CHAPTER 14 -- ANALYSIS OF SALES VOLUME

CHAPTER-END DISCUSSION QUESTIONS

1.

Explain the relationship between planning and evaluation in the management

process.
The relationship between planning and evaluation in the management process is
explained at the beginning of this chapter and is illustrated in Figure 14-1.

2.

Explain the concept of a marketing profitability analysis.

A marketing profitability analysis is what Chapters 14 and 15 are all about. This
concept involves a consideration of the marketing audit, misdirected marketing effort,
and a sales volume and marketing cost analyses. The concept includes finding out
what happened, why it happened, and then deciding what to do about it. The analysis
should be done in great detail so we see all aspects of the 80-20 situation and the
iceberg principle as it affects our company.

3.

What does the 80-20 principle mean?

The 80-20 principle refers to the fact that often 80 percent of the customers, orders,
products, etc. bring in only 20 percent of the volume and profit; and 20 percent of the
customers, orders, products bring in 80 percent of the volume and profit. This is
important because often a companys marketing efforts and expenditures are related to
numbers of customers, territories, products, etc., rather than to the potential profit of
those units.

4.

If a firm's volume is increasing each year by a satisfactory percentage, is there

any purpose for the firm to go to the expense of a volume analysis?
Yes, definitely. Reasoning follows the iceberg principle. Firms should know
something about the makeup of the total volume, and the volume trend in each
territory and for each product and customer class?

5.

As a result of a sales volume analysis, many firms have eliminated some of their
products or customers. Yet in several of these cases the sales volumes has
increased after the market cutback. How do you account for this result?
Salespeople have more time to do a good selling job on the remaining customers or
products. Instead of trying to make twelve calls per day, for example, they now have
to make only six and as a result do a much better job. With a more limited line of
products, the salespeople can concentrate their efforts and develop their potential more
effectively.

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6.

A territorial volume analysis indicated that a firm's sales had increased at about
a 10 percent rate for the past three years in a given district. Is this conclusive
evidence that the company's performance is satisfactory as far as sales volume is
concerned in the given territory?
No. Territorial potential may have increased 20 or 25 percent each year in the given
district and the competition is outstripping our firm. Or, it may be that the increase
has stemmed largely from sales of low-margin products or from sales to less profitable
customers.

7.

A company with 15 territories found that product A accounted for 40 to 50

percent of the sales in 13 of the districts, but this product brought in only about
20 percent of the volume in the remaining two territories. What factors might
account for the relatively low standing of product A in the two territories?
a.

8.

Extremely rough competition in the two areas.

b.
Less primary demand for product A in the two low territories. Firm
must determine the market potential in all districts. Actually the men may be
doing an excellent job in the two districts. That is, competitors in the two
districts may be getting only 10 percent of their volume in these two areas
from product A.
c.
Weaknesses in management of the sales reps in these two districts, or
possibly the sales reps are not as good as the rest of the sales force.

Is it possible for a product, territory, or class of customer to be far below par, but
still not deserve much executive attention? Give examples.
Yes. An unprofitable product, carried only to round out a line, may have a small
potential and may be under par. Ordinarily, an executive would not devote much time
to increasing the sales of this item. In like manner, a small-volume, declining territory,
even though its sales are below par, may not deserve much attention in comparison
with large areas with good future prospects.

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9.

Should salespeople be furnished with complete statistics, not only on their own
performances but on the performance of other salespeople as well?
Ordinarily, no (although you will find disagreement among sales executives on this).
Give each person as much information as possible regarding his/her own operation,
and also give each person the totals, ranges, averages, etc. for the entire region or
company. In this way each rep can compare his/her progress and evaluate his/her
efforts in relation to the entire sales force. However, it does not seem wise to give
each rep the detailed figures regarding every other sales representatives. It can
embarrass some of the reps and hurt their morale. Also, in the case of a seemingly
performance, there may have been extenuating circumstances, and unless these are
spelled out in detail, the figures are meaningless and unfair.

10.

If a company made a territorial volume analysis and found some sub-par

territories, how might these facts affect the following activities relating to
salespeople?
a.
b.
c.
a.

Supervision.
Compensation.
Training.

Supervision. Supervisory methods might be changed. More time spent with

salespeople in the field to determine why sales volume is below par.
b.
Compensation. If company uses same plan for all its sales force, then
nothing can be done in case of reps in sub-par areas. However, if latitude
exists, then management may wish to alter bonus or commission aspects of
plan to offer more incentive or to spur reps to increase volume.
c.
Training. May need more on-the-job training in these areas. This
relates to supervision. Management should try to determine reason for sub-par
performance. Possibly the reason is something that relates to weakness in
earlier training program. Thus the training program may be modified in the
future.

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11.

If a firm analyzed its sales volume by customer classes, how might the results
affect the supervision, compensation, and training of the sales force?
Firm probably would review its programs in the three areas (supervision, etc.) to
encourage sales to profitable, high-volume class of customers. This might entail a
change in rate or base of commission. It might call for changes in bonus
arrangements. Special attention in training program may be devoted to ways and
means of selling certain customer groups. Possibly on-the-job training or personal
field supervision can be provided or slanted toward the profitable types of accounts.
Sometimes a firm may wish to run a contest with the objective of stimulating volume
in these accounts.

12.

What can sales managers do to ensure that their salespeople readily accept and
properly use sales force automation (SFA) software?
First, sales managers must clearly articulate the benefits of the particular sales force
automation system. Salespeople wont commit to the SFA if they dont understand
how it will help them. Second, sales managers must ensure that their firm provides
comprehensive and continuing training for the reps on how to use SFA.

CASE DISCUSSIONS
CASE 14-1: SEAL RITE ENVELOPE COMPANY (A)* -- Analysis of Sales Volume
Overview:
Rose Douglas, a stereotypical "Type A" sales manager, has just had data fortress rocked
during her initial meeting with Max Chernak, Seal Rite's new president. Rose's sales data
analysis system is comprehensive and provides much useful information. She uses the data to
keep on top of things as well as help her catch changes and trends early on. Chernak believes
she is micromanaging: too involved in unimportant details to be able to capture the big
picture and important items. Nonetheless, from a profitability and sales standpoint, Rose's
work seems to be paying off.
Rose's textbook approach to using sales data analysis provides an interesting scenario. She
has developed a good tool and is able to generate a great deal of useful information. Most
companies must work in the dark where Rose is seeing clearly. Using the iceberg principle as
an analogy, Rose can see under the surface very clearly.

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On the other hand, Chernak is correct in suggesting that she is looking at the iceberg in too
great detail. If she can see the basic size and shape, to what extent does it pay off for her to
further analyze each little piece? Furthermore, what might she be missing? For example, if
total industry sales are rising a more rapid rate than Seal Rite's sales, her current analysis
system has no way of measuring Seal Rite's effectiveness. Chernak senses that Rose's system
suffers from the same 80-20 principle that describes most companies' sales: 80 percent of the
profits comes from 20 percent of the customers. Perhaps most of the effectiveness of her
system can be found in a small portion of the data she is examining.
Questions:
1.

How could Rose Douglas evaluate the effectiveness of her sales analysis system?
Rose system shows her what has recently happened, the critical first step in the
evaluation process. This is one of the best parts of her system. Instead of getting raw
accounting data, she has accounting giving her data in a format that is useful. She
knows what is selling, who is selling, and the value of sales in terms of gross profits.
Through her inquiries of the Monday morning meetings, she seeks to understand why
these things happen. It is clear that in many ways, her system is effective.
Given the wide variety of envelopes that Seal Rite produces, Rose's intense interest in
weekly data is clearly overkill. There are lots of reasons for shifts in sales volumes of
individual products: an unusual one-time order, customer inventory shifts, changes in
market conditions (for example a presidential election year increases the overall
demand for envelopes). By analyzing every single order and product then comparing
these against previous year's sales, she really isn't learning much more than she would
learn by looking at more aggregated data. In order to evaluate the effectiveness of the
extent of detail, she needs to compare the detailed figures against different levels of
aggregated figures then determine where she gets the greatest amount of gain per level
of aggregation. Somewhere between her current level of detail and Chernak's
requested level of aggregation is a level of aggregation that will be much more
effective.

2.

What would you recommend she do in response to the situation in which her boss
obviously disagrees with her attitudes toward information systems?
The extensiveness of the weekly reports may be overkill. Perhaps Rose can also live
by the 80-20 rule and find the most important 20 percent to review weekly, then save
her major review for a monthly basis. She could also shift some of the money she's
spending for the overtime of the accounting department to help her analyze the
detailed reports. Accountants are good at this type of detail effort. Sales managers
have lots of other problems to deal with, like role conflict, role stress, motivation,
competitors, and a hundred other items that Rose is probably less comfortable dealing
with.

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It would be wise for Rose to take some of Chernak's advice and cut down on the detail
effort. Chernak's going to be evaluating her on her management of the sales processes
as well as her management of the sales outcomes. If she does make any changes,
particularly reductions in the amount of detail, this would show Chernak that she has
some degree of flexibility.
Chernak has indicated that he is only interested in five things: gross margins by
product line and by sales rep, total dollar sales, total gross margins, and expenses.
Rose's sales analysis system already provides each of these items, except perhaps for
the expenses. Since she's already developed the system, it will take little additional
effort for her to design a report that provides these five items on a single sheet. When
provided the information in an efficient manner, Chernak may begin to better
understand the value of the information as well as the capabilities of the system Rose
has designed.
*

The instructor's notes for this case were written by Tom Gruen.

PowerPoint Slide Index

14.1
14.2
14.3
14.4
14.5
14.6
14.7

Chapter title/quote
Interrelationship of Planning, Implementation, and Evaluation
The Evaluation Process (Fig. 14-2 in text)
80-20 Principle
Total Sales Figures May Hide Significant Problems (Fig. 14-3 in text)
Bases for Analyzing Sales Volume
Colorado Ski Company: Information Used in Analysis of Total Sales Volume (Fig. 144 in text)
14.8 Colorado Ski Company: Analysis of Territorial Sales Volume in Five-Territory
Western Division (Fig. 14-5 in text)
14.9 Colorado Ski Company: Analysis of Product Sales Performance in Two Territories
(Fig. 14-6 in text)
14.10 Sales Force Automation

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