Sat. Mar 25th, 2023

Sales Territories

A sales territory is defined as a group of present and potential customers assigned to an individual salesperson, a group of salespeople, a branch, a dealer, a distributor, or a marketing organization at a given period of time. 

Territories are defined on the basis of geographical boundaries in many organizations. Though the geographic market may have a heterogeneous mix of both existing and potential customers, a decision on the basis of geographic coverage has distinctive advantages.

What is Sales Territories – Introduction

The idea behind the creation of sales territories is to match the sales opportunities with the selling effort. A salesman is given a group of similar customers and prospects for servicing. This assignment by itself facilitates the planning and control of the sales operations.

Each territory has its own strong and weak points and management can use these strategically. Sales planning is with respect to the territories created. In a heterogeneous market, a territory is comparatively more homogenous. A territorial division also brings out an element of effectiveness in the sales operations. It also helps the appraisal of the sales effort.

Conceptually, a territory may represent:

(a) A particular geographical area mostly.

(b) A group of customer accounts or prospects, e.g., hospitals and institutions.

(c) A market.

(d) An industry, i.e. pharma-central formulation units are a territory of bulk doing manufacturers.

Considered operationally, a territory represents a customer grouping. Though most companies emphasize geographical territories, some companies with the technical style of selling ignore this basis and assign salespersons to a particular customer grouping.

Even in geographic territories, ultimately a salesman deals with a customer grouping. Geographical territories also do not matter much in insurance selling, property selling, selling of shares and securities and automobiles. In all situations when the salespersons are internal order takers, the geographical territorial division does not matter. Only when the salespersons are external order getters, there is scope of geographical territorial division.

Specialized salespersons also call for non-geographical territorial division. Small companies and companies with innovative products also avoid geographical division.

The majority of companies, however, have adopted geographical territorial division. While assigning a territory, we have to consider the service requirements and cost of providing the service to the customers. Geography influences both of these. Even within a geographical division, there are groupings of customers and the division just for the sake of administrative convenience.

Companies deal directly from their headquarters with some important customers providing the bulk of the business. Such accounts are not assigned to any salesmen. These accounts are called house accounts.

Sales territories are established to achieve the following goals:

(i) To cover the market properly.

(ii) To deploy the salespeople effectively.

(iii) To service the customer grouping efficiently.

(iv) To evaluate the sales representatives.

(v) To facilitate higher productivity in selling and marketing efforts.

(vi) To control selling expenses.

(vii) To coordinate personal selling and advertising.

What is Sales Territories – Meaning and Definitions

It is a geographical area including the customer group or groups that are assigned to a particular salesperson or the sales team. All the activities of the salesman or the sales team needs to be conducted within that area. In the same way, various geographical areas will be assigned to different salespeople or sales team.

Sales territory planning and management is an important task, the sales team along with the top management in the sales department should spend time and plan the sales territories and provide guidelines for the management of the sales territories.

A sales territory is defined as a group of present and potential customers assigned to an individual salesperson, a group of salespeople, a branch, a dealer, a distributor, or a marketing organization at a given period of time. For a firm, a profitable sales territory is one which has a number of potential customers that are willing to buy the category of products sold under the firm’s brand name.

Territories are defined on the basis of geographical boundaries in many organizations. Though the geographic market may have a heterogeneous mix of both existing and potential customers, a decision on the basis of geographic coverage has distinctive advantages.

A well-planned territorial design, for example, helps in matching the selling efforts with the sales opportunities in that market. Sales managers assign their sales force the responsibility of serving particular groups of both present and potential customers and serving as a contact point within these markets. This helps to give direction to the process of sales planning and control.

According to Still and Cundiff (2004), a sales territory is a grouping of customers and prospects assigned to an individual salesperson. Maynard and Davis (1957) are of the opinion that a sales territory is the basic unit of sales planning and control. According to Cranfield (1987), a sales territory is a geographical area containing the present and potential customers who can be effec­tively and economically served by a single salesperson, branch, dealer, or distributor.

An analysis of the above definitions indicates that a sales territory is a geographical area that identifies and serves a category and a certain number of customers. A sales territory helps in better sales planning and effective operational control. However, in some instances, companies do not follow geographic designs for sales territories.

For example, a small firm catering to a small niche market may not go in for a geographic design because sales planning and control can be more effectively planned from the corporate office itself.

There are some situations where companies decide to build sales territories on the basis of the urgency and frequency of customer requirements rather than geographic coverage.

These include situations where products are highly technical and complex in design, when organizations prefer either a technical sales force or a system-selling approach, and where a set of people with varied knowledge levels are grouped together to provide solutions to customers’ problems and queries. The problem with such a method is that the same customer may get calls from multiple salespeople from the same organization.

An alternative method is to make a single salesperson accountable for one set of clients only and if required, call technical specialists for assistance. Also, in situations where personal relation­ships and acquaintances have a bearing on sales, organizations do not prefer territorial designs for salespeople.

In the case of knowledge and investment products, for example, a customer may prefer to deal with the salespeople he is comfortable with. To respond to this preference, an organization may need to call upon a salesperson serving in another territory.

In the words of B. R. Canfield, “A sales territory is a geographical area containing present and potential customers who can be effectively and economically served by a single salesman, branch dealer or distributor.”

According to Stiff and Cundiff, “A sales territory is a grouping of customers and prospects assigned to an individual salesperson.”

According to Mynard and Davis, “Sales territory is the basic unit of the sales planning and sales control.”

In the words of Stanton and Buskirk, “A sales territory is a number of present and potential customers located within a geographical area, and assigned to a salesperson, branch or middlemen (retailers or wholesaler).”

What are Sales Territories – Characteristics

  1. Sales territory is a geographical area containing a number of present and potential customers.
  2. Different groups of customers are formed by a firm through the allotment of territories.
  3. It is a group of customers or geographical area assigned to a salesman.
  4. It is the area that can be effectively and economically served by a single salesman.

Developing a sales territory

Sales Territory Planning and Management:

  1. Research the geographical area
  2. Divide the area on the basis of population, accessibility, potential, etc.
  3. Study the consumer behaviour of the territory
  4. Assess the revenue potential from the respective territories
  5. Analyze the hurdles that may be present in the territories
  6. Define the products suitable for the territory
  7. Probe further to find out specific needs and wants of the people within the territory
  8. Prepare a plan for each territory with quotas and tasks to be accomplished
  9. Appoint salespeople or sales team for each territory
  10. Monitor and track the performance of each territory
  11. Review salespeople’s performance for each territory, and
  12. Avoid overlapping territory because it causes conflict among the sales people.

What is Sales Territories – Size of Sales Territories

There are various factors that influence the size of a sales territory. For a sales manager, an understanding of these factors will aid in deciding on the size of the sales territory. These factors include the nature and demand of the product, mode of physical distribution, the selling process, and transport and communication facilities in the overall market and territory.

Other factors that influence the size of the territory are government regulations, density of population and population spread within the territory, and market potential and growth rates. The level of competition, firms’ sales policy, the ability of the salesperson, and the overall economic conditions prevailing in the country are other factors influencing the size of sales territories.

If a product is a consumer durable with a longer shelf life, the company may prefer to have a larger territory compared to smaller territories for perishable commodities. Territories can be established on the basis of the nature of the product, namely consumer, industrial, durable, or non-durable.

Only when there is a huge demand in the market for the product, the companies decide on designing smaller territories so that the salespeople can cater to the customers and provide adequate service to them within a limited geographic area.

When companies decide to go through intermediaries such as wholesalers, who manage distribution to the retailers, they prefer to have a larger territory. On the other hand, in industrial buying, where bulk order booking is done by a salesperson or in situations where a company also handles the retailers, the size of the territory is kept small.

Organizations, where a higher allotment is made towards selling expenses, go in for larger territories as the outlays permit them to cover a wider area through their own salesforce.

Similarly, a better, cheaper, efficient, and faster transportation and communication facility makes companies decide whether or not the territories of the salespeople are large enough to take advantage of these facilities.

Territories in rural markets in India are smaller in comparison to the urban markets as transportation and communication are problems in these markets. Government restrictions and regulations of taxes and the movements of the goods also influence the decisions of a firm in regard to the size of the territory.

In a market with a high density of population and market potential, companies decide in favor of smaller territories. In a highly competitive market, where the success of the enterprise largely depends on the close relationship that one firm has with customers, the size of the territory should be small.

If a company has experienced, well-trained, and competent salespeople, it may go for a larger territorial cover, as compared to the organizations with novice salespeople who need to make more calls to realize a sale.

If a firm with a limited number of products wants to earn higher profits, the size of the territory will be larger, as here profit goals decide the size of the territory, and the sales are derived out of fewer products. The overall condition of the economy also affects the size of the territory.

For example, a small-size territory is suitable for a firm during a recession when prices have stabilized and customers are not willing to spend spontaneously. During a boom condition, however, firms can increase the size of the territory so that salespeople can cover a larger market with higher demand due to an upturn in the economy.

What are Sales Territories – Factors to be Kept in Mind while Allocating Sales Territories

According to Gauss, Whiteman, and Bates, the following factors may be kept in mind while allocating the sales territories:

  1. Even distribution coverage (uniform distribution) – While allocating the sales territories for each salesman, the Sales Manager should keep in mind that the size of territories to be allotted should be in optimum size, as far as possible. An optimum size will help the salesman to provide his services with pleasure and willingness.
  2. Elimination of duplication of activities – While allocating sales territories, care should be given to avoid duplication of activities. A salesman may be given a specified territory for operation at a given time.
  3. Equal opportunity – While allocating sales territories, care should be given to have an equal distribution of responsibilities and opportunities for all the salesmen.
  4. Flexibility in allocation – The allocation of territory may be made flexible so that whenever the sales manager feels it necessary to change the territory between salesmen, he may do so very easily. But, as far as possible, such changes should be avoided.
  5. Controllable – The allocation of sales territories may be made in such a way so as to exercise control over the sales functions, at minimum costs.
  6. Capable of comparative study – The allocation of sales territories may be made in such a way so that a comparative study of sales opportunities and achievement, and job performance of each salesman can be evaluated well.
  7. Uniformity in income – The allotment of territories may be made in such a way that all the salesman should get an average of equal income. Inequality in income may develop dissatisfaction among the salesmen.
  8. Economical – The allocation of sales territories should be made in such a way that the traveling expenses of salesman, sales managers, and other sales personnel may come to a minimum. Maximum services at minimum costs should be the policy to be followed.
  9. Efficient performance – Allocation of sales territories should be made in such a way that every salesman may get the motivation to discharge his functions in the most efficient manner.
  10. Allocation to new salesmen – New salesman may not be given the entire responsibility of a sales territory. He should be associated with an experienced salesman so as to learn the sales techniques gradually.

The allocation of sales territories has certain advantages, directly and indirectly to the company, its salesmen and customers.

The company may have the advantages of effective distribution of responsibility to each salesman. The company will be able to evaluate the functions and responsibilities of the salesman so as to determine their remuneration structure, motivation system, etc. It is an effective step to face the competitors’ activities in the territory that can be studied.

The salesmen have many advantages. They have enough freedom in dealing with their respective territories. Their efforts are very much countable and hard work put by a salesman is suitably rewarded.

The customers also have various kinds of advantages such as; efficient and immediate after-sales services, quick disposal of complaints, individual satisfaction by visiting the salesmen regularly and their suggestions in respect of the purchasing decisions by the customers, etc.

Factors that Determine the Size of a Sales Territory:

(i) Prospect density or the number of prospects in the specified area.

(ii) The extent of ground to be serviced.

(iii) Possible volume of sales,

(iv) Frequency of visits necessary.

(v) Intensity of selling effort required during each call.

(vi) Ease with which one can travel within the territory and the mode of transport available.

(vii) The inventory turnover at the retail level.

(viii) Whether it is easy to sell the product or difficult. As a rule, the smaller the territory, the better it is for traveling, and the greater the depth of selling effort. Salespeople, however, would like to have as large a territory as possible. But smaller territories are serviced intensively.

What is Sales Territories – Objectives

  1. To facilitate effective sales planning.
  2. To cover and manage the entire market.
  3. To assign salesmen’s responsibility for a particular territory.
  4. For a better evaluation of the performance of the salesmen.
  5. To reduce the selling costs.
  6. To facilitate coordination in marketing functions.
  7. To make the marketing research functions.
  8. Development of fair competition among all salespersons.
  9. To improve the customer relations.
  10. To appoint salesmen matching with the territory and customers.
  11. Independent work area for each salesman.
  12. To compete effectively with competing institutions.

What is Sales Territories – How to Design Sales Territories?

A company has to establish a geographic control unit. For a multinational company, this could be a country. Then for a national company, it could be a region or zone consisting of one or several states. There can be further units in terms of cities or districts. A trading area representing a natural flow of trade can be chosen as a control unit.

After establishing a control unit, we have to determine the sales potential of each control unit. The units are then combined into tentative sales territories. These can be further refined by making suitable adjustments.

It is now time to consider the number of territories assuming an average salesforce. In other words, we have to consider the contribution of each salesman to the total sales potential. Experience is the best guide here.

There are two basic approaches:

  1. Market Build-up Approach
  2. Workload Approach.
  3. Market Build-up Approach:

Consider a company selling sonography machines or diagnostic equipment like CAT Scanners. In this approach, we shall estimate the present users and potential users of our product. We shall also estimate their consumption capacity. Aggregating we get the total market potential. We shall then decide how many shares of this total market our company desires to have. That gives us the sales potential.

Sales potential of the whole market is then broken down territory-wise. It is then given the necessary marketing backup.

To illustrate, the total market for sonography machines maybe 5,000 units, out of which Maharashtra accounts for 1,000 units, which is 20%. This organization finds it desirable to dedicate its 20% selling efforts to Maharashtra. There may be three categories of hospitals and nursing homes using sonography machines – A, B, C. We then decide the call frequency and call number to achieve amongst each category of A, B, C institutions.

Area-wise total sales calls are calculated. Each representative completes a certain number of calls. Total calls required leads to the number of representatives required in that area. Sales territories are designed so as to equalize the sales potential and the workload for each territory.

W.J. Talley’s Workload Approach:

Territories are created in terms of workload of MRs. (Market Representatives)

The steps involved are:

(i) Customers are grouped into categories.

(ii) Optimum call frequency for each category is estimated.

(iii) Present and potential customers are then located geographically and arranged category-wise.

(iv) Number of customers in each category is multiplied by the desired call frequency to get a total number of calls.

(v) Geographical control unit is then established. It gives an adequate workload to each SR.

Territory Shape:

Territorial shape affects both its coverage and the selling expenses. It facilitates time management and stimulates salesforce morale. There are three widely prevalent shapes the wedge, the circle, and the cloverleaf.

Wedge-shaped territories are suitable for urban as well as non-urban areas. It starts from a thickly populated urban center. Many sizes of the wedges are possible. Two neighboring wedges can help equalize the travel plan by balancing urban and non-urban types of calls.

Scattered customers call for a circle-shaped territory. The salesman remains at the center of the circle or near to it. It makes possible optimization in the frequency of calls. He is far more in the vicinity of customers than a salesman in a wedge-shaped territory.

Randomly located accounts call for a clover-leaf type of arrangement. Each cloverleaf represents a week’s work. A salesman is at home every weekend. Such arrangement is common in industrial marketing. It is also suitable for extensive marketing.

Territorial Adjustments:

Different territories have different problems of overage and so require different selling efforts and expenses. We cannot assume that all territories are uniform. Some territories are difficult to cover, almost bordering on hardship areas. Some metros have greater sales potential than the entire region. In territory optimization, we tend to seek an equalization of additional sales per rupee of sales expenses amongst all territories. Therefore, we consider both the coverage difficulty and sales potential.

Variations in coverage difficulty lead to variations in workloads. It is necessary to estimate the largest possible workload that does not cross the limit of the desired workload. This is a constraint on the territory’s geographic limit. Workloads amongst salespeople differ keeping in mind their individual abilities. We have already discussed the workload method while discussing the size of the salesforce. The same concept is used for territorial adjustments which is called redistricting.

Still, Cundiff and Govoni put redistricting in a seven-step process:

  1. Estimation of how many customers there are, where they are located and what type of customers they are in each tentative territory.
  2. Estimation of time duration of each call.
  3. Estimation of travel time taken between calls.
  4. Decide call frequencies.
  5. Computing the number of calls possible in a given time period, adjusting for different classes of customers –
  6. Correction for the number of calls possible in a given time to accommodate the desired call frequencies for different classes of customers and prospects.
  7. Correction on the basis of feedback given by salespeople who have serviced the territories.

Assignment of Territories to Salesmen:

Just as each territory has a different sales potential and coverage difficulty, each salesman has a different ability to service a territory. It is also true that a salesman showing brilliant performance in one territory may show dismal performance in some other territory. Performance is also related to the customer profile, and dyadic interactions. We have to match the sales opportunities and the talents available with us.

The assignment should be such that the best comes out of each individual salesman. In different organizations, there is different amount of discretion available to the management for this assignment. Some companies continue the status quo and ‘no-transfer’ policy for years together.

Territorial adjustments are made to accommodate the manpower available. Here, territories are built around the salesmen. Some companies keep on shuffling the salespersons amongst the territories to attain an optimum mix. It is better to attain a golden mean between these two extreme positions.

Routing and Scheduling Salespersons:

These are the tools of planning which facilitate the location of the salesmen out in the field and communication with them whenever necessary. A route plan according to a timeframe improves territorial coverage. A map is prepared of the travel plan. When we introduce the element of call frequency, we have a by-product called scheduling. Call schedule however goes beyond journey planning. Correction is made in routing and rerouting is done for achieving the desired call for frequencies and to accommodate new customers.

Routes and schedules are constantly revised to account for changed physical conditions and market environment.

Routing and scheduling reduce wastage of time. It also helps achieve better order book position.

Scheduling must leave some scope for time-cushioning considering the requirements in the field.

What amount of detail must go into routing and scheduling depends upon the nature of a company’s business.

Routing and scheduling are also good control tools. They control a salesman’s movement and expenditure. Reports are checked to see whether routing and scheduling are being followed or not.

Sales Territory Performance:

A number of factors are considered to assess the performance of a sales territory. The major determinant is, of course, the market potential. There are other factors too. The analysis should be standardized so that the different territories could be compared.

Each sales territory requires a sales man who completes a task there. A sales territory is a geographical area or a specified group of customers, products/product lines, or any combination of these.

A territory’s performance is a composite emerging firm territory potential, territory workload, salesmen characteristics, company standing in the territory and other influences.

The company effort consists of promotions, feedback, quality of supervision, and distribution. The contribution of different factors will vary in each company as the selling situations are different.

A general relationship of these composite variables can be stated as:

The states of each component will lead us to sales performance in a territory. However, the exact relationship cannot be specified. Performance is partially determined by the salesmen. Research findings support this premise.

Designing a Sales Territory:

Designing a sales territory is one of the most difficult jobs for sales managers. Various factors, such as the size of an organization, level of competition in each product category, number and quality level of the products in the portfolio, type and quality of the services and customer support to be provided, and the quality of the salesperson serving in the organization, are considered while designing sales territories.

The territories once established need to be observed and controlled for performance, and over a period of time need to be realigned and redesigned for improving the sales efficiency of the organization in response to changes in the market situation.

Territorial redesign is done when the market grows to such a size that it is not possible for the same sales force to cater to the market or when there is a merger or a takeover. A territorial redesign is also needed when there is a change in the stage of the product life cycle and when there is a reallocation of customers in the market. In these situations, a sales manager has to return to the basics of the design and make suitable adjustments to the size of the territory.

Territory design is a time-consuming and manual process where charts, maps, and topographical data are taken into account. Salespeople at Marico industries, for example, use geographic information systems (GIS) software to design territories. The GIS contains detailed maps of specific regions and allows the user to key in additional information, such as demographic data of the market to help managers overcome design problems.

Marico’s GIS software uses sophisticated tools that analyze satellite-based pictures to provide relevant data on transportation, communication, distribution of settlements, and the spread of retail outlets in a geographic area.

This software also helps the sales managers to look at the demographic data of customers, such as their purchase parity, in order to forecast the probable purchase levels and link it with the retail distribution data for effective transportation route and territory planning.

The first step in designing a sales territory is to select the appropriate geographic control units that can be combined to form sales territories. These control units must be small enough to allow flexibility in setting up geographic boundaries but should not be so small that a high level of data manipulation is needed. The units so selected should be homogenous and of reasonable size to achieve economies of scale.

These basic units can be a country, state, district, division, or block with clear boundaries. Firms having international or global operations treat a country as a territory. Further, a country can be subdivided into states or geographical control units, which differ in terms of area, population, transportation, resources, purchasing power, and the level of development.

The division of units on the basis of a district is suitable for large-scale producers and for those customers spread over a large population. The selection of the geographical control units will be effective only when it is based on a trading area.

A trading area is a geographical area concentrated near a city where there are many retailers and wholesalers that furnish a high level of sales, despite a small geographic concentration. A trading area is made up of a principal city and the surrounding dependent area. It is an economic unit that ignores the political and non-economic reasons of setting boundaries.

Trading areas are based on economic factors, consumer buying habits, and normal trading patterns. Trading areas facilitate sales planning and control and reduce the probability of a dispute and a duplication of efforts by two salespeople. By selecting a unit on the basis of a trading area, the sales staff can attend to customers’ problems and provide better service.

Firms dividing cities as trading areas often rely on the postal index number (PIN) code for identification. The disadvantage of using trading areas as basic control areas is that they vary from product to product and should be referred to in terms of specific products only. The boundary of two products may not match and this can prove to be cumbersome for a multi-product company. It is also difficult to obtain detailed statistics for trading areas.

This makes the selection of a trading area expensive as a geographical control area, though some firms redesign areas to coincide with product lines. The ultimate control unit involves a combination of a group of customers, although there is a high burden for computation in deciding the territory. The final decision is based on a trade-off between the flexibility of keeping the unit small and the higher cost of manipulating data for a large number of control units.

A.C. Neilsen, a market research company, develops trade area maps. These area maps are available for various general product classifications. The firm publishes 65 major trade maps and 250 minor area trade maps. The major trading areas are mapped out of metropolitan cities and state capitals.

The minor trade areas comprise populated towns in different states. Various newspapers and television channels also publish their readership and viewership data on cities. This data is often used by pharmaceutical and other consumer durable companies for territorial planning.

  1. Criteria for selecting Geographical Control Units:

Once the selection of the basic geographical control unit (GCU) is complete, the next task is to analyze the consumer characteristics, buying patterns, market share data, and the competitive position of a firm in order to identify the sales potential of each control unit. A sales manager has to identify both the present and the prospective customers on the basis of information such as sex, age group, likes and dislikes, requirements, the standard of living, and data on disposable income.

Other market information, such as the type and level of competition, and demand patterns for the product category and the brand, are also gathered to forecast the potential sales in basic geographical control units. Services of field salespeople can be obtained to gather requisite customer information and forecast the potential sales with the help of top authorities, market experts, and statistical models.

Based on the forecasted sales units for the geographic control units, managers can combine contiguous control units to form territories. This helps in avoiding the situations where the sales force becomes demotivated by assigning territories based only on market data. The basic objective at this stage is to make the tentative territories as equal as possible in market potential. Each territory should provide an equal standard of living for the sales force.

Differences in the workload or sales potential due to different levels of competitive activity are not taken into account at this level. It is also assumed that all members of the sales force have equal experience and capabilities in the market in achieving a sales goal. All these assumptions are taken into consideration at subsequent stages as well. The attempt at this stage is on building an approximation of territory for final alignment. The total number of territories should be equal to the territorial needs defined prior to this exercise.

Many Indian firms take into account three key factors while deciding on the size of the terri­tory. The customer base comprises current customers, potential customers, and geographic size in terms of square kilometers or square miles to be covered by the salespeople.

The current customer base helps in identifying the basic workload for the salespeople, as existing customers are added in each new territory. The presence of existing customers improves the morale of the sales force and motivates them further. Current sales in the area should not be used as the sole allocation criterion as it ignores the future potential.

A salesperson who has worked hard to build a sales territory to the current level will be dissatisfied if the territory is broken into current and future sales and handed over to a new salesperson as a result of reallocation.

The market potential is also another important basis of allocation as it largely depends on how salespeople successfully convert prospects into customers. If there is no computation of the potential markets, the sales force would only concentrate on doing business with current customers and the optimum potential of the territory will not be exploited.

Balancing territories on the basis of geographical spread is also another important issue as it divides the travel and customer time for closing a sale. When the territories are compact, the cost and time of travel can be minimized. Physical obstacles, such as the location of rivers, mountains, and bridges, are taken into account so that topographical features are also considered while deciding the size of the territory.

Hindustan Unilever Limited (HUL), for example, uses topographical data for the purposes of territory design as the supply van routes are often affected by congested traffic, long drives, and poor road conditions.

  1. Starting Point:

After ascertaining the sale potential in control units, a sales manager should form tentative sales territories as the starting point by selecting geographic locations. A common choice is the location point (often the residence of the salesperson). This is done to avoid the relocation cost of the salesperson and provides emotional support by keeping the salesperson closer at home with his family and relatives. Another starting point is the trading area.

A trading area in the Indian context is either a large city or a district headquarter, which provides immediate access to a large market and involves less travel. In national accounts or business-to-business (B2B) selling, the location of a large account will be the starting point so that the salesperson can pro­vide services to customers and get information on them without much travel. Many times, a central geographic location or a state capital becomes a starting point on the assumption that a place for the sales staff can be identified by the company for relocating the salesperson to a central place.

iii. Territory Shapes:

Companies use different kinds of shapes for designing sales territories. The shape of the territory affects the sales expenses and the ease of sales coverage. It also helps a salesperson to spend less time on travel and keeps salespeople motivated to work hard. The three popular territory shapes used in the Indian market are wedge, circle, and cloverleaf.

The wedge-shaped territory is most applicable for fast-moving consumer goods and is used by companies such as Marico Industries, Procter and Gamble Limited, and Hindustan Unilever Limited. These companies serve both the urban and the rural markets in India. The design radi­ates from densely populated urban areas to small rural areas.

The travel time among adjoining wedges can be equalized by balancing the travel time between the urban and rural areas. The circle-shaped territory is appropriate when companies have their accounts distributed across equally sized areas. In a circle-shaped territory, a salesperson is based in the central part of the area and travels uniformly to different areas.

Companies concentrating in urban areas, such as Maruti Udyog Limited, Hyundai Motors, and Park Avenue, follow this kind of territorial design. The cloverleaf design is used when accounts are distributed randomly throughout the territory. Careful call planning makes each visit to the clover a timely affair on the basis of a weekly, daily, or periodic schedule for salespeople.

  1. Control Units Adjacent to the Starting Point:

Once the decision about the starting point is taken, the sales managers then combine control units to build up the market. Here, the sales managers keep on running totals on the allocation criteria for each newly designed territory. This process of allocation continues until all control units are assigned to each salesperson. The basic units are combined together so that the sales potential can be converted into sales. At this level, sales territories are tentative and necessary adjustments can be made in the future on the basis of the scope of market coverage.

  1. Allocation Criteria and Workload Analysis:

After initial allocation of the control units, a sales manager needs to compare the territories on other relevant criteria such as customers per square mile and support retail outlets per square mile. Many times, small and large territories in a particular geographic spread may have equal potential for customer size. In such cases, there is a need to allocate control units on the basis of traveling and call norms in order to reach customers.

The more the number of factors considered for deciding on the territory, the more judgmental is the sales manager in deciding on the territories. In this process, sales territories are given the final shape by adjusting and redistributing the tentative territories. This adjustment is made keeping in view the sales potential, customer size, market growth rate, and sales expenses involved in the market coverage.

Once initial boundaries are established for each sales territory, the next task is to determine how much work is required to cover each territory on the basis of equal sales potential and workload. Workload analysis consists of deciding how much selling effort is required to meet the sales objectives for a given region.

If there is a need for a higher selling effort within the territories, then the boundaries can be shrunk to match the suitability of market coverage. If the territory is found to be having customers more than what a single salesperson can cover, then the task is shared by adding more salespeople. Many different potential territories can be constructed and modified when the workload approach is taken into consideration.

The starting point of the workload approach is the finalization of the tentative boundary for each sales territory. A decision then has to be made on how much work is required to cover each sales territory. Ideally, an only territory with equal potential and workload should be considered followed by each customer in the territory. The first stage estimates the sales potential for each customer and prospect in the territory. This is called account analysis.

The sales potential derived from account analysis is then used to decide on how much each account must be called on and for what duration of time. The total effort required to cover a territory can be determined by considering the number of accounts and calls to be made for each account, the duration of each call, estimated time of travel, and non-selling activities.

This method is popularly known as Talley’s workload approach. Here, all accounts may not be taken up for calculation. In typical B2B situation, while large accounts are considered, smaller accounts are proportioned depending upon the potential of large businesses.

The optimum call frequency is decided at sales conferences. This way it is easier to find out the workload in each territory. Firms can be grouped into volume classes and the call frequency for each volume class can then be agreed upon. Territories with a different combination of volume customers can be identified to calculate the workload per territory.

The following example illustrates the account analysis for a small group of accounts in a sales territory. First, the analysis is carried out on a customer-by-customer basis. Second, the poten­tials in the potential by-product column are identified as market potential. This represents the expected sale of each product for the entire industry during a period.

Sometimes, managers compute the aggregate for the market. For example, say a firm is particularly interested in a category called X in which it expects a market share of 30 percent, but it has reasonable sales in each product category.

The multiplication of market potential by-products as per the firm’s estimated share produces an estimate of the firm’s sales potential for each product and for each customer. The sum of the sales potential by-products is the total sales potential of the account. In this case, the firm uses the sales potential for each account to classify accounts.

Accounts with a sales potential of 300,000 units are classified as X accounts, those with a sales figure of 200,000-300,000 units are taken as Y accounts, and accounts with a potential of fewer than 200,000 units are taken as Z accounts.

The key here is the identification of the factor that influences the productivity of the sales call. Some of these factors include the competitive pressures on the account, the number of product lines going to the same customer, prestige of the account, and the number and level of buying influences within the account. The factors influencing the productivity of an account will vary from one customer to another customer.

The next task is to determine the account call rates. Here, many firms use the account planning matrix as explained below for deciding the call norm. This matrix divides the accounts into two dimensions reflecting the overall opportunity they represent and a firm’s ability to capi­talize those opportunities.

The division should reflect the attractiveness of the account to the organization and the likely difficulties to be encountered in managing the account. Then the accounts are put into four cells contained in a strategic account planning matrix. The firm will use different call norms for each group of accounts. The highest call rates are in cells 1, 2, and maybe 3 depending on the firm’s ability to overcome its competitive disadvan­tages. The lowest planned call rate will be in cell 4.

A sales manager can also establish call norms on an account-to-account basis by analyzing the past sales information and the efforts of salespeople to achieve that level of sales. Alternatively, a firm rates each account on the basis of factors deemed critical to the success of the sales calls effort and then develops a sales effort allocation index for each account.

This index is formed by multiplying each rating score by its factor importance weight, summing the overall factors, and then dividing the value obtained by the sum of the importance weights. The resulting sales effort allocation index reflects the relative amount of sales call effort to be allocated to an account in comparison with other available accounts. The larger the index, the greater the number of planned calls to that particular customer.

The alternative method is used to estimate the likely sales to be realized from each account as a function of the number of calls on that particular account. The actual sales response function is needed to determine the optimal number of sales calls to be made on any account and the workload of each territory. A sales manager can take empirical data from past experience and develop a sales function.

Alternatively, he can take the opinion of experts and use his judgment in developing the sales function. Sales realization is a function of the number of sales calls made by each salesperson in that particular territory. The former uses regression analysis to estimate the sales function relating to the historical sales data with a set of prior predictor variables, which are likely to affect sales. This also includes the past call norm as one of the priority components.

The latter method uses computer simulation in building a model where the final decision is left to the sales manager for making the sales estimate and for making a decision on call norms for the accounts. A popular computer program called Call plan is used by large sales organizations, such as Xerox, in which the response function to each account is generated from each salesperson’s inputs.

The program collects information from the salespeople by asking questions related to their territory in the following situations:

  1. When no calls are made
  2. When one half of the present number of calls are made
  3. When the present level of calls is continued
  4. When 50 percent of additional calls are scheduled
  5. When a saturation level of calls is reached

A salesperson also gives the probabilities for each of the above options with different call frequencies. Caplan, then fits curves to these data points and prints out the expected sales for all feasible call frequencies, optimal number of calls, and length of each call to be made on each client, and the prospect during an average effort period.

After the completion of the account and workload analysis, the total workload is divided by the total number of the sales force in the firm to reach the call allocations to be made to each salesperson in each of the territories.

  1. New Territories:

After determining the final form of sales territories and making necessary adjustments in tentative sales territories, the last step is to assign the territories to the individual sales force. Suitable salespeople are appointed for each territory and the exact responsibilities are assigned to these people.

This is done keeping in view the characteristics of each territory, the needs of the territory, and the appointment of intermediaries. The sales procedure starts in each territory with the help of salespeople and middlemen. Many firms appoint new salespersons in areas closer to their place of stay, whereas more experienced salespeople are assigned remote territories with a higher potential for growth and sales realization.

One of the important factors in territory designing is that the boundaries of the territories are never kept constant and evolve over a period of time, depending on the nature and number of customers in these areas.

In situations demanding a high level of customer attention and deeper service levels, many firms often allow salespeople in adjacent territories to operate either addi­tionally or jointly with the existing salespeople in that territory. Unless these situations are well planned, they may lead to confusion and demotivation among the sales staff of an organization.

What is Sales Territories – Need for Establishing Sales Territories

Sales territories are set up and subsequently revised according to prevailing market conditions so as to facilitate the planning and control of sales operations.

The need for establishing sales territories includes:

  1. To provide proper market coverage.
  2. To control selling expenses.
  3. To assist in evaluating the performance of sales personnel.
  4. To contribute to salesforce morale, and
  5. To help in the coordination of personnel selling and advertising efforts.

A brief description of each is made below:

  1. Preserving Proper Market Coverage:

Sometimes a company loses its business to competitors for want of proper market coverage. In case the sales management fails to match selling efforts with sales opportunities effectively, such a situation may arise in which the competitors get much of the supply orders. To overcome this type of problems, the management must establish sales territories, if the company does not have them, or revise that it has good territorial design permits sales personnel to spend sufficient time with customers and prospects.

This helps them to become thoroughly conversant with customers’ problems and requirements. Successful selling is based on helping customers solve their problems.

  1. Controlling Selling Expenses:

Good territorial design together with the careful assignment of salespersons results in low selling expenses and high sales volumes. Controlling selling expenses does not mean minimizing the expenses, but to obtain the best relation between the value of selling expenses and the value of sales volumes. Short-term reductions in the selling expenses ratio are not always desirable, the long-term result is important.

Rises in selling expenses may not be followed immediately by increased sales volumes and higher sales volumes in future. The intelligent setting up or designing, or revising of sales territories is one step management takes to see that selling expenses in terms of money are spent to the best advantage.

  1. Assisting in Evaluating Sales Personnel:

Well-designed sales territories assist management in evaluating the performance of sales personnel. When the total market is divided into different territories, analysis of sales person’s performance reveals the strengths and weaknesses in different areas in relation to sales quotas allotted to each, and necessary adjustments can be taken in selling strategies.

  1. Contributing to SalesForce Morale:

Good and effective territorial designs help in maintaining the morale of the salesforce. Well-designed territories are convenient for sales personnel to cover their respective territories and find that their efforts produce results. Good territorial design with intelligent salesperson assignment helps to make each person as productive as possible and make for high earnings, self-confidence, and job satisfaction. In addition to these, salesforce morale is high because of excellence in planning territories.

  1. To Establish Coordination between Personal Selling and Advertising Efforts:

In most situations, personal selling or advertising alone cannot accomplish the entire selling task efficiently or economically. By blending personal selling and advertising, management takes advantage of greater performance. Prior to launching an advertising campaign for a new consumer product, sales personnel call upon dealers to outline the marketing plan’s objectives, provide them with tie-in displays and other promotional materials, and make certain that adequate supplies of the product are on hand in the retail outlets.

Territorial assignments make every dealer the responsibility of some salesperson, and proper routing ensures that sales personnel contact all dealers at proper times relative to the breaking of the consumer advertising campaign. In situations where sales personnel do work related to the advertising efforts, the results are more satisfactory if the work is delegated on a territory-by-territory basis rather than for the entire market.

Reasons for Establishing or Revising Sales Territories:

Sales territories are set up and subsequently revised as market conditions dictate, to facilitate the planning and control of sales operations.

More specifically, there are five reasons for having sales territories:

  1. To provide proper market coverage,
  2. To control selling expenses,
  3. To assist in evaluating sales personnel,
  4. To contribute to salesforce morale, and
  5. To aid in the coordination of personal-selling and advertising efforts.
  6. Providing Proper Market Coverage:

Sometimes a company loses business to competitors because it does not have proper market coverage. Sales management has not matched selling efforts with sales opportunities effectively, competitors have a better match, and they obtain the orders. To overcome problems of this type, generally, management must establish sales territories, if the company does not have them, or revise those that it has.

If sales territories are set up intelligently and if assignments of sales personnel to them are carefully made, it is possible to obtain proper market coverage. Good territorial design allows sales personnel to spend sufficient time with customers and prospects and minimizes time on the road. This permits them to become thoroughly conversant with customers’ problems and requirements.

  1. Controlling Sales Expenses:

The good territorial design combined with careful salesperson assignment results in low selling expenses and high sales volume. Reduced selling expenses ratios do not, however, follow automatically. If territorial planning is unsound or is not combined with appropriate assignments of sales personnel, selling expenses ratios increase. The intelligent setting up or revising of sales territories is one step management takes to see that selling expense money is spent to the best advantage.

  1. Assisting in Evaluating Sales Personnel:

Well-designed sales territories assist management in evaluating sales personnel performances. When the total market is divided into territories, analysis reveals the company’s strengths and weaknesses in different areas, and appropriate adjustments can be made then in setting strategies. Through analyzing the market territory by territory and pinpointing sales and cost-responsibility to individual sales personnel, management has the information it needs to set quotas and to evaluate each salesperson’s performance against them.

  1. Contributing SalesForce Morale:

Good territorial designs help in maintaining sales force morale. Well-designed territories are convenient for sales personnel to cover, and represent reasonable-sized workloads. They are capable of achieving given levels of performance within their territories.

  1. Aiding in Coordination of Personal Selling and Advertising:

Management may set sales territories or revise existing territorial arrangements to improve the coordination of personnel selling or advertising efforts. In most situations, personal selling or advertising alone cannot accomplish the entire selling task efficiently or economically. By blending personal selling and advertising management takes advantage of a synergistic (2 + 2 = 5) effect and obtains a performance greater than the sum of its parts.

What is Sales Territories – Allocations

Allocation of sales territories to salespeople provides certain advantages to customers. Customers, for example, get prompt and efficient after-sales service, quick disposal of complaints, and individual satisfaction due to the regular visits of salespeople. The allocation of sales territories includes a reduction in the risk perception due to familiarity with the salespeople of the company and due to the frequent advice of the salespeople on consumption and purchase.

The salesforce too enjoys advantages due to territorial allocation. These include the freedom of choice in serving customers, a transparent system for their performance evaluation, and an efficient reward system based on their performance in the territory. Thus, a territorial design results in a win-win situation for every player involved in the selling process.

A sales manager has to be careful while selecting the size of the territory and deciding upon the design. He/she should consider various parameters for an effective territorial design. The optimum size of the territory should be allocated to every salesperson and there should be a uniform distribution pattern in the form of market coverage. An optimum size helps a salesperson to serve the customers with motivation and willingness.

There should be an attempt to avoid the duplication of efforts by a salesperson in the territory. A salesperson should be given a specified territory at a given period of time and no two salespeople should serve the customers at the same time and within the same territory.

Every salesperson should have an equal distribution of opportunities and responsibilities, and market territories should be designed in such a way that every salesperson gets an equal share in the size of the market and serve the customer at same level as the existing competition. There should be some flexibility on the allocation of sales territories so that a sales manager can rotate territories among the salespeople when desired, in compelling situations.

There are several factors that influence the decision on the allocation of a sales territory. The size of the sales territory should also be decided after looking at the level of control desired by the company on the territory.

The allocation of sales territories should be made in such a way that the performance evaluation is made on the basis of opportunities provided so that the achievements and the job performance of each salesperson can be easily evaluated. Inequality in the level of income can create dissatisfaction among the sales force. So a territory should provide an equal opportunity for earning an average income.

Modern-day sales organizations are designed to achieve economies of scale and cost. The traveling expenses of salespeople, sales managers, and other sales personnel should be the lowest in a territory, failing which the cost to get to customers becomes high. So providing maximum services at a minimum cost should be the strategy when deciding upon the sales territory.

While deciding on the territorial allocation, a new salesperson should not be given independent responsibility of a sales territory. The salesperson should first be attached with an experienced colleague to learn about the market and the sales techniques before being left alone to handle accounts.

What are Sales Territories – Routing and Scheduling

Routing and scheduling plans aim to maintain the line of communication, optimize sales coverage and minimizing wasted time. When the management knows the where-about, where the salespersons are in the field or at least knows where they are at the present time, it is easy to contact them to provide any needed information or last minute interactions.

The most important advantages of routing and scheduling are:

  1. Routing and Scheduling Plans Improve Better Sales Coverage:

The mechanics of setting up a routine plan are easy, not in working out the plan, detailed information is needed on the numbers and location of customers, the need, and methods of transportation. Connecting the customers’ locations, and desired call frequency rates. The route or routes to cities and towns or trading area boundaries, finally laid out should permit the salesperson to return home at least on weekends.

  1. Fixation of Call Frequency Rate:

The route planner considers the desired call frequency rate for each customer on the route. The call schedule is a part of setting up the route. In most cases, however, making up the call schedule is more important than planning the route. By using itinerary, maps, the planner identifies the locations of each and every customer, and prospect group, and reconciles the route with these locations.

  1. Reduce Wastage of Time:

The most important advantage of routing and scheduling is that they reduce wasted time by sales personnel. Much backtracking, travel time and other non-selling time is saved, and scheduled call frequency is to fit according to customers’ needs.

  1. Advance Appointment with the Customers/Prospects:

In scheduling, some firms not only designate the customers to call upon each day but present the time of day to make each call. Detailed scheduling is coupled with a system for making advance appointments with the customers or prospects. Companies not using scheduling plans usually suggest advance appointments. For effective sales scheduling, the scheduler needs current information on time required for each call.

  1. Assists Sales Management for Closer Control:

Routing and scheduling plans assist sales management in obtaining closer control over sales personnel’s movements and time expenditures. Any routing or scheduling plan should have frequent checking to detect needed adjustments. Call reports are compared with route and call schedules to determine whether plans are followed. Variations or discrepancies are observed and sales personnel are asked for explanations.

Thus, setting up sales territories facilitates the planning and control of sales operations. Well-designed territories assist to improve market coverage and consumer service, reduce selling expenses ratios, secure coordination of personal selling and advertising efforts, and improve the evaluation of personal performance.

What are Sales Territories – Determinants

  1. Nature of the product – The nature of the product, viz. industrial consumer or consumer durables, or perishable, may influence the size of territories. The territories for industrial and consumer durables may be larger in size.
  2. Demand for the product – When the demands are larger, the size of the territory may be small.
  3. Mode of distribution – When the goods are sold to wholesalers, the size of the territory may be larger and on the other hand, if the goods are sold to retailers, the territory may be small.
  4. Selling expenses – The selling expenses are met from the sale proceeds of the territories and every organization makes provision for such expenses as certain percentage of sales from the particular territory.
  5. Transport and communication facilities – Where the transportations to the territory are much faster, cheap, and efficient, the size of the territories may be larger.
  6. Government policy – The Government imposes certain controls over the movements of goods and services from one State to another or from one district to another, etc. Such restrictions may also influence the size of the territory.
  7. The density of population – Where the density of population is thick, the size of the territory may be smaller.
  8. Market potentialities – Where the market potentialities are much more encouraging for larger sales, the size of the territory may be smaller.
  9. State of competition – Where the state of competition is acute, there is a need to contact the customers regularly. In that case, the size of the territory may be small.
  10. Abilities of salesmen – If the salesmen are experienced, efficient and well trained, the size of the territory may be larger in comparison to new and untrained salesmen.
  11. Firm’s policies – The policies of the firm whether to operate in a larger area or to allocate the territories in a reasonable size, will decide the size of the territories. On the other hand, if a firm with a limited number of products wants to earn higher profits, the size of the territory may be larger.
  12. Economic conditions prevailing in the country – In case the country as a whole is experiencing a recessionary trend, there may be stability in prices. In such a situation, a small size will be more suitable.

What is Sales Territories – Procedures for Setting Up Sales Territories

Sales territories of a sales organization are established by considering various factors, such as the size of the enterprise, quality of the product, level of competition, the services to be offered to customers, management structure, number of customers to be served, etc.

The sales territories once established are to be reconsidered and re-established from time to time keeping in view changes in the market, economic and social conditions in the country, and various other factors such as population, competitors’ activities, distribution channels, demands, product transport, and communication facilities, buyers, etc.

The following procedures are used by the Managers to set sales territories:

  1. Selection of Basic Geographical Control Unit:

Basic units are the smallest part of sales territories. A sales territory is formed by combining a number of basic units. The basic units are also called basic geographical control units. The selection of basic geographical control units is an important step in establishing sales territories. Care should be given in selecting these units of a reasonable size so as to achieve economy. At the same time, it is necessary that the units should homogenous. The basic units may be a country, state, district, or trading area.

For the goods which are sold internationally, every country may be a geographical control unit, such as for the sale of tea, coffee, sugar, petrol, arms, ammunition, etc. A country may be subdivided on the basis of States, as geographical control units. Among the states themselves, differences in areas, population, transportation, resources, purchasing power, level of development, etc. are found. But the division of units on this basis is not suitable for a firm producing goods on large scale.

  1. Determining Sales Potentials on the Basic Units:

The next step after the selection of basic control units is to determine the sales potential in the control units. For this purpose, the managers have to identify the present and prospective customers with certain information about sex, age group, likes and dislikes, requirements, standard of living, income, etc.

Thereafter, various other information about the markets such as competition, demands, etc. is gathered so as to forecast the potential sales in the basic geographical control units. For gathering the requisite information about the present and potential customers, services of field salesmen can be obtained, and to forecast the potential sales, helps from the top authorities, experts, and statistical methods can be followed.

  1. Combining the Basic Units into Tentative Sales Territories:

After ascertaining the sales potentials in control units, the planners should form tentative sales territories. For this purpose, the basic units are combined together so that the sales potential may be converted into sales. At this level, sales territories are made tentative so that necessary adjustments could be possible in the future on the basis of coverage problems. Care should be given to form the optimum size of territories.

The number of territories may also be determined so that the size of sales force could be determined. The planners should also be given attention to the shape and structure of sales territories as sales expenses and sales coverage have a direct relationship. Moreover on the basis of size of the sales territories, the traveling expenses of a salesman can be minimized and can boost their morale.

  1. Adjusting and Redistributing Sales Territories:

In this process, sales territories are given final shape by adjusting and redistributing the tentative territories. This adjustment is made keeping in view sales potential and the problem of coverage. At the same time care should be given that the sale expenses of each sale territory are uniform so as to establish formation of sound sales territories.

  1. Assigning Sales Territories to Salespersons:

On the determination of the final form of sales territories after making necessary adjustments in tentative sales territories, the setting activity begins. For this purpose, suitable salesmen are appointed and each territory is assigned to the person, keeping in view the characteristics of each territory. In addition to the salesmen, middlemen are also appointed, keeping in view of needs of each territory. With the help of a salesman and middlemen, the sales procedure starts from each territory.