The Sales Territory Concept

The emphasis in the sales territory concept is upon customers and prospects rather than upon the area in which an individual salesperson works. Operationally defined, a sales territory is a grouping of customers and prospect assigned to an individual salesperson. Many sales executives refer to sales territories as geographic areas, for example, the Southern India territory or the western India territory. But, in contrast, in some companies, particularly those in which the technical selling style is predominant, geographical considerations are ignored and sales personnel are assigned entire classes of customers, regardless of their locations. Whether designated geographically or not, a sales territory is a grouping of customers and prospects that can be called upon conveniently and economically by an individual salesperson.

To emphasize the point that designations of territories should not be solely along geographical lines, consider the following situations. When sales personnel sell mainly to personal acquaintances, as in selling property insurance, investment securities, and automobiles little logical basis exists for dividing the market geographically. Similarly, in selling real estate, where the market is localized and where the customer usually seeks out the firm rather than the salesperson, geo- graphically defined territories are meaningless. In these cases, sales personnel are, for the most part, inside order takers; customers seek out the supplier. But even, as in life insurance selling, where sales personnel are outside order getters and seek out prospects, the personal and localized nature of the market makes geographical assignments of territories inappropriate.

Other situations exist in which sales territories are not designated geographically. Certain companies have highly specialized sales personnel, each with responsibility for serving customers who need his or her special skills. For instance, one maker of complicated machinery has only five salespersons, each specializing either in part of the product line or in particular product applications. In other companies, it is common to have more than one salesperson as- signed to work in the same city or metropolitan area, and it is difficult to divide the area among them, not only because of the scattered locations of accounts but because “leads” furnished by established customers often require calls in different parts of the city.

Small companies, and companies introducing new products requiring the use of different marketing channels, often do not use geographically defined territories at all or, if they do, use rough divisions, such as entire states or census regions. In these instances, there is no reason to assign territories, since existing sales coverage capabilities are inadequate relative to sales potentials.

In most marketing situations, however, it is advantageous to “assign” sales personnel to territories. Determining the territorial assignments requires consideration of customers’ service requirements and the costs of providing service. Geography affects both a company’s ability to meet customers’ service requirements and the costs of meeting them. Even when territorial boundaries are geo- graphical, each salesperson’s assignment is a grouping of customers and prospects, and only for reasons of convenience and economy a geographical cluster- the emphasis is on the customers, not on their locations.

House Accounts

A house account is an account not assigned to an individual salesperson but one handled by executives or home office personnel. Many are extremely large customers, most of whom prefer—indeed, sometimes demand-to deal with the home office. Frequently, house accounts are responsible for significant shares of a company’s total business. When house accounts are excluded from territorial assignments, adverse effects upon sales force morale are possible-if sales personnel feel that the company is depriving them of the best customers.

Most companies prefer to minimize the number of house accounts. However, some large customers refuse to do business any other way. Companies in which sales personnel understand that their territories are particular groupings of customers and prospects rather than specific geographical areas-find that house accounts have little adverse effect on sales force morale.

Territory Size and Work Load Factors

Depending upon the workload the territory size decreases or increases Companies determine the selling effort required i.e. number calls to be made to each account.

This is required because

• You need this information to be able to decide how many salespeople you need.
• You also need this information to be able to decide how to group accounts into territories that individual salespeople can cover.

How do you figure this out?

There are two models for this

• Single factor model:
• Decide which one factor will drive your decision
  • This is usually sales potential.
• Then classify all accounts based on that one factor
  • Account with potential > $1 million is “A” account
  • Account with potential > $500,000 but < $1 million is “B” account
  • Account with potential < $500,000 is “C” account
• Then make a judgment about how many sales calls each category should receive
• “A” account—one call per week, or 52 per year
• “B” account—one call per month, or 12 per year
• “C” account—one call per quarter, or 4 per year

 Portfolio model:

Does the same thing that the single factor model does; only you use more than one criteria for classifying accounts. Here we use competitive position and account opportunity.

How do you determine sales force size?

Workload method

Number of salespeople = Total Selling Effort Needed

Average selling effort per salesperson

From portfolio analysis:

–Segment 1–50 calls x 50 customers = 2500 calls

–Segment 2–30 calls x 40 customers = 1200 calls

–Segment 3–20 calls x 100 customers = 2000 calls

–Segment 4–6 calls x 300 customers = 1800 calls

–Needs to make 7500 calls per year

–Assume each salesperson can make 5 calls per day and is in the field 200 days per year.

–Need 7.5 salespeople

Territory Size and Workload Factors

Workload Factor	Territory Size Increase/Decrease
Nature of Job: Lots of presale and post-sale activity     Nature of   product: A frequently purchased product A limited repeat-sale   Market development stage: New market–fewer accounts Established market–more accounts   Market coverage Selective coverage Extensive coverage   Competition: Intensive Limited	Decreases       Decreases Increases     Increases Decreases     Increases Decreases   Decreases – unless market is oversaturated market is oversaturated

The above is a table which shows how the territory size will be affected with the nature of workload.

Who is responsible for territorial development?

Development of sales territories is usually the responsibility of sales manager overseeing the larger sales unit within the organization- for example the divisional, regional, or zone sales manager. This person knows the market, customers, and sales personnel needed to service these accounts. The manager makes recommendations to corporate management on whether to increase or decrease the number of sales territories. Often, however, the manager has the authority to change geographic boundaries without corporate approval. It is important that all field managers (for example district, regional, zonal) affected by territorial change have a part in seeing that the needs of the company, customers, and sales personnel are served.

In the next two lessons we will study the purpose of sales territories and the procedure for setting sales territories.