Houston Fearless 76 Inc.

Sales Incentive System Analysis

1. Describe the nature of Houston Fearless 76 Inc. (HF76)’s business and explain the
company’s markets. What would HF76 managers like to see from their sales people?

Houston Fearless 76 (HF76) is a private company in the high technology industry. It is engaged
in the design, manufacturing and support of commercial equipment including Film Processors,
Cameras, Duplicators, Scanners, Advanced Oxidation/UV, Low Temperature Distillation
systems and accessories. It enjoys a close knit family culture with strong and nurturing
leadership. HF 76 also periodically rewards and recognize staff efforts.

HF76 has 4 major business divisions. Firstly, the Mekel division sells scanners to general
customers in the high growth market such as Brea, California and Latin America. The second
division is HF International which focuses on selling film processors in the mature market
which is based in Yuma and Arizona. In addition, the division Extek has a major presence in
Compton which has a mature market for micrographics. Extek’s major customers include local
government entities. Lastly, HF North handles special government projects in niche and small
markets in Beale AFB and Sacramento. Additionally, HF76 also attempts to diversify its
product line by capitalizing on sizable applications of the pollution control systems developed
by HF North.

HF 76 operates on a tight sales cycle due to the nature of the products. Large customized
products take several months to produce while smaller products such as microfilms take 30
days. Its products are usually deemed as capital equipment by the buyers and are sold at prices
from $60,000 to several hundred thousand dollars.

Despite its diverse product lines and wide geographical presence, HF76 has currently
encountered the problem of declining revenue, low inventory turnover and falling profits due to
a multitude of causes such as poor incentive system, high sales expense, lack of new customers
accounts etc.

With the presence of such problems, managers of HF76 may have outlined some desired
behaviors from their salespeople. Firstly, managers are expecting profit-oriented sales, that is,
salespeople should be keen to introduce sales with higher profit margin instead of sales with
higher revenue. Secondly, salespeople are expected to more actively approach new customers so
as to expand the business into new markets. They may need to be more aggressive in gaining
new customers. With regards to existing market and customers, salespersons may need to
capitalize on HF76’s brand name to maintain the sales volume in the current niche market. In
addition, they should also be more committed to establish long-term relationship with existing
customers. Thirdly, salespeople should build effective collaboration with the operating
departments, such as offering the operating department more lead time. Lastly, it is also
important for salespeople to produce accurate and reliable forecasts for such forecasts are
usually part and parcel for a business to operate on schedule.

2. Why are HF76 managers unhappy with the company’s existing sales incentive plan? Are
the weaknesses in this plan a major cause of the company’s performance problems?

Current incentive plan has two components, namely the fixed and the variable components.
Salespeople are paid a fixed base salary between 40k to 60k and a commission that varies based
on revenue from products shipped in the assigned territory. The commission rates differ across
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