Sales Territory Development Sales 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?

It is the responsibility of the sales manager.

Territory Management
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.

Important Terms in TM: Major Accounts

These are the customers who are significant to the companys 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.

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.

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

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

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.

Managerial related.
It improves market coverage. Company doesnt 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.
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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 companys 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 territorys 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 companys 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 firms 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

Select a control unit

Find Potential of the market

Decide basic territories

Assign to territories

Make customer contact plan

Evaluate and Revise if needed

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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 companys 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 companys 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 frequencies 2. Calculate total number of calls in each control unit 3. Estimate workload capacity of a sales person 4. Make tentative territories 5. 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 customers 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
A

Call frequency per month

4

no. Of customers
3

Calls per year

4*12*3 = 144

B
C

2
1

7
20

2*12*7 = 168
1*12*20 = 240 Total = 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 salespersons 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 companys potential for total market 2. Forecast sales potential for each control unit 3. Estimate the sales volume expected from each salesperson 4. Make tentative sales territories 5. Develop final territories
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Estimating the companys 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 Indias population, 2% India's disposable income and 0.9% of Indias 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 201213, 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.
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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) Salespersons 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.
Evaluation factor Product knowledge Market knowledge Past sales performance Communication Weightage (a) 0.15 0.10 0.40 0.15 Evaluation (b) 0.9 0.8 1.0 0.8 Salespersons score (a*b) .135 .080 .400 .120

Selling skills

0.20

0.9

.180

Total score 0.915

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Salespersons effectiveness in a territory

Salespersons 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 salespeople Scheduling salespeoples time Using 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-cumsalesperson 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 developed
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Commonly used ROUTING PATTERNS

Straight-Line Pattern Base c c c First Call c c Work Back

Cloverleaf Pattern c c

c c c Base

Major-City Pattern
c c

c c c c

2
c

3 1

c c c

c c

Each Leaf Out and Back Same Day

1 - Downtown
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Scheduling
Scheduling is planning a salespersons visit time to customers. It deals with time allocation issue How to allocate salespersons 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 salespersons time have been divided into many areas which have been discussed hereunder:Salespeoples task Administrative tasks Service calls Face to face selling Waiting or travelling Telephone selling Time spent (in %) 15 13 32 21 19

Total

100

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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 phones Inside 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 salesperson b) Account potential the share of an accounts 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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