McGraw-Hill/IrwinMcGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 13Chapter 13

Sales Sales TerritoriesTerritories

I think it’s fair to call this hostile territory.

Captain Leo Davidson,Planet of the Apes

13-13-22

Sales TerritorySales Territory

Comprises a number of present Comprises a number of present and potential customers, and potential customers, located within a given located within a given geographical area and geographical area and assigned to a salesperson, assigned to a salesperson, branch, or intermediary (retailer branch, or intermediary (retailer or wholesaling intermediary).or wholesaling intermediary).

– Key word: Key word: customerscustomers

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Benefits of Good Territory DesignBenefits of Good Territory Design

Enhances customer coverageEnhances customer coverage

Reduces travel time and selling costsReduces travel time and selling costs

Provides more equitable rewardsProvides more equitable rewards

Aids evaluation of sales forceAids evaluation of sales force

Increases sales for the sales organizationIncreases sales for the sales organization

Increases moraleIncreases morale

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Procedure for Designing Sales TerritoriesProcedure 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

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Territorial Control UnitsTerritorial Control Units

StatesStates

CountiesCounties

CitiesCities

Zip-code areasZip-code areas

MSAs MSAs (Metropolitan Statistical Areas)(Metropolitan Statistical Areas)

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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

13-13-77

Territory Design: Build-up Method WorksheetTerritory 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 10 240 7 168 5 120

B 1 per month 30 360 17 204 10 120

C 1 every 2 months 68 408 55 330 27 162

108 1,008 79 702 34 402

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 1,008 + 491 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

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Territory Size and Workload Factors

Nature of Job:Lots of presale and post-sale activity Decreases

Nature of product:A frequently purchased product Decreases A limited repeat-sale Increases

Market development stage:New market--fewer accounts IncreasesEstablished market--more accounts Decreases

Market coverageSelective coverage IncreasesExtensive coverage Decreases

Competition:Intensive Decreases – unless

market is oversaturated

Limited Increases

Workload Factor Territory Size Increase/Decrease

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Breakdown Method of Territorial DesignBreakdown 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

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Territory Design: Breakdown Method WorksheetTerritory 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% == =

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Sales Territories for Pharmaceutical Sales RepsSales Territories for Pharmaceutical Sales Reps

Divide…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)

13-13-1212

Computers in Territory DesignComputers in Territory Design Geographic Information System (GIS)Geographic Information System (GIS)

– Combines multiple layers of information to provide Combines multiple layers of information to provide in-depth understanding of a sales territory.in-depth understanding of a sales territory.

Elements of a complete GIS:Elements of a complete GIS:– SoftwareSoftware

– HardwareHardware

– DataData

– Trained peopleTrained people

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Sales PotentialSales Potential

$500 $750 $1000 $1250 $1500

$100A

ctu

al S

ales

in

Ter

rito

ryA

ctu

al S

ales

in

Ter

rito

ry

$360-$340-

Before Alignment (one small and one big territory)

Total Sales Potential = $2,000Total Sales = $100 + $360 = $460

After Alignment (two balanced territories)

Total Sales Potential = $2,000Total Sales = $340 + $340 = $680

$450

$250

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 13-6Figure 13-6

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Routing the Sales ForceRouting the Sales Force Routing is the managerial activity that Routing is the managerial activity that

establishes a formal pattern for sales reps to establishes a formal pattern for sales reps to follow as they go through their territories.follow as they go through their territories.

Reduces travel expenses as it ensures a more Reduces travel expenses as it ensures a more

efficient territory coverage.efficient territory coverage. Some reps resent it.Some reps resent it. Best for routine sales Best for routine sales

jobs with regular call jobs with regular call frequencies.frequencies.

x

Area C

Area B

Area A

Area B: Typically the “problem” area.

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Case 13-1 Village Beds

Current Sales Territories

Population No. of LastTotal 65 years Nursing Year's Square

Territory Population & older Homes Sales Miles1 32,898,974 4,336,270 1,778 $9,906,898 115,619 2 35,662,349 4,796,380 1,858 $7,056,168 130,410 3 17,433,625 2,263,948 1,560 $11,918,306 77,513 4 46,366,539 6,333,763 2,261 $4,236,766 294,724 5 36,108,554 3,969,526 2,425 $4,720,321 606,974 6 15,021,085 1,724,562 1,352 $7,607,334 824,911 7 50,316,057 5,575,266 1,942 $7,390,888 548,400 8 8,521,535 1,191,376 1,011 $7,775,857 125,985 9 20,221,598 2,520,327 1,283 $9,760,699 199,055

10 16,461,062 2,007,956 1,162 $8,802,821 96,754 SUM TOTAL 279,011,378 34,719,373 16,632 $79,176,059 3,020,345

Realigned Sales Territories

Population No. of LastTotal 65 years Nursing Year's Square

Territory Population & older Homes Sales Miles1 41,313,324 5,446,964 2,142 $11,928,455 123,409 2 20,169,484 2,892,892 1,205 $4,507,086 82,022 3 65,326,238 8,341,166 5,396 $41,204,566 581,589 4 63,432,088 8,363,438 3,332 $6,256,858 483,920 5 26,121,520 2,732,645 1,643 $3,227,755 458,376 6 12,332,667 1,367,003 972 $4,660,451 742,629 7 50,316,057 5,575,266 1,942 $7,390,888 548,400 8 - - - $0 - 9 - - - $0 -

10 - - - $0 - SUM TOTAL 279,011,378 34,719,373 16,632 $79,176,059 3,020,345

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3

4

21

67

5

12

45

76 3

108

9

Case 13-1 Village Beds

Current Sales Territories

Realigned Sales Territories