Course Name: Sales and Distribution Management

Faculty Name: Prof. Sangeeta Sahney

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Department : Vinod Gupta School of Management

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Topic

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Lecture 26 : Sales Force Management: Training
Concepts Covered:

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 Building Sales Training Programs

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 Training plays an important key role in helping new employees perform well in
the organization

 Training helps existing employees in adjusting to newer KSAs as well technologies

and methods of working which are introduced in the organization

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 It eases an organization’s adjustments to structural or operational changes

PT
occurring in the organization

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 Building Sales Training Programs

 Building an effective training program involves a series of steps which can

be described as:

• Defining training aims

Deciding and preparing the training content

EL
•
• Selecting training methods

PT
• Implementing the training program

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• Evaluating the training program

(Contd.)
 Step 3: Selecting Training Methods
A proper match must exist between the purpose of the training and the training method
which is adopted

It is important to select such training methods which can convey the training content in
best possible ways

EL
PT
The selection of an inappropriate training method would lead to wastage

N
of resources both in terms of time and money

(Contd.)
Training methods can be divided into two categories:

On the job training methods:

•It involves placing trainees on specific jobs and giving them an on job
experience; Trainees learn by doing in actual situations
•The method is flexible, less expensive, and suitable for jobs that call for active
participation and performance on jobs

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PT
Off the job training methods:
•Training is conducted away from the place of job

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•An expensive method but helps in imparting overall development of
employees.

(Contd.)
1) The Lecture:
• It is an and very commonly used instruction aid which involves face to face interactions;
Trainees watch and listen and ask questions; Very extensively used as it is very economical
• It is very suitable for providing training to a large audience
• Its effectiveness can be increased by using of multi media aids, charts, and graphs,
demonstrations

2) Demonstrations:

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• Very important when it comes to sales training

PT
• Showing to prospects as to how a new product works is very important for sales personnel
for conducting successful sales calls

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• Effective sales trainers heavily rely on demonstrations for imparting field
training skills to the sales persons

(Contd.)
3) Role Playing:
• Trainees are given situations, and asked to act out their parts/roles
• The method helps build confidence and enhances social skills
• Needed props are also provided to trainees to make things more like real life
situations
• Eg. trainers divide teams and allot parts of customers’ roles and sales
representatives’ roles to trainees, and this can help them simulate various selling
situations for better understanding of customer handling strategies

EL
• Role playing is a flexible approach and helps in recognizing the sales skills of trainees;
it promotes generation of new ideas. However, it may fail in case there is no active

PT
participation amongst the trainees

N
(Contd.)
 4) Case discussions:
• A technique which has been conceived by business schools and faculties therein
• Case studies have emerged as an important tools of learning
• Cases are usually in written form, and story based which helps the learners in understanding
various business situations as well as the solutions which can be adopted for handling the

EL
issues embedded in the cases
• Trainees, who discuss the cases must be encouraged to identify the issues and analyze

PT
the facts which emerge from the case and must be stimulated to offer creative
solutions

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(Contd.)
5) Impromptu discussion:
• Sales problems are presented to trainees in form of a presentation and discussion is
stimulated among them to propose effective solutions for handling those situations
• These situations are many times picked up from the past lived experiences of the sales
personnel and sales managers to help trainees understand the kind of situations they may
face while dealing with customers

EL
• The main objective of impromptu discussion is to check the spontaneity of the trainees

PT
• A moderator is essential for conducting impromptu discussions effectively
• The room arrangement is equally important along with time management for

N
conducting these sessions

(Contd.)
6) Gaming:
• Also called as simulation, and similar to role playing, players are selected to assume decision
making rules across various rounds of game
• Eg. Games in which trainees are divided into various teams and could be asked to act out as
a team of negotiators from different companies and the one team who closes the deal at the
best bid for the company wins
• Adds a flavor of entertainment and encourages active participation but requires ground

EL
work in designing games

PT
7) On-the-job Training
• Accompanying the trainer for sales call, watching, listening, doing, followed

N
by appraisal

(Contd.)
8) Online courses:
• This method can be used for both initial as well as continuing sales programs
• Online videos of instructional material in form of videos or presentations are shared with
the trainees
• The method is suitable when trainees are geographically scattered and is very cost effective
• Trainees must be asked to submit regular assignments to make sure that they are going

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through the material shared online
• In the end, exams can also be conducted to judge the effectiveness of the online

PT
training programs

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 Step 4 – Implementing the Training Program
 A sound execution of a training program is highly critical for conducting effective
training programs
 It involves making decisions with respect to;
• Who will be the trainees?

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• Who will conduct the training program?
• When and where will the training program be conducted?

PT
N
(Contd.)
1) Who will be trainees?

• Initial sales training programs are organized for all new sales personnel

• Decision making becomes complex with respect to continuing sales program as

compared to initial sales program

EL
PT
• The four common criteria which are used for selecting trainees for training programs
relate to reward for good performance, action for poor performance, seniority,

N
and convenience of trainees and trainers

(Contd.)
 2) Who will conduct the training program?

• Many times companies have a separate departments and trained sales staff who
conduct training programs: corporate staff trainers

• Sales executives with experience also take part in offering trainings by means of
sharing their field experiences which are of crucial importance in preparing new
employees for field training

EL
PT
• Experts outside the company could also be contacted to offer specialized
training programs

N
(Contd.)
3) When and where will the training program be conducted:

• Timing of the training

o Timing for initial sales training usually depends upon the timing when large
recruitments are made
o Timing for continuing sales training programs depends upon a lot of factors like
sales season for the company, time availability of the prospective trainees, or
need based (in case a new product is launched or is about to be launched, it

EL
becomes an urgency for the company to organize it as soon as possible

PT
N
(Contd.)
• Place of the training
o Centralized and decentralized
 Centralized: Training could be held in corporate offices; This leads to
better product training. However, huge travel costs, and neglect of
territories while salespersons are away can pose problems. Further,
training locations should be decide in such a way that it becomes easy for
participants to reach the location; In case lodging facilities are required,

EL
cost constraints must be considered
 Decentralized: Companies can train salespeople near their future

PT
territories, but unless closely monitored, they may be poor quality

N
(Contd.)
Step 5 – Evaluating the Training Program
• Evaluating a training program is very crucial because of the huge costs involved in
training

• Evaluation helps provides scope for conducting future training programs effectively

• Trainees should be asked to fill a detailed feed back form in the end

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• Written tests before and after training can be conduced to evaluate

PT
training programs; Observations may be made to check the extent to which
trainees are being able to apply what has been taught

N
• Mapping the performance of the sales personnel after the training
period ends can also be used as a measure for performance evaluation
References:
 Still, R.R., Cundiff, E.W., Govoni. N.A.P. and Puri, S. Sales and

Distribution Management, 6th Edition , 2017, Pearson India

Education Services.
Panda, T. and Sahadev. S, Sales and Distribution Management,

EL
2nd Edition, 2011, Oxford University Press, India.

PT
Greenberg, J., (2014), Behavior in Organizations: Global
Edition, 10th Edition, Pearson India Education Services.

N
Conclusion:

This brings us to an end of the first lecture on the sixth

module of the Course.

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PT
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N
PT
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Course Name: Sales and Distribution Management
Faculty Name: Prof. Sangeeta Sahney

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Department : Vinod Gupta School of Management

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Topic

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Lecture 27: Sales Force Management - Motivation
Concepts Covered:
 Motivation
•Meaning of Motivation
•Process of Motivation

EL
•Purpose of Motivating Sales Force

PT
•Theories of Motivation and their

N
Application to Salesforce Management
Meaning of Motivation
• The term “motivation” has been derived from Latin word “movere”, which means
“to move”

• Motivation is defined as an inner urge or desire to move towards a goal to satisfy a

need and a want

EL
• It is a goal directed activity, underlying which are deep rooted unfulfilled needs and
desires

PT
• While, needs relate to something which is lacking, and goals act as a

N
means toward achieving it, desires suggest a positive orientation towards
achieving something

(Contd.)
 When applied to sales force management, motivation is all about stimulating
sales personnel towards exerting more efforts for achieving sales objectives

 It denotes the amount of efforts that a sales person wishes to supplement in

regards to various sales activities like calling to potential accounts, preparing
sales reports, exploring new markets on their own, generating more leads etc.

EL
 It is important that sales personnel are kept motivated as the financial

PT
performance of a company (sales, profits, market share) depends hugely on

N
the efforts of its sale force
Process of Motivation • Salesforce motivation refers to the arousal,
intensity, direction, and persistence of
efforts directed toward sales jobs, both
Motive selling and non-selling activities

• Sales force motivation relates to both

monetary and non-monetary incentives
Tension
Behaviour • Companies must motivate salespeople at

EL
reduction two levels: individual level, and team/
group (entire sales force)

PT
Goal

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Source: Panda, T., and Sahadev. S (2012). Sales and Distribution Management. Oxford
University Press, New Delhi.
Purpose of Motivating Salesforce
 Salespersons must possess the ability and the potential to achieve sales and profits for
a company; they must have the knowledge, skills and abilities that develop with
training and experience

 Yet not all salespersons are effective and efficient, and what may drive salespersons
towards effectiveness and efficiency is motivation

EL
 Further, while a sales person has all the necessary KSA’s that are minimal

PT
requirements for a satisfactory performance, the question that arises is:

N
o Is satisfactory performance sufficient for the company?

(Contd.)
 Motivation plays a key role in encouraging sales force towards achieving higher sales
performance by selling more products, and hence, increasing the profitability as well
as market share of the company

 The challenging nature of sales job undoubtedly necessitates motivation

 Sales personnel indeed require motivation from their superiors in particular as well as

EL
their company in general to attain and sustain pleasing performance levels

PT
 Both monetary and non-monetary incentives are used by companies for

N
motivating their sales force

(Contd.)
 Nature of sales jobs necessitates motivation:

• Sales job is full of ups and downs; it is not necessary that a salesperson would be
able to close deals each time

• Targets may be challenging, and often unrealistic

EL
o Once a market reaches saturation or there is a very high level of
competition, motivation is the key towards encouraging sales personnel

PT
to strive harder

N
(Contd.)
• Sales persons many a times get to interact with unpleasant, rude and not so
courteous customers and channel partners as well which could bring down their
morale

• They also need to travel a lot, and spend considerable time away from home;

EL
such conditions also sometimes stimulate discouragement

PT
N
(Contd.)
 A salesperson suffers an inter-role conflict, which arises from his multi-group
membership
• He is expected to satisfy the needs of people both within (superiors,
colleagues and people from other department) and outside the company
(eg. customers); he shares linkages with the production and operations
team, order fulfillment team, channel members, customers, and other
company sales personnel

EL
 He often suffers a conflict of identification, which arises out of his association

PT
with the various stakeholders, be it the customers when he is with them, and
the company, once he returns to office

N
(Contd.)
 Salespersons often faces an advocacy conflict when he identifies with customers and advocates
their views to the employer and other people in the company

 He also has a monetary interest, and would like to sell as much as possible in the
shortest period of time, often at the cost of his inter-role conflict (he may hide product
limitations, as if he is open and transparent, the sale may not happen at all)

EL
 Also, salespersons who work in the same territory and with the same customers for years

PT
together, may get bored and lose interest

N
Theories of Motivation and their
Application to Salesforce Management
 Maslow’s Need Hierarchy Theory

 Herzberg’s Two factor theory

 McGregor’s Theory X and Y

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PT
 McClelland's Three Needs Theory

N
 Equity Theory

 Vroom’s Expectancy Model

(Contd.)
Maslow’s Need Hierarchy Theory

• Proposed by Abraham Maslow

• Most widely used theory of motivation

• Maslow proposed that within every human being there exists a hierarchy of
needs which acts as the guiding force behind motivation

EL
PT
• These needs are Physiological needs, Safety needs, Social needs, Esteem
needs, and Self-actualization needs

N
(Contd.)
Physiological needs: basic physiological needs relating to hunger, thirst, shelter and other
bodily needs

Safety needs: they relate to the protection from any physical and emotional harm; security and
protection

Social needs: these needs indicate the need for affection, friendship and belongingness

EL
Esteem needs: these needs relate to recognition and self-esteem

PT
Self-actualization needs: this relates to achieving what one is capable of becoming,

N
achieving our full potential

(Contd.)
• A satisfied need no longer motivates; Once a need is satisfied, other ones
become dominant

• In order to motivate an employee, based on Maslow’s Need Hierarchy Theory,

it is very important to understand the hierarchical order of the needs

• The needs can further be classified as higher order needs (social, esteem and

EL
self-actualization) and lower order needs (physiological needs and safety)

PT
• A sales manager must know his salespersons and understand their specific

N
needs; they must be able to assess whether for a salesperson it is the
lower or the higher order needs that motivate
Herzberg’s Two Factor Theory
 Proposed by Fredrick Herzberg

 Also called as Motivation Hygiene Theory

 Two sets of factors; one, prevent dissatisfaction: Hygiene; second, lead to Motivation.
• Hygiene factors are those which, in case, they are absent it leads to dissatisfaction; Motivational
factors are those factors which actually motivate

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• Hygiene factors are more extrinsic in nature; Motivational factors are intrinsic in nature

PT
Hygiene factors: Company policies, supervision, relationship with supervisor and
peers, working conditions, salary, status, security

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Motivational factors: Achievement, recognition, the work itself, responsibility,
advancement and growth

(Contd.)
Sales managers must ensure that the job provides such conditions which prevent job
dissatisfaction; this means providing to the sales force good working conditions, decent
and fair compensation packages, reasonable and adequate supervision, sound company
policies, etc.

Sales managers must also ensure that the sales force is provided with opportunities for

EL
achievement, recognition, responsibility, growth and the work itself is designed such

PT
that it is inspiring in nature; these would act as motivators

N
(Contd.)
Comparing Maslow’s Need Hierarchy Theory and Herzberg's Theory

EL
PT
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Source: Still, R., Cundiff, E., Govoni. P., & Puri, S. Sales and
Distribution Management, Pearson Education, Manesar, India.
McGregor’s Theory X and Y

 Proposed by Douglas McGregor

X and Y denote a distinctive class of employees

• Theory X – X type of people are those kind of employees who dislike work, need
regular direction and need to be coerced to perform

EL
• Theory Y – Y type of people enjoy their work, are self-motivated, have a

PT
desire to perform, and do not need much directives

N
Can both these kinds of employees be motivated in similar ways? NO

(Contd.)
• By relating Theory X and Y with Maslow's Need Hierarchy Theory, it can be said that
as per Theory X, it is the lower order needs that motivate individuals, and for Theory
Y, it is the higher order needs that dominate individuals

• A sales manager must know his salespersons and must be able to assess whether for

EL
a salesperson it is the lower or the higher order needs that motivate

PT
N
McClelland's Three Needs Theory
Proposed by David McClelland

Human beings are driven by three kinds of needs, viz., need for achievement (nAch),
power(nPow), and need for affiliation (nAff); These three needs influence the behavior
of an individual

EL
•Need for achievement (n-ach) – This is the need to achieve goals, excel and seek recognition

PT
•Need for power (n-pow) - This is the need to dominate, and control the behaviors of others

N
•Need for affiliation (n-aff) - This is the need for friendship and belongingness,
and to develop harmonious relationships

(Contd.)
A sales manager must know his salespersons and must be able to assess whether his
salesperson(s) are high on n-Ach, n-Pow, and n-Aff.

•Salespersons who are high on n-Ach, would be best performers in sales jobs; they
would desire attaining sales targets and should be given difficult and challenging
goals

•Salespersons who are high on n-Pow, would act as strong team leaders for

EL
salesforce

PT
who are Y Type

N
•Salespersons who are high on n-Aff, would work best as sales team
members; they would possess team spirit and would successfully
work in cross functional sales teams
Equity Theory
Proposed by J. Stacy Adams
People compare their job inputs and outcomes with those of others
The degree of equity or inequity that people perceive in their job positions and their
work situations have an impact on the work performance and job satisfaction
•Inequity occurs when a person perceives that the ratios of his/her outcome to inputs
and the ratio of another relevant others’ outcome to inputs is unequal.
O/I A < O/I B : Under-rewarded (Equity tension)

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O/IA = O/I B : Equity

PT
O/I A > O/IB : Over-rewarded (Equity Tension)

N
Where, O/I A: Person, A,O/IB : Relevant other, B
Sales managers must understand that salesperson must perceive
equity as this would lead to a motivated sales person
Vroom’s Expectancy Model
 Proposed by Vroom
 Proposes motivation as a process of governing choices for behavioral activity
According to Vroom, the strength of a tendency to act in a particular manner depends
on the strength of an expectation that the act of behavior will be followed by an
outcome and that the outcome is attractive to the individual
 If a person feels that if he tries, he can perform; and if he feels that if he
performs, he will be rewarded; and the reward is attractive, he would be

EL
motivated to work

PT
•Expectancy: Effort-performance relationship

N
•Instrumentality: Performance-reward relationship
•Valence

(Contd.)
 Effort-performance relationship:
Effort-to-Performance (E→P) Expectancy: the
probability perceived by a person that a given
effort would lead to performance.

Performance-reward relationship:
Instrumentality (P→O): the degree to which a
person believes that performance at a particular
level would lead to a desired outcome.

EL
Rewards-personal goals relationship:

PT
Valence: attractiveness of a reward;
the degree to which organizational

N
rewards satisfy an individual’s
personal goals
Source: Still, R., Cundiff, E., Govoni. P., & Puri, S. Sales and Distribution
Management, Pearson Education, Manesar, India.

(Contd.)
Sales managers can provide training so that the performance capabilities of
employees can be increased (E→P)

They must assure their employees that good performance would lead to a
reward (P→O)

EL
The rewards must be such that are meaningful and attractive to the sales

PT
personnel (Valence)

N
Motivational Mix:
Companies must design their motivational programs carefully

Motivation mix: the motivational tools may be both financial and non-financial

• Financial tools: Salaries, commissions, incentives, bonus, fringe benefits,

sales contests

EL
PT
• Non-financial tools: Promotions, titles and recognition, sales meetings,
sales training programmes

N
References:
 Still, R.R., Cundiff, E.W., Govoni. N.A.P. and Puri, S. Sales and
Distribution Management, 6th Edition , 2017, Pearson India Education
Services.
Panda, T. and Sahadev. S., Sales and Distribution Management, 2012,
Oxford University Press, India.
Panda, T. and Sahadev. S, Sales and Distribution Management,
2nd Edition, 2011, Oxford University Press, India.
Havaldar, K.K. and Cavale V. M., Sales and Distribution Management:

EL
Text and cases, 3rd Edition, 2017, McGraw Hill Education (India) Private
Limited.

PT
Greenberg, J., (2014), Behavior in Organizations: Global Edition, 10th
Edition, Pearson India Education Services.

N
Robbins, P., Judge, T., & Vohra, N., Organizational Behavior, Pearson
Education, Noida, India.
Conclusion:

This brings us to an end of the second lecture on the

sixth module of the Course.

EL
PT
N
N
PT
EL
Course Name: Sales and Distribution Management
Faculty Name: Prof. Sangeeta Sahney

EL
Department : Vinod Gupta School of Management

PT
Topic

N
Lecture 28: Sales Force Management: Compensation
 Concepts Covered:
Compensation
•Meaning of Compensation
•Strategic Policy Decisions with respect to
Compensation
•The Motivating Role of Compensation

EL
•Requirements of a Good Compensation Plan

PT
•Devising a Good Sales Compensation Plan
•Types of Compensation Plans

N
 Meaning of Compensation
 Compensation is what employees receive in exchange for their services to a company

 It is an important source of motivation to an extent; it helps employees build their

career and ensures their relationship with the organization

 Objectives of a Sales Compensation Plan

EL
•Attract and retain salespeople

PT
•Motivate them, control them and improve productivity levels
Is money an important motivating factor?

N
Money has limited motivation power as a motivating factor,
yet perceived as something very important
(Contd.)
 Compensation includes components like salary, wages and bonuses etc., and can be
variable or fixed

 It includes both direct and indirect compensation; direct compensation includes

salaries, incentives and bonuses; indirect compensation includes fringe benefits
•Salaries
•Incentives: Payment by results, paid in addition to salaries; incentives may be
individual or group based

EL
•Fringe benefits: Employee benefits like provident fund, gratuity, medical care,

PT
recreation
•Perquisites: Paid vacations, company cars, club memberships,

N
furnished accommodation
•Non-monetary benefits: Promotions, recognition, opportunities
for growth and advancement
Strategic Policy Decisions with respect to
Compensation
Pay level policy: refers to how an organization’s pay level compares to those of its competitors; has
an impact on an organization’s ability to attract and retain competent sales employees; companies
may match, lead or lag with that of the competitors
Pay structure policy: relates to the pay ranges; the maximum or minimum are based on the relative
worth of the job (job evaluation)
•Job evaluation: pay must be related to the relative worth of a job

EL
•Internal an External Equity:
Internal equity: similar jobs get similar pay, and more demanding job positions and better qualified

PT
people are paid higher than others
External equity: jobs are fairly compensated in comparison with similar jobs in the

N
industry
Types of rewards offered
•Extrinsic and intrinsic rewards in the form of monetary and non-monetary
rewards
 The Motivating Role of Compensation
A properly designed compensation plan plays three motivational roles:

• Offers living wages to the employees

EL
• When pay scales are adjusted to performance, they encourage employees towards
higher performance and productivity

PT
N
• Acts as a means for achieving the congruency between individual
goals and company goals.
Requirements for a Good Compensation Plan
The plan should take both company as well as sales person’s interests into account:
•Company’ interests: revenues and profits; internal and external equity
•Salesperson’s interests: both regular and incentive income (fixed salary plus incentives for
good performance); they must have a secure income, that helps employees in meeting their
living expenses; it should motivate employees who are high performers, as compared to
employees not meeting their targets
It must help the organization in attaining its objectives

EL
It should address issues of a fair and equitable salaries

PT
It should be linked to the sales person’s efforts and performance; it should be fair and
practical; it must not be built on unrealistic expectations

N
It should based on factors like nature of the sales jobs, KSAs, and industry
standards
It should simple to understand, and easy to implement
Devising a Good Sales Compensation Plan
 Define the sales jobs
 Study the company’s general compensation structure
 Study the compensation patterns in community and industry
 Determine the compensation level
 Provide for the compensation mix/elements

EL
 Make provisions keeping in mind the unusual needs and problems of the company

PT
 Consult the existing sales force
 Prepare the tentative plan, pretest it and revise the plan

N
 Implement the plan and follow-up

(Contd.)
Define the Sales Jobs
 The first step in devising a good compensation plan is to define the sales jobs: Job
descriptions

 Well-written job descriptions serve as effective means for defining jobs provided
they offer a realistic view of what sales persons are expected to do

EL
 Separate job descriptions are required for different sales jobs and positions;

PT
incase, there are no sales descriptions, they must be prepared

N
 As no two jobs are alike, they might call for different pay structures

(Contd.)
Study the Company’s General Compensation Structure

 Job evaluation systems helps in determining the relative importance of jobs in

comparison to other jobs; they help determine pay levels and pay structures

 There are four job evaluation methods which are commonly used by companies:

EL
simple ranking, classification or grading, point system, factor comparison method

PT
N
(Contd.)
Simple Ranking: Jobs are sorted in terms of order of their worth; it is usually done
by a few HR officials, and sales persons are not involved in the process; the method
is inexpensive but not much reliable

Grading: Jobs are classified across various groups with respect to responsibilities,
skills required, supervision required etc.; a sales executive classifies these jobs

EL
across various grades, and this information is later utilized by the company for
determining pay structures

PT
N
(Contd.)
Point System: One of the most extensively used method for job evaluation; the
various elements of a job are defined in terms of mental and physical skills
requirement, educational requirements, personality traits requirements as well as
responsibility, supervision; these factors are assigned maximum or minimum points,
and the relative importance of these factor is determined, which are then allotted to
various compensation levels

EL
Factor Comparison Method: This method is like the point system but is a

PT
little complex; a cross-comparison approach is used and the jobs in this

N
case are evaluated factor by factor, which are arranged in ranks
from lowest to highest

(Contd.)
Study the Compensation Patterns in the Industry

 The compensation level for sales persons is not decided in isolation; it is affected
by supply and demand of manpower in the industry
 The management of the company must analyze, as to the kind of compensation
systems that prevail in the industry and the average compensation for similar
positions being offered by other companies in the industry; they must then take a

EL
decision as to match, lead or lag, as well as the advantages and disadvantages of
each of these options

PT
 In case there is inequity in the pay scales being offered by competitors,

N
there would be a higher probability of attrition by the sales force who
would join the competitors, in case competitors are paying higher salaries

(Contd.)
Determine the Compensation Level
 The management must decide on the amount of compensation a salesperson should
receive, keeping in mind both internal and external equity, as well the KSA’s that the sales
personnel must possess

 Many times salaries of individuals are determined on the basis of bargaining between the
company and prospective employees joining the company

EL
 In case of inequity, sales persons may get de-motivated especially if they hold similar
KSA’s and have the same job roles and responsibilities but are being paid less

PT
N
 The management must ensure that no employees are over-compensated
or under-compensated; while over-compensation increases the costs
for the company, under-compensation is not good in the long term
for a company
(Contd.)
Compensational Elements
There are four basis elements that make up a compensation plan:

(1) a fixed component to provide some stability of income: salary

(2) a variable component to serve as an incentive: a commission, bonus
(3) a component related to fringe benefits
(4) a component related to reimbursement of expenses

EL
PT
Companies select a combination of these components

N
(Contd.)
Make provisions keeping in mind the Unusual Needs and Problems of the
Company
The management must keep in mind unusual issues that must be addressed so that the
occurrence of such issues can be minimized; For example:
•Sales personnel may overemphasize small ticket (low-margin products) and neglect the big
ticket ones (more profitable products)
•Sales personnel may focus on earning small orders
•Sales personnel may want to avoid non-selling activities like follow-up calls on dealers and
customers, promotion activities etc. as they are not linked to commissions and incentives

EL
PT
 So the compensation plan must be designed to account for such problems, and to
encourage selling of better balanced orders; higher commission rates may be

N
paid for big ticket items and those that have been neglected, and for those
who obtain larger orders; points may be allotted for non-selling activities
which may be related to financial and non-financial incentives

(Contd.)
Consult the existing Sales Force
The management must discuss the issue of compensation with its current sales
personnel, and seek their suggestions for change (if any)

Prepare the tentative plan, pretest it and revise the plan

A draft compensation plan must be prepared and pre-tested on a select sample, so
as to cover several sets of territories, each representing distinct selling situations and
challenges

EL
Such a pre-test would help identify weaknesses in the plan and potential problem
areas

PT
The plan must then be revised so that the weaknesses and deficiencies can

N
be minimized

Implement the Plan and Follow-up

(Contd.)
Types of Compensation Plans
I Straight Salary Plans:
 Simplest compensation plan
 The sales persons receive a fixed amount of money at regular intervals; the entire salary is a
fixed component, and there is no variable component
 The performance of the sales person is not taken into account
 The method is suitable for sales trainees
• Advantages: The method is easy to use, understand and implement, and provides

EL
freedom from financial uncertainties; salespersons are assured of a secured income
• Disadvantages: People may prefer to be average performers rather than being

PT
higher on productivity; The method fails to reward outstanding formers or

N
penalize low performers; High performers may lose their interest,
enthusiasm and motivation

(Contd.)
II Straight Commission Plan:
 Sales personnel are paid according to their productivity; direct monetary incentive for the
salesperson
 The productivity level of a sales personnel is the only parameter which determines their salary
 The determinant is sales volume or profitability, and the commission rate is a percentage of the
sales or gross profit
 The commission rates vary with the sales volume levels which are determined by the company
and these vary across products
 Commission systems may become complex when there are differential commission rates for

EL
different kinds of products, or customers, or selling situations; two formats:
(a) straight commission with sales personnel managing their own selling expenses;

PT
(b) straight commission with the company paying the selling expenses

N
 The method is suitable for when non-selling duties are not at all important
•Advantages: The method leads to huge amount of motivation amongst
sales personnel, and this would result in sales and profits
•Disadvantages: The salespeople may ignore non-selling activities

(Contd.)
III Combination of Salary and Incentive Plans:
 Combines both straight salary and the straight commission plan
 A fixed amount is paid and the sales personnel also get a chance to earn attractive
commission rates by selling more
 This method helps management to judiciously blend control and motivation as different
plans are designed for different job positions
 Four formats: (a) Salary plus commission (b) Salary plus bonus
(c) Salary plus commission plus bonus (d) Commission plus bonus

EL
• Advantages: Such a well designed and administered plan which is apt combination of

PT
salary and commission can play a key role in encouraging sales persons to achieve
higher levels of performance as it assures financial security and options for

N
supplementing their income to a higher level.
• Disadvantages: The method s complex, and difficult to understand and
execute; clerical costs are much higher as more records need to be
maintained
(Contd.)
Use of Bonuses
A bonus depicts an amount which is paid for completing a specific sales task; it is an
additional financial reward which is paid by the company to an employee for achieving
or efficiently performing tasks like reaching sales targets, earning new customers, and
carrying out non-selling activities, leading to overall benefits for a company

Use of Fringe Benefits

EL
 Companies often use fringe benefits to attract and retain sales force
 They may be statutory (law-bound) and non-statutory

PT
Social security measures, paid holidays, medical and insurance, office
transport, furnished accommodation, club memberships, children’s

N
education allowance
There is no direct relationship between fringe benefits and job
performance
(Contd.)
References:
 Still, R.R., Cundiff, E.W., Govoni. N.A.P. and Puri, S. Sales and
Distribution Management, 6th Edition , 2017, Pearson India Education
Services.
Panda, T. and Sahadev. S., Sales and Distribution Management, 2012,
Oxford University Press, India.
Panda, T. and Sahadev. S, Sales and Distribution Management,
2nd Edition, 2011, Oxford University Press, India.
Havaldar, K.K. and Cavale V. M., Sales and Distribution Management:

EL
Text and cases, 3rd Edition, 2017, McGraw Hill Education (India) Private
Limited.

PT
Greenberg, J., (2014), Behavior in Organizations: Global Edition, 10th
Edition, Pearson India Education Services.

N
Robbins, P., Judge, T., & Vohra, N., Organizational Behavior, Pearson
Education, Noida, India.
Conclusion:

This brings us to an end of the third lecture on the sixth

module of the Course.

EL
PT
N
N
PT
EL
Course Name: Sales and Distribution Management
Faculty Name: Prof. Sangeeta Sahney

EL
Department : Vinod Gupta School of Management

PT
Topic

N
Lecture 29: Sales Force Management
-Managing Expenses of Sales Personnel
Concepts Covered:
Managing Expenses of Sales Personnel
•Background and Importance
•Reimbursement Policy and Alternatives
for Reimbursement of Sales Expenses

EL
•Methods for Reimbursing Expenses

PT
N
Background and Introduction
 Reimbursement of sales expenses is a vital component in the sales compensation
plan

The plan must be fair for both to the sales personnel and the company; the sales
persons must be able to meet their expenses, and the company must be able to earn
profitable sales

EL
PT
Sales force expenses include expenses incurred on boarding, lodging, travel, mobile
and Internet charges as well as money spent on gifts and entertainment of

N
customers

(Contd.)
Organizations must keep a check on sales force expenses that the salespersons incur: Sales
Force Expense Analysis
•Control mechanism: An efficient control mechanism is necessary to monitor sales force
performance and expenses so that the company can earn healthy net profits; It is also
important for the management to keep an account of individual sales persons expenses
•Motivational implications: Sales persons who have to incur their own selling expenses
and there is no reimbursement from the company, have a different orientation as
compared to those who are reimbursed expenses in full or in part by the company;

EL
the former would be less motivated to sell more, as that would mean incurring

PT
higher expenses to be met from their own pockets
•Power dynamics: The management’s power to direct and control is

N
higher in cases where the company reimburses expenses as compared
to those where expenses are not reimbursed

(Contd.)
It is imperative to keep expenses in control, and reimburse allowable expenses

Issues to be addressed while formulating a sales expenses reimbursement policy are:

•nature of the product and service category
•size and characteristics of the sales territory
•sales potential
•sales quotas and targets

EL
•type of customers

PT
•selling methods and selling styles required
•differences in expenses across territories with respect to boarding,

N
lodging and travel etc.
Reimbursement Policy and Alternatives for
Reimbursement of Sales Expenses
While deciding on a reimbursement policy, companies may opt from few alternatives
that are available
•Sales persons pay for their own expenses
•Companies reimburse the expenses incurred by sales persons:
‒Companies formulate a sales expenses reimbursement policy of their sales
personnel

EL
‒The policy should be perceived as fair and equitable to its sales
personnel across territories

PT
‒It should be simple to understand and economical to administer
The amount of control that companies exercise over the sales expenses of its

N
salespersons varies across companies; some companies are strict and
exercise close budgetary controls, wherein control is exercised over the
kind as well as the amount of expenses that can be incurred

(Contd.)
Sales Persons Pay for their own Expenses
Simple method, but not widely adopted and/or accepted by sales personnel

Adopted by those organizations that consider sales personnel as independent entities, for
example, brokers and agents

Advantages: Less costly; no need to maintain records as sales personnel manage their own
expenses

EL
Disadvantages: Can lead to de-motivation; in addition, when sales expenses are not

PT
paid by the company, sales persons would avoid non-selling activities and would not
like to follow up with customers to avoid extra expenses; they may defy the

N
management's directives, orders and instructions; management would have little
control over them; hence such organizations who do not have a
reimbursement policy, make up by providing higher commissions

(Contd.)
Companies Reimburse the Expenses incurred by Sales Persons
The reimbursement policy of a company may allow full reimbursement of sales expenses
incurred by a salesperson or allow for only a partial reimbursement

•Company pays full expenses: Management has full control over salesperson’s activities,
and can exercise authority; however, there would be tendency towards unethical
behavior and salespersons would over spend; this would dilute the net profits of the
company

EL
•Company reimburses expenses partially: Management can control salesperson’s

PT
activities; however, the policy needs to be properly formulated so that

N
allowable expenses can be properly set, and this would require a territory
by territory analysis regarding potential, general expense conditions,
type of customers, selling styles required etc.

(Contd.)
 Management needs to keep a control on the expenses as these are a part of the gross
profits and can dilute net profits

 The reimbursement policy of a company must be rational and reasonable

(i) It must ensure that the reimbursable expenses allow smooth conduct of duties and
responsibilities as well as the performance of both selling and non-selling activities; it must
ensure satisfactory performance, and not dilute net profits

EL
(ii) it should not let the sales personnel feel that they are not being treated well by the

PT
company
(iii) it should be easy to implement with least amount of paper work and record

N
keeping
Methods of Reimbursing Expenses

- Flat Expense Account

- Flexible Expense Account

EL
- Honor System

PT
N
- Expense Quota

(Contd.)
Flat Expense Account

A predefined fixed sum of money is paid to a sales person for a given period, be it
weekly or monthly; the salesperson must manage the allocation of expenses under

EL
different heads like boarding, lodging, travel, entertainment etc. on his own

PT
N
(Contd.)
Merits:
• The company formulates a policy after determining the expense conditions, and once this is
done, a fixed reimbursement allowance is paid; the company does not need to check expense
accounts; it does not need to maintain records, and there is lesser paper work
• Salespersons have the freedom and flexibility to use the allowance as they want; they do not
need to preserve bills and receipts; they also save on time utilized for making claims
• The method works best only when regular changes with respect to determining the fixed
selling expense amounts are not required, and when expense allowances are reviewed and
revised frequently

EL
Demerits:

PT
• The management would need to appraise the fixed amount periodically and make
adjustments due to changing market conditions, and this would mean cost in

N
terms of both time and money
• Salespersons often regard the amount as a salary or an add-on to the salary,
and are inclined towards over-economizing of travel and stay so that they
can save money
Flexible Expense Account

Also called “exact” plan, the flexible expense account is a commonly used method

Sales persons are asked to report the expenses periodically, and are reimbursed
permissible selling expenses, which are reported with legitimate bills

For calculation of the reimbursement amount, management must know the probable

EL
expenses for salespersons across territories, and understand what is permissible and

PT
what is not, and accordingly expenses must be categorized as “allowable” and
“non-allowable”

N
The method requires that procedures be established for verifying the
itemized expense reports of the sales personnel

(Contd.)
Merits:
•The method is fair and flexible as it takes into to account territorial differences, with respect to
market conditions as well as cost of living expenses etc in a particular area
•Management can exercise better control and provide directives for selling activities (sales calls,
frequency), non-selling activities, as well as, routing and scheduling
•Sales persons do not avoid going for regular follow ups as they are reimbursed for all the
allowable expenses that they incur

Demerits:

EL
•The method is difficult to administer; it is time consuming as a large amount of time is

PT
spent by sales persons in making bills and claims; a lot of time and effort is also
spent by the accounts staff in checking expense reports, verifying them and

N
settling claims
•Salespersons may over-spend in the absence of adequate checks and
supervision
Honor System

In the honor system, selling expenses are fully reimbursed

Sales personnel are not required to submit full details of expenses that have been
incurred; rather than item-wise reporting of expenses, they are only asked to report the
total expenses

EL
PT
As the name goes, method is based on “trust” shared between the company and
the sales personnel, and the latter are regarded as truthful and honest

N
(Contd.)
Merits:
•The method is easy to manage and also time saving
•It is less conflicting as chances of arguments over doubtful and/or questionable
expenses do not arise

Demerits:
•The management has little control over expenses

EL
•Sales personnel may over spend on their own selves, and this would affect the
profitability of the company

PT
•Funds may be used abusively, and seen as an extra source of income

N
•Hence, the management must keep an eye on controlling individual
expenses
Expense Quota

The expense quota method allows periodic variations, week-wise or month-wise but
controls the expenses in long run

EL
Expense quotas are defined by the management, and this requires evaluation of sales
territories and prospective sales volume for those regions; once the sales volumes for the

PT
territories are estimated, the upper limit for expenses is set by the management

N
(Contd.)
Merits:
•Under this method, timely and full reimbursements are made to the sales people, regardless
of periodic variations, week-wise or month-wise
•As upper limits are prescribed, sales personnel exercise self-control, and keep their selling
expenses under control
•Sales personnel are entrusted with the responsibility of controlling their own expenses

Demerits:

EL
•The implementation of the system requires careful planning and implementation

PT
•Accurate sales and expense forecasts are required; else in order to keep their
expenses within suggested limits, sales personnel may avoid taking additional

N
roles and responsibilities; they may also avoid non-selling activities
References:
Still, R.R., Cundiff, E.W., Govoni. N.A.P. and Puri, S. Sales
and Distribution Management, 6th Edition , 2017, Pearson
India Education Services.
Panda, T. and Sahadev. S., Sales and Distribution
Management, 2012, Oxford University Press, India.
Panda, T. and Sahadev. S, Sales and Distribution

EL
Management, 2nd Edition, 2011, Oxford University Press,
India.

PT
Havaldar, K.K. and Cavale V. M., Sales and Distribution

N
Management: Text and cases, 3rd Edition, 2017, McGraw
Hill Education (India) Private Limited.
Conclusion:

This brings us to an end of the fourth lecture on the sixth

module of the Course.

EL
PT
N
N
PT
EL
Course Name: Sales and Distribution Management
Faculty Name: Prof. Sangeeta Sahney

EL
Department : Vinod Gupta School of Management

PT
Topic

N
Lecture 30: Sales Force Management: Evaluation
 Concepts Covered:
Meaning of Evaluation
Purpose of Evaluation
Methods for Evaluation
Process of Evaluation
Determinants of an Effective Evaluation

EL
System

PT
Common Perceptual Errors during
Evaluation

N
Meaning of Evaluation
 An evaluation system is an organized and periodic assessment of an employee’s
performance on his present job and his potential for future jobs

 Also referred to as performance evaluation or appraisal

EL
 The aim of any performance evaluation system is to assess the effectiveness and

PT
efficiency of employees, and prepare them for future

N
(Contd.)
Performance evaluation is an effective means for controlling the performance of sales
personnel

It involves comparing the actual sales performance of employees with the desired

EL
performance of sales personnel and taking corrective actions for improving
their performance

PT
N
Purpose of Evaluation
 The purpose of evaluation systems is to assess as to how well the
salespersons have performed. This helps decide on matters like:
•Feedback to employees
•Rewards: for sales personnel who have met the desired performance
levels; the rewards could be monetary and non-monetary; Higher
commissions, incentives, bonuses, and recognition act as motivators
•Training needs and design of training programs: for both under-

EL
performers and good performers; for the former to help improve their

PT
performance, and for the latter to enhance their KSA’s even further
•Career development: Promotions, transfers, training

N
•Job design and goal setting: Redefining jobs to make them more
interesting, and revising objectives in case of unrealistic targets
Methods for Evaluation
Objective Measures: these measure employee performance in terms of units that
can be seen and quantified; quantitative measures

Subjective measures: these measure employee performance based on human

EL
judgment, like ranking, rating, paired-comparisons, forced distributions etc.; majorly,
qualitative but also quantitative (in case of ratings)

PT
N
(Contd.)
Process of Evaluation
An evaluation system comprises the following stages:

1. Establishing performance standards for sales personnel

2. Measuring actual sales performance of the sales personnel

EL
3. Comparing actual performance against standards

PT
4. Identifying deviations and taking corrective action

N
(Contd.)
1. Establishing Performance Standards for Sales Personnel
Performance standards are also termed as sales objectives or targets or sales quotas
Establishing performance standards requires understanding the nature of jobs;
• Eg. the performance standards service and developmental selling would vary
There must be a coherence between the sales performance standards, and what is
critical for performing a job so that results can be achieved; hence a sales job analysis is
necessary
Establishing performance standards requires setting up of a policy framework for

EL
performance evaluation of salespersons. Issues to be decided upon:

PT
•who shall evaluate;
•what are the measures that shall be used: objective, subjective or both;

N
•when will the evaluation take place and what shall be the frequency of evaluation;
•what will be the source of information (eg. various reports: sales, customers lost,
new accounts; etc.)

(Contd.)
To formulate realistic performance standards, companies must possess knowledge of:

•Total sales potential of the company as well as their territorial distribution

•Potential profitability of the company as regards various product classes, and classes
of customers
•Selling expenses of the company in different territories. This information helps the
company in setting required volume of sales required for the company for reaching

EL
the break-even point and desired profitability

PT
•Strengths, weaknesses, practices, and policies of its competitors

N
(Contd.)
Performance standards may be:
•Objective (quantitative): sales volume and profit earned, average sales calls per day,
selling expense ratio etc.
•subjective (qualitative): pertaining to human behavior, eg. interpersonal skills,
punctuality, sincerity, attitude, motivation, customer service

The performance standards would vary across sales jobs and sales positions based on
the nature of the job, selling strategies and methods involved, conditions prevailing in

EL
the industry etc.

PT
Standards must be realistic, and once set, the salespersons must be

N
communicated about the same

(Contd.)
 Quantitative Performance Standards:
• Such standards define the nature and desired level of performance
• These have for long years, served as an effective means for the companies for
stimulating performance of employees
• Different kinds of Quantitative Performance Standards
oQuotas
oSelling expense ratio
oTerritorial net profit or gross margin ratio
oTerritorial market share
oSales coverage effectiveness index

EL
oCall-frequency ratio
oCalls per day

PT
oOrder call ratio
oAverage cost per call

N
oAverage order size
oNon-selling activities
•A combination of standards are used by the companies as instruments of control
and to keep the sales force motivated towards desired levels of performance

(Contd.)
 Qualitative performance standards:
• Used for such aspects which cannot be measured, and are mainly utilized for appraising
performance characteristics that affect sales results in the long term
• Executive judgment plays a critical role in measuring qualitative performance

EL
PT
N
(Contd.)
Performance Standards
Performance Description
Standards
Quotas These standards are expressed in absolute terms (in rupees, number of units,
or points) and apportioned to a specific marketing unit; these are specific
desired level of sales volume, gross or net profit, selling expenses or a
combination; the marketing unit may be a salesperson, dealer, territory etc.;
most popularly used standard
Selling Expense The standard is meant to exert control over selling expenses, as selling

EL
Ratios expenses, if high, can dilute the net profits of a company; what is assessed is
selling expenses in relation to sales; the ratio is determined on the basis of

PT
estimates regarding both the sales volume potential and the selling
expenses in a territory, and hence these may vary across territories,

N
and across salespersons serving across territories

(Contd.)
 Performance Description
Standards
Territorial Net These standards are determined on the basis of required territorial ratio of net profit to
Profit or Gross sales or gross margin to sales for each territory; the objective is to encourage
Margin Ratios salespersons to sell a balanced line of products and also keep in mind the relative
profitability across different products, customer segments and territories; the objective
is that each territory must contribute towards overall profits, and all kinds of big and
small ticket items as well as high and low profit potentials must be paid attention to
Territorial In order to control the company’s market share on a territory by territory basis, the

EL
Market Share target market share percentages for each territory are specified, and thereafter
company sales to industry sales in each of the territories is compared to check the

PT
effectiveness and efficiency of the salespersons; the standard serves as a basis
for maintaining a certain level of customers across each territory

N
(Contd.)
 Performance Description
Standards
Sales Coverage This index is calculated as a ratio of the number of customers to the total prospects in a
Effectiveness particular sales territory; individual standards for sales coverage are specified for customers,
Index across segment(s), be it class or size
Call Frequency This is calculated by dividing the number of sales call made to a particular class of customers
Ratio by the total number of customers in that class; the method ensures that sales effort are made
towards such customers who are the most profitable ones, and would give huge orders
Calls Per Day These are standards with respect to a certain number of calls which the sales personnel are
required to make per day; this assures generation of leads, which would help sales

EL
personnel plan their activities in the coming days and weeks; the standard is determined
based on customer density and spread, road and traffic conditions etc. and

PT
varies across territories
Order Call Ratio This is calculated by dividing the orders materialized with the number of

N
calls made; it is used as a measure for judging the effectiveness of
sales personnel as regards obtaining final orders; the order call ratio
is set for different classes of customers; also called the batting
average ratio

(Contd.)
 Performance Description
Standards
Average Cost This standard highlights the relevance of profitable calls; mainly used as a means for
Per Call reducing calls frequency on orders that require more calls but are less profitable; the
objective is to set standards for each category of customers
Average Order The average order size controls the frequency of calls that are made on different
Size accounts; different targets are set for different kinds of customers, be it size or classes of
customers; by determining the average order size, sales personnel are encouraged to
put more efforts towards selling to accounts from where large orders can be obtained

EL
Non-selling These include collection of payments from dealers and distributors, securing display of

PT
Activities products at various locations, local advertising arrangements with dealers, etc.

N
References:
Still, R.R., Cundiff, E.W., Govoni. N.A.P. and Puri, S. Sales and
Distribution Management, 6th Edition , 2017, Pearson India
Education Services.
Panda, T. and Sahadev. S., Sales and Distribution Management,
2012, Oxford University Press, India.
Panda, T. and Sahadev. S, Sales and Distribution Management,
2nd Edition, 2011, Oxford University Press, India.

EL
Havaldar, K.K. and Cavale V. M., Sales and Distribution
Management: Text and cases, 3rd Edition, 2017, McGraw Hill

PT
Education (India) Private Limited.

N
Conclusion:

This brings us to an end of the fifth lecture on the sixth

module of the Course.

EL
PT
N
N
PT
EL