are 3 pairs of guiding principles that cause sales management to employ territories in their operations: (a) customer-related (b) salesperson-related (c) managerial

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Customer-Related

• Better understanding of customers’ needs as salesperson spends more time with the customers.

• Sound customer relationship develop over a long period of interaction with the customer.

• Collaborative or partnering relationship may also develop with the customer.

• Excellent services can be provided to the customers.

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Salesperson-Related

• As sales territory has been planned and designed, work load is reasonable.

• Reduced conflicts are there.• Enthusiasm and increased morale is there,

which in turn improves performance.

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Managerial related.• It improves market coverage.• Company doesn’t loose any business to

competitors.• The existing and potential customers are covered

economically and adequately.• It results in less cost of travelling and less

expenses on lodging and food.• Sales volume increases as sales people spend

more time with the customers.• Performance evaluation becomes easy for the

sales manager.9

Reasons for Revising Territories

1. Major accounts open or close down facilities, move into or out of the area, or shift in customers business – geographically or technological in nature

2. Aggressive domestic or international competition (markets are dynamic and conditions change)

3. Changes in company’s policies or structure

4. Salespersons related revision due to physical, social, or psychological changes.

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5. A salesperson may display a reduced energy level, family problems of various kinds can effect territory performance significantly.

6. If a territory’s sales potential was underestimated or overestimated.

7. Managers can also find that they need to realign territories as new product lines are introduced into the company’s product mix and the presentation and servicing burdens become too large under old arrangement.

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Reasons for NOT establishing sales territories

• When a company is small (few resources and selling in local area)

• When friendly sales is important to make the sale (network sale or selling life insurance)

• When salespeople are de-motivated due to restriction on territories.

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Designing the Sales Territory

• Designing sales territory involves breaking down a firm’s customer base so that accounts can be well served by individual sales persons.

• The objective of sales territory design is to have equal opportunity (in terms of sales potential) and equal workload for all sales territories.

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• Drawing up territories ranks among the most important responsibilities of sales managers.

• It affects the sales force morale and performance. • Results can be measured by sales volume, relative

market share or profit.

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Procedure for designing sales territory

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Selecting a Control unit• This is the first step in territory designing where

geographical territorial base is selected which is known as control unit.

• Commonly used control units are:-• States

• Countries

• Cities and zip-code areas

• Metropolitan statistical areas

• Trading areas

• Major accounts

• A combination of two or more factors

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• A sales manager must select a smaller control unit as:-

Market and company’s sales potential is easy to calculate.

Modifications like additions and deletions are easy to make.

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Find Location and Potential of customers

• Here the customers’ potential is identified. • Information about the customers can be obtained

from the company’s records and from other sources like market research and telephone directories etc.

• To estimate the potential of the customers, first the market potential is identified with the help of market forecasting techniques.

• Then sales potential for the company is decided by estimating the company's market share of the market potential in the control unit.

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Decide Basic territories

• In this step, basic territories are decided.• Two commonly used methods are build up

method and breakdown method.

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Build up method

• This method is used by the manufacturers of industrial products and by companies that use selective distribution strategy.

• This method has the objective of equalizing the workload of salespeople.

• The name is build up that suggests that territory formation starts from the control unit.

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Process of build up method

1. Decide call frequencies2. Calculate total number of calls in each

control unit3. Estimate workload capacity of a sales person4. Make tentative territories5. Develop final territories

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Decide call frequency

• It means how many times a sales person should visit the customer in a year.

• Factors like customer’s sales/profits, cost of visiting customers, buying behavior etc are considered.

• ABC analysis is used for segregating the customers and call frequency is decided.

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Example

Customer type Call frequency per month

no. Of customers

Calls per year

A 4 3 4*12*3 = 144

B 2 7 2*12*7 = 168

C 1 20 1*12*20 = 240Total = 552

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Calculate the total no. of calls in each unit

• As shown in example, as we have calculated the total no. of calls in a control zone, similarly for all the units, total no. of calls are calculated for each zone.

• Suppose there are two control units only and calls required in both units are 552 (calculated earlier) and 720 respectively.

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Estimate workload capacity of a salesperson

• A salesperson’s normal workload is calculated by multiplying average no. of calls a sales person can make in a working day by no. of working days in a year.

• Example: suppose a person can make on average 5 calls per day and working days in a year are 250, then workload capacity of a salesperson is 250*5 = 1250.

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Make tentative territories

• Company should group adjoining control units until yearly no of calls needed in those control units equals the total no of calls a salesperson can make.

• In the example given above sales person can make the calls as needed in the two control units.

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Develop final territories

• In cases where workload of salespersons is not equalized, territories are made by adding or removing the control units.

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Break down method

• This method is used by the firms who have decided to have intensive distribution strategy, mostly in case of consumer products.

• The objective here is to equalize the potential of the sales territories.

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Process of break down method

1. Estimate the company’s potential for total market

2. Forecast sales potential for each control unit3. Estimate the sales volume expected from

each salesperson4. Make tentative sales territories5. Develop final territories

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Estimating the company’s sales potential for total market

• It is done by using various forecasting methods.

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Forecast sales potential of each unit

• Techniques used here are multiple factor buying index (for consumer products) and market build up method (industrial product) .

• Market build up:- Here potential and existing buyers are identified and their potential purchases are added up to make the business potential of all the buying firms.

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Multiple factor buying index

• In case of consumer products, the market is very huge so its not possible to identify each and every household, so here main factors affecting influencing the sale of a product are studied.

• The factors are given certain weights according to the degree of sales opportunity.

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Example• Company X selling detergent all over India wants to find out the

market potential in Delhi.• Factors affecting retail sales are population, personal income and

retail sales which are given weights 0.4, 0.3 and 0.2 respectively. • Suppose Delhi has 0.7% of India’s population, 2% India's

disposable income and 0.9% of India’s retail space. • Multiple factor buying index for Delhi would be = 0.4 (0.7)+ 0.3

(2) + 0.2 (0.9) = 1.06• Indian detergent industry forecast is at Rs. 55000 million for

2012-13, the potential for Delhi would be 1.06% of 55000 million = 583 million.

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Estimate the sales volume expected from each salesperson

• Here SM determines how much each salesperson should sell to ensure profitability.

• This is done on the basis of past sales and cost and profitability analysis.

• This is given by the formula:-• Profit= sales-cost of sales-direct selling cost.• Suppose expected profit for next year is 15% of sales, cost of

sales is 60% of sales and direct selling cost is 6 lacs.• Then sales = 2400000 • SM using his judgment, put the sales per sales person at

50,00000 per annum. 34

Making tentative sales territories

• In this step, SM combines adjoining sales territories until the sales potential of each territory is equal to or greater than the expected sales volume from each salesperson.

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Develop final territories

• The tentative territories can be adjusted due to changes in geographical location of customers or unequal sales potential of some territories.

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Factors to consider in establishing ‘Territories’

• Sales persons workload and nature of the job, for e.g. a prospecting salesperson can handle a larger territory assignment then a person who must provide full service for each account.

• The type of product / product lines

• The type of competition faced by the company in each territory.

• The desired intensity of the market coverage / challenging territories

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Assigning sales people to territories

• In territory designing, we took some assumptions like:-

• Each salesperson has equal selling capabilities.• Each salesperson would perform equally well.

These assumptions are not realistic. These can only be used in designing a territory but in assigning the salespeople to the territory.

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• SM considers two criteria while assigning salespeople to the territory.

• A) Relative ability of the salespeople• B) Salesperson’s effectiveness in a territory

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Relative ability of salespeople• SM can judge the relative ability of salesperson

based on key factors by assigning equal or different weights with the maximum score of 1.

• Total score 0.915 40

Evaluation factor Weightage (a) Evaluation (b) Salesperson’s score (a*b)

Product knowledge 0.15 0.9 .135

Market knowledge 0.10 0.8 .080

Past sales performance

0.40 1.0 .400

Communication 0.15 0.8 .120

Selling skills 0.20 0.9 .180

Salesperson’s effectiveness in a territory

• Salesperson’s effectiveness is affected by factors like social, cultural and physical characteristics of the salesperson.

• Salesperson should be comfortable in the territory and customers should be comfortable with the salesperson.

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Managing territorial coverage

• Here the SM decides how salesperson should cover the assigned sales territory. It consists of three activities:-Planning efficient routes for salespeopleScheduling salespeople’s timeUsing time-management tools

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Routing• Routing is a travel plan used by a salesperson for making

customer calls in a territory• Benefits of or Reasons for routing:– Reduction in travel time and cost– Improvement in territory coverage

• Importance of routing depends on the application:– Nature of the product – Important for FMCG– Type of jobs of salespeople – Important for driver-cum-

salesperson job, but creative selling job needs a flexible route plan

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Procedure for Setting up a Routing Plan

• Identify current and prospective customers on a territory map

• Classify each customer into high, medium, or low sales potential

• Decide call frequency for each class of customers• Build route plan around locations of high

potential customers• Computerized mathematical models are

developed44

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Commonly used ROUTING PATTERNS

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Scheduling• Scheduling is planning a salesperson’s visit time to customers. It

deals with time allocation issue• How to allocate salesperson’s time?– Sales manager communicates to salesperson major activities

and time allocation for each activity– Salesperson records actual time spent on various activities for

2 weeks– Sales manager and salesperson discuss and decide how to

increase time spent on major activities• Companies specify call norms for current customers, based on

sales and profit potentials, and also for prospective customers

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Allocation of Time• Major activities that need salesperson’s time have

been divided into many areas which have been discussed hereunder:-

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Salespeople’s task Time spent (in %)

Administrative tasks 15

Service calls 13

Face to face selling 32

Waiting or travelling 21

Telephone selling 19

Total 100

Time Management Tools

• To help outside salespeople* to manage their time efficiently and productively, the tools available are:High-tech equipment like laptop computers and cellular

phonesInside salespeople to provide clerical support, technical

support, and for prospecting, and qualifying, as they remain within the company

Outside salespeople can then spend more time getting more orders & building relationships with major customers

• *Outside salespeople travel outside the organization

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Model of Territory Management

Territory management can be defined broadly in terms of:

1. Planning (Analysis, Objectives, Strategies, Tactics)

2. Implementation (achievement of new business targets, reporting)

3. Control (compares intended and actual results with a view to taking corrosive action)

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1. Planning

• Analysis:a) Account load – the number of actual and potential

customers assigned to a salespersonb) Account potential – the share of an account’s

business that the firm can reasonably expect to attract.

c) Servicing requirements – established and new accounts have servicing requirements that are based on both the past volume with the company and their unique needs and problems.

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• Objectives:– Concern here is the sales volume and market

share goals in the territory, which is derived in top-down manner, starting from corporate objectives.

• Strategies:– Have to work on various strategies like pricing,

promotional, delivery terms, payment and credit terms.

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• Tactics:– Routing and scheduling task, avoid repetitive

tasks, intensity of territory coverage and minimizing non-productive time.

– Designing a sales person traveling plan or the sequence of location to be visited (known as ‘Routing’).

– Proper scheduling or sequencing of appointments.

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2. Implementation

• Establishing customer base; selling and servicing these accounts is the principal act of territory activity.

• New business development should be a continuous undertaking.

• Customer satisfaction and maintaining long term relationship are among the foremost concern of the territory manager.

• Another important ingredient in implementation is ‘reporting’. Maintaining a steady flow of reports to the home office about sales results, problems or corrective actions.

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3. Control

• A feedback process

• A comparison take place between intended and actual results, with a view of taking corrective action where required.

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