Professional Documents
Culture Documents
Designing Sales
Territories That
Increase Sales
This chapter discusses sales territory alignment, or the assignment of
customers to salespeople. Good sales territory alignment is important,
as it enhances customer coverage, increases sales, fosters fair performance evaluation and reward systems, and lowers travel costs.
The chapter is designed to help you:
Recognize the symptoms of poor sales territory alignment
Understand the impact that territory alignment has on productivity, sales, and profits
Recognize the conditions that create the need to realign sales territories
Overcome the obstacles that prevent companies from maintaining good territory alignment
Realign sales territories using an objective, data-based process
that incorporates local sales management input
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Bruce:
Brenda:
What Brian's
Customers Say:
"Brian doesn't
expedite our orders.
He's not around
enough."
"I'm on top of my
accounts."
What Brenda
Thinks:
What Bruce's
Customers Say:
"Bruce is a
nuisance!"
What Brenda's
Customers Say:
"Who's Brenda?"
Colette:
Charlie:
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Another Solution
Bruce's
Territory
^
^
>/
^
^ ^
>.
\
Brenda's
Territory
Customer Locations
Low Volume
^
^
BriX's
A Territoiy
/
/
iVIedium Volume
^ ^
High Voiume
^ ^
Territory Boundaries ^ ^ - _
135
tricting are other terms that are used interchangeably with territory
alignment. Often, the number of accounts and prospects a company
services is very large, and the alignment task can he onerous and difficult. To design territories efficiently, it is often easiest to aggregate accounts and prospects into geographic units such as census tracts, zip
codes, or counties. The territory alignment then becomes an assignment of geographic units to salespeople. Sometimes alignment decisions also include routing, as in bakery, beverage, or snack food sales
organizations.
Some selling organizations do not have specified or exclusive alignments. Examples of these geographically overlapping alignments include organizations selling financial services, insurance, and in-home
cosmetics. In these organizations, a salesperson develops his or her own
alignment in the course of selling. Hence, there are geographically overlapping alignments, as the salesperson is not constrained within a geographical territory. However, a large majority of sales forces have some
kind of exclusive territory alignment that specifies each salesperson's
or sales team's accountability and activity mix. In an exclusive alignment, account responsibility is well defined, and customers see only a
specific salesperson or sales team.
Part of the alignment decision is where to locate salespeople. The
best locations are those that are close to customers and provide a highquality standard of living for the salesperson.
136
137
0.0
1-
T-
<M
forces. The account workload for each of the 200 territories in the sales
force is indexed on the vertical axis. The territories are sorted from
highest to lowest workload, and each territory is plotted as a point
along the curved line. The ideal territory workload line represents the
annual workload capacity of one salesperson. Territories with indices
significantly above 1.0 have too much work for one salesperson, while
territories with indices significantly below 1.0 have insufficient work.
By comparing the points along the curved line (actual territory workload) with the horizontal line (ideal territory workload), it is possible to
see the extent of workload imbalance. As the -Hl5 percent and 15
percent lines show, approximately 60 percent of the territories have
workloads that deviate from the ideal by more than 15 percent. Thus,
many accounts in the high-workload territories are getting inadequate
coverage, while at the same time some salespeople have insufficient
work.
Workload imbalances like this are very common. In fact, sales managers are frequently surprised to learn how out of balance their sales
territories really are. A study based on a representative sample of over
4,800 sales territories from eighteen companies in four industries found
that well over half of the territories in the sample were not the right
138
Salesperson B
Territory
11
Accounts
After Alignment
Salesperson A
Tenitoty
^x^^
^ f
^^^^^^^
Major Highways
Salesperson A
Salesperson B
Territory
^ ^ "
"^
^ ^
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In another example demonstrating travel time reduction, a consumer products company decided not to cover some customers located
in remote areas with its field sales force. Instead, the company decided
to use telemarketing, direct mail, and Internet selling to reach lowpotential, remotely located accounts. While these approaches were not
as effective as face-to-face selling, the benefits of reduced travel time
more than compensated for any lost sales. As a result of the realignment, the company reduced the amount of geography the direct sales
force was responsible for covering by 75 percent and still retained customers representing more than 80 percent of the company's total sales
volume.
Poor Alignment Can Lead to Low Morale and High Turnover
A sales manager looking at the graph in Figure 5-6 would probably guess
that the horizontal axis measures some characteristic of the salesperson, such as experience, ability, or effort. In fact, the measure on the
horizontal axis has nothing at all to do with the salesperson,- it is territory sales potential. Studies across industries and firms indicate that
territory sales potential is a much better predictor of territory sales than
any factor related to the salesperson. Territories with high market potential have high sales, regardless of sales force effort. Similarly, in territories with low potential, the firm tends to have high market share.
Figure 5-6. A Good Predictor of Territory Sales.
3,000,000
2,500,000
o
2,000,000
1,500,000
1,000,000
500,000
0
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
140
Any company that is creating a new sales force, restructuring its sales
force, or significantly changing sales force size must create a new align-
141
ment. Restructuring and upsizing both require reassignment of accounts and prospects. However, downsizing requires more than
rearrangement of accounts. Decisions need to be made about who is to
be retained, who is to be asked to relocate, and who is to be asked to
leave the company. These are very serious decisions that cannot be
made indiscriminately.
Sales force size and structure decisions cannot be completely separated from the geographic deployment (or alignment) decision. For example, specialized sales forces are less suited for markets (or accounts)
that are geographically dispersed. A case in point: A health care company was considering developing a vertical selling organization to service reference labs. The decision focused on whether the geographically
dispersed reference labs could support a focused selling organization.
The company decided that reference labs were important and should be
covered hy a specialized field force. However, the inefficiencies resulting from the geographic dispersion of these sites required an incremental head count increase as well.
Frequently the amount of change, whether it is relocation or territory adjustment, is not equally distributed across the sales force. Some
salespeople are unaffected, while others may see major changes. Some
managers go to great lengths to protect their favorite salespeople; others
use alignment data objectively. Arbitrary decisions lead to poor workload balance.
Mergers and Acquisitions
Mergers and acquisitions, both of divisions and across companies, require the corresponding integration of selling organizations. This integration results in a redesigned selling organization. Any change in size
or structure creates a need to realign the sales force. These realignments
can be particularly troublesome if the two selling organizations that are
merging have disparate cultures, customers, product lines, and/or job
requirements.
Unbalanced Territories
Some companies have not adjusted their sales territories in the last five,
ten, or more years. Is it reasonable to believe that markets and product
opportunities have not shifted geographically over time? The following
are some examples to consider.
142
Every day, the center of the U.S. population moves a few feet to the
west and a few feet to the south. Each year, the population of the western part of the United States is expected to grow by one million people.
The Northeast, in comparison, is expected to have limited growth. Demographic shifts also manifest themselves in other ways. For example,
in the next fifteen years, the southern part of the country will see an
increase of 2.3 percent per year in the population over forty-five years
of age. For firms whose end-user market segment is mainly in this age
group (e.g., health care and leisure travel), this population increase will
have a dramatic impact on the geographic deployment of the sales force.
Failure to react to demographic shifts like these can result in missed
opportunities.
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New product launches shift market opportunity and hence require realignment. New products are a particularly crucial reason to realign.
The Need to Shake Things Up Occasionally
Finally, it is useful to consider realignment for its own sake. Cive different customers to different salespeople. Bringing a new salesperson with
a fresh perspective into a territory can have a positive impact. The new
salesperson learns the customer's needs afresh and, as a result, may
discover ways to increase sales that were overlooked by the old salesperson. Also, a new salesperson can often make a difference with reluctant prospects and can eliminate some of the "no see" accounts. Finally,
realignment provides a new challenge for salespeople and extends a
salesperson's experience set.
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The sales force incentive compensation plan infiuences sales force behavior. This behavior is not always consistent with what is best for the
organization as a whole. For example, incentive plans based on sales
volume encourage salespeople to want more accounts than they can
cover effectively. More accounts mean more opportunities to build
sales. In contrast, incentive plans based on market share encourage
salespeople to want fewer accounts than they could manage. With
fewer accounts, a salesperson can penetrate the accounts more deeply
and drive out the competition. Finally, growth-oriented incentive plans
encourage salespeople to want territories with large numbers of accounts with untapped potential.
Salespeople with good territories do not want to give up income. A
salesperson whose territory is targeted for reduction in size or loss of
accounts may fight to keep the existing territory with the following
argument: "I have done a good job for you. It is unfair that my 'reward'
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Some firms are unwilling to commit significant resources to realignment because they do not believe they have the right data. For example,
a company entering a new product category will require an entirely new
database. Another company may lack confidence in its current customer database. Yet another company may have an exceptionally large
database, with tens of thousands of products and/or customers. Regardless of the scenario, a company may hesitate to make a large investment
in a realignment if it is uncertain of its data.
Other companies feel that they cannot measure particular customers' sales because of complex distribution systems. For example, sales
146
may get lost somewhere in the channel. When products are shipped
first to a distributor's warehouse and then to individual accounts, credit
cannot be assigned to individual territories if the second shipment is
not tracked.
Finally, some companies are not able to define precisely who their
potential customers or prospects are. For example, for companies selling Yellow Pages advertising, newspaper advertising, or business forms,
almost anyone can be a potential customer.
Fortunately, as technology advances, the accuracy and availability
of data are increasing. Typically, surrogate measures for territory business value can be developed. The sales force can help create a database
or can enhance an existing database to be used for alignment. The authors have helped realign over 200,000 sales territories in the United
States and, with help from the company, have identified useful data
each time.
What do the customer, the salesperson, and the company want from
the alignment? Figure 5-7 provides some answers to this question.
Alignment Goal. There are five main alignment goals: balance the
workload, balance sales potential, minimize disruption, develop compact territories, and equalize marginal returns. Figure 5-8 shows how
each of these alignment goals affects what each of the different stakeholders want.
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Salespeople V^ant
firm '^ants
Economist Wants
Salespeople who
are competent
and empathetic
High opportunity
A motivated sales
force
Salespeople who
understand their
needs and are
responsive
Manageable
workload
Sales results
Continuity of
salespeople
Cost control
Control of
overnights
Effort control
Equal marginal
returns across
sales territories
Responsiveness
Balance
Sales
Potential
X
X
X
X
Reduced uncertainty
Control of overnights
Firm
Sales results
Effort control
Motivation
Equalize
Marginal
Returns
Earnings opportunity
Manageable workload
Develop
Compact
Territories
Relationships
Salespeople
Minimize
Disruption
X
X
X
Balancing the workload maximizes sales force coverage and improves responsiveness to customers. It also improves sales results and is critical if sales force activities are tightly controlled.
Balancing sales potential gives salespeople equal earning opportunity and also improves sales results.
Minimizing disruption of the current alignment preserves relationships, eliminates uncertainty for salespeople, and increases motivation.
148
Developing compact territories improves responsiveness to customer needs, gives salespeople fewer overnight trips, and keeps
travel costs down.
Equalizing marginal returns across territories is a goal preferred
hy economists. Unfortunately, this is an impractical measure to
ohtain. Measuring marginal returns at the account and territory
level with any accuracy is very expensive and frequently impossihle.
Importance of Alignment Goals. Although alignment goals vary hy
company and industry, halancing workload and halancing sales potential are usually selected as key alignment goals. Since some disruption
is an inevitahle outcome of a realignment, an effective alignment process considers such dimensions as trade areas and key customer relationships. Finally, when developing compact territories, road networks
and travel times should he taken into account. In cases where salespeople fly to cover their territory, airline routes and fares should he considered as well.
The alignment goals must focus on what the sales force does. For
example:
For a highly commissioned sales force, emphasize sales potential
halance in order to equalize earnings opportunities for salespeople.
When relationship selling and in-depth customer knowledge are
important, emphasize minimizing disruption.
When workloads can be estimated accurately at the account
level, emphasize workload halance. For example, sales forces that
perform a set of well-defined tasks for their customers should
have territories with balanced workloads to encourage optimal
customer coverage. An example would be in-store merchandisers
in the consumer products industry.
When controlling the number of hours worked is important, as
with part-time salespeople, emphasize balanced workloads and
minimal travel.
It is important to note that balancing company sales is not the
same as balancing sales potential. Sales reflect where the sales force is
currently spending its time. Sales potential and workload suggest where
it should be spending its time. Territories that are balanced in terms of
149
Disruption
Percentage of accounts tbat have been reassigned
Percentage of dollar sales that have been reassigned
150
number of hospital beds, hospital procedures, and patients, and sometimes even the sales volumes associated with these customers. Consumer product firms know their customers' store locations and have all
commodity volume estimates.
In other cases, companies can use surrogate measures obtained
from statistics gathered by the Census Department. Data such as buying power index measures and SIC information may be appropriate in
some situations. Frequently, external data are complemented by account and prospect statistics compiled by the salespeople or the company. Salespeople can list possible customers and make an assessment
of their value. The best potential data incorporate not only historical
market sales, but a prediction of future market sales as well.
Keep in mind that the alignment decision does not go away just
because perfect data are not available. Often, companies must seek creative ways to build new or improve upon existing databases. If the data
are good, the alignment will be fair to the salespeople, enable the company to serve its customers better, and generate higher sales volume.
Annual Audit
151
ZS
colors. Green dots are existing territories with good future potential,
black dots are existing territories with poor future potential, and yellow
dots are proposed new territories. Each time a territory becomes vacant,
the manager checks the map. If a vacancy occurs in a black dot territory,
the territory is closed and a new territory is opened up in a yellow dot
location. Through proactive attrition management, this sales organization maintains a good alignment without relocating salespeople.
Implementing a Major Realignment
152
153
Deveiop Sales
Tenitory Centers
Develop
AUgnment
Criteria and
Objectives
Develop
Database
^
r
'
implement
154
155
156
For large alignments, this type of software saves a great deal of time
and money.
Territory Alignment Over the Internet. The Internet can play a significant
157
territory maps to their sales force so that salespeople can become productive immediately.
The Internet has become a major worldwide sales channel for many
goods and services. Companies will need to redesign their selling processes more frequently as the capabilities and usage of the Internet expand. These changes in selling processes will affect the size and
structure of sales forces and individual sales territories.
On-line territory alignment can help reduce the anxiety that frequent realignment can cause. It allows decisions to be made and communicated to the field quickly, so that uncertainty is reduced. In
addition, on-line territory alignment allows the sales force to participate in realignments more easily, thereby enhancing buy-in.
Accounts in every territory will receive balanced service if every salesperson has the same workload. Coverage will be balanced because all
important customers will have access to the appropriate share of their
salesperson's time. Of course, customers may be seen too frequently or
too little if the sales force is not sized appropriately.
158
Realignment affects human resources, compensation, mailings, and numerous other systems throughout the company. It's critical to think
through all the possible ramifications of an alignment change. For instance, a change in customer assignment might require the salesperson
to send orders to a different warehouse for processing. Also, systems
may need to change to refiect new sales credits.
Compensation plans and territory goals also need to be considered
when implementing realignments. A new set of customers can require
new territory goals and may even create the need for a reevaluation of
the compensation plan.
Manage Vacancies to Create Opportunity for Change in Territory
Locations, While Avoiding Relocation Costs
Vacancies can create opportunity. Redundant or low-potential territories can be closed, and new salespeople can be hired in high-opportunity
areas. Conscious territory management enables a sales force to meet a
future blueprint.
Avoid the Local Knowledge Trap
159
Conclusion
Alignment is an overlooked sales force productivity tool. There are
many obstacles that prevent companies from creating and maintaining
good alignments. However, the benefits of good alignment are significant. Alignment deserves more attention and consideration from management than it often gets. Keep striving for good alignments, and
watch out for the possible alignment blockades listed in Figure 5-12.
Figure 5-12. Potential Alignment Blockades.
Potential Alignment Blockade
Favorite Quotation
High-Commission Harry
Chatty Charlie