MKTG586 Montclair Module 7 Product Sales Promotions Assignment When is a sale a sale? Is it when the contract is signed, the product delivered, payment is

MKTG586 Montclair Module 7 Product Sales Promotions Assignment When is a sale a sale? Is it when the contract is signed, the product delivered, payment is received, or … perhaps something else? On the surface this may sound like a trivial question, but for sales organizations it is a big deal. The reason is that salesperson performance and rewards are linked to the sale and when the sale is credited to the salesperson can make a big difference in performance evaluations and ultimately compensation, as well as a firm’s financial statements. Remember that a sale to a salesperson is revenue to a firm! An interesting twist to the question “When is a sale a sale?” relates to periodic promotions or sales contests. That is, it is common for B2B firms to run cost-reduction promotions to their customers from time to time. This is done for a variety of reasons from new product introductions to beating competitors to reducing overstocks. Along with the temporary promotional prices, a sales contest might also be included that provides attractive prizes for salespeople who achieve different levels of sales performance during the contest. New salespeople, being smart and highly competitive, will often be tempted in such cases to go to their buyers and ask them to “load up” during the promotion or contest so that the salesperson can “win,” which brings up an ethical dilemma: If I’m simply borrow ing business from the future with a customer in order to win a sales contest, have I really done a service to the firm or to my customer? Yes, I might gain some benefit temporarily from this behavior but in many cases I won’t see another order on the promoted products for a very long time. And from the customer’s side, while they may agree to load up to try to help you out , the truth is customers don’t want to have extra inventory sitting around and their doing you a favor this time may create ill will in the long term. Bottom line, a salesperson must think seriously about the potential for damaging a relationship with a customer and also about whether loading up customers this quarter just creates difficulties in making quota in subsequent quarters , Then too, from a sales organizational perspective, changes in accounting reporting standards (FASB) and legislation such as Sarbanes-Oxley have mandated companies present a more realistic picture of their financial performance, heightening the issue of when a sale is a sale. Companies train sales managers who in turn are expected to make it clear to the salespeople the policies and procedures for accurately reporting a sale. Question to Ponder: What is your viewpoint on loading up customers during product promotions and sales contests? Consider the pros and cons and come to a conclusion on how this issue is best handled. One Page MKTG 586
Sales Management
Module 7a: Compensation
Characteristics of a Good Plan
• Aligns with corporate
objectives
• Embraces strategic and
tactical goals
• Measurable criteria
Characteristics of a Good Plan
• Offers fixed and variable
components
• Simple
• Tied to profitable customer
relationships
• Differentiate top, average &
underperforming reps
Pick Your Plan
• Choose a plan that will motivate specific
activities in specific situations
• Salary/ Incentive mix
• Cash vs. non cash rewards
Components & Objectives (Salary)
• Addresses non- selling activities
Salary
• Adjust for territory differences
• Reward experience and competency
Components & Objectives (Commissions)
• Motivates selling effort
Commissions
• Usually focused on short term
and transaction selling
Components & Objectives (Bonuses)
• Rewards efforts toward strategic
Bonuses
objectives
• Compensates for overachievement
Components & Objectives (Sales Contests)
• Also known as “spiffs”
Sales
Contests
• Stimulate short term activity
• Has specific performance targets
• Short operating time
Components & Objectives (Benefits)
• Medical & life insurance
Benefits
• Retirement plan
• Stock options
• Vacation
MKTG 586
Sales Management
Module 7b: Types of Compensation Plans
Primary Methods of
Compensation
• Straight Salary
• Straight commission
• Salary plus commission
• Most common form is pay
for performance
Straight Salary
• Rare
• Targets objectives other than sales
• Used when a sales persons impact is hard to
measure
Straight Commission
Usually used in non-employee situation
• Agent
• Manufacturers’ Rep
• Real estate
• Insurance
Often offer draw against future commission
Salary – Incentive Mix
•
•
•
•
Most common – B2B
Usually the salary is not enough to live on
Percentage mix is important
Salary addresses non-selling activities
• Building customer relationships
• Assist in strategic planning
• Training
Salary – Incentive Split
• Driven by customer relationship
• Transaction based – Higher commission
• Partnership based – Higher salary
• Incentive pay must be high enough to motivate
• Can offer different plans for different sales roles
Windfalls & Ceilings
Create a “top stop” for “Bluebirds”
Demotivating to sales force
Usually a discretionary decision
Can used deferred compensation
When to Pay Incentive
• Should be clearly defined and communicated
• Example – Pay on
Order
Delivery
Collection
Project
completion
Team Incentives
Common in B2B
Issues
• Should team performance alone be measured?
• Should individual contribution count?
• Goals must be clearly defined and
communicated
MKTG 586
Sales Management
Module 7c: Other Incentives
Sales Contests
•
•
•
•
Short term programs
Accomplish specific objectives
Uses a “Winner” mentality
Rewards can be
•
•
•
•
Prizes
Recognition
Cash
Travel
Sales Contests
• Should have a catchy theme
• Attainable by all
• Objective must be specific and well defined
• 90 days or less
Sales Contests Competition
• Sales people compete with themselves
• vs. Quota
• Compete with each other
• Compete as a team
• Should reward as many as possible
Cash vs. Non Cash Rewards
•
•
•
•
Non-cash is more effective
Bragging rights, status
Merchandise or travel
Value needs to be attractive enough to draw
participation
All Compensation
Must adhere to the SMART test
• Specific
• Measurable
• Attainable
• Relevant
• Time Bound
MKTG 586
Sales Management
Module 7d: Motivation
Maslow’s
Theory
Self –
Actualization
Esteem
Love/belonging
Safety
Physiological
Maslow’s Key Learning
• Individuals are not motivated by higher level
needs until the have met their basic needs
Maslow
•
With sales people we are
usually looking at :
• Esteem
• Love/Belonging
As motivating factors
Major Components of
Motivation
What do you want me to do?
How do I do it?
Why is it important?
How do I know when I’m doing it right?
What’s in it for me?
Other Motivators for Sales
People
•
•
•
•
New situations
Meeting people is an opportunity
Participation is preferred
Depth of required expertise
• Smartest person in the room
• Avoid confrontation
Components of Motivation
• Expectancies – linkage between more effort and
improved performance
• Outcome – relationship between improved
performance and increased reward
• Value perception of rewards – the perceived
intrinsic value of the rewards
Motivation
Power of positive reinforcement to change
behavior
What Traits Affect Motivation
Competitiveness
Self control
Self worth
Verbal
intelligence
“Expert” status
Career Stages & Motivation
•
•
•
•
New Sales Reps – Lack of confidence
Established – Proud to be a salesperson
Maintenance – retain position, seeks high status
Disengagement – Retirement & loss of self
identity
Plateaued Sales Person
Problem
• Disengagement
• Lack of clear career path
• Boredom
Plateaued Sales Person
Solution
•
•
•
•
•
Promotion
Mentor status
Revisit total compensation
Reestablish training objectives
Open discussion of the problem
Sales Force Management
11th Edition
Mark W. Johnston
Greg W. Marshall
Routledge 2013
Part 2
Implementation of the Sales Program
Routledge 2013
Salesperson Compensation and Incentives
CHAPTER 11
Routledge 2013
Characteristics of Great Sales
Compensation Plans
1
2
3
4
5
6
7
8
• Calibrate the plan with the firm’s overall profit objectives
• Make sure the compensation plan focuses on motivating salespeople to meet not just tactical sales objectives
but also contribute toward strategic objectives
• Ensure the plan is directly tied to measurable criteria that represent tactical and strategic objectives
• Usually best to include both fixed and variable elements within the compensation plan
• Keep the plan simple yet thorough
• Reward securing, building, and maintaining long-term relationships with profitable customers
• Consider salespeople a mission-critical asset
• Ensure you are rewarding salesperson efforts according to their worth not just level of activity
Routledge 2013
Characteristics of Great Sales
Compensation Plans
9
10
11
12
13
14
15
16
• Ensure payouts are clearly differentiated for top, average, and inadequate performers
• Distinguish between performing tasks and achieving results
• Avoid direct competition between sales people
• Reduce role conflict, ambiguity, and stress
• If you want to change the plan, generally don’t change too quickly
• When the time is right to change the plan quickly, do so
• Permit every salesperson with above-adequate performance to seek his or her desired compensation potential
without penalty
• The acid test is how the plan impacts the customer marketplace
Routledge 2013
Learning Objectives
• Discuss advantages/limitations of straight salary,
straight commission, combination plans
• Explain how/why a bonus might be used as an
incentive
• Understand effective use of sales contests and their
potential pitfalls
• Identify key nonfinancial rewards, why they might
be important
• Recognize key issues surrounding expense accounts
• Discuss making decisions on mix and level of
compensation
Routledge 2013
Three Questions to Drive Successful
Compensation Programs
1. Which compensation method is most appropriate
for motivating specific activities in specific
situations?
2. How much of the total compensation should be
earned through incentives?
3. What is the best mix of financial and nonfinancial
compensation and incentives?
Routledge 2013
Compensation Terms and Definitions
• Salary – a fixed sum of money paid at regular intervals
• Incentive Payments
– Commission – a payment based on short-term results, usually
a dollar or unit sales volume
– Bonus – a payment made at management’s discretion for
achieving or surpassing some set level of performance
• Quota – often the minimum requirement for a salesperson to
earn a bonus
• Sales Contests – encourage extra effort aimed at specific
short-term objectives
• Benefits – medical and disability insurance, life insurance,
retirement plan
• Non-Financial Incentives – opportunities for promotion or
Routledge
various types of recognition
for 2013
performance
Innovation: Outsourcing Incentives
• Indicators to outsource an incentive program:
– Multiple individuals maintaining the incentives program at
moderate salary budgets
– Company invests heavily on incentives but the program
lacks accountability, reporting tools, and cost/benefit
outcomes
– Employees complain about inconsistent practices and/or a
lack of meaningful rewards
• Many organizations need complex structures and
tracking mechanisms for the program’s goals
• Most common objection to outsourcing is the cost
Routledge 2013
Exhibit 11.1
Components and Objectives of Financial Compensation Plans
Routledge 2013
Compensation Plans
• Three primary methods of compensating
salespeople are:
1. Straight salary
2. Straight commission
3. Combination of base salary plus incentive pay
• Recently, a steady trend developed toward use of
combination plans as managers seek a “pay for
performance” plan
Routledge 2013
Straight Salary
• Two conditions favor use of straight salary:
1. When management wishes to motivate salespeople to
achieve objectives other than short-run sales volume
2. When the individual salesperson’s impact on sales volume
is difficult to measure in reasonable time
• Advantages
–
–
–
Require salespeople to spend time on activities that may
not result in immediate sales
Can use when difficult to measure actual impact on sales
Easy to compute and administer
• Limitations
–
–
Pay is not tied to any aspect of job performance
No direct incentive toRoutledge
improve
2013 sales-related performance
Straight Commission
• Payment for achieving a level of performance
• It is popular to base commission on the profitability of
sales to motivate the sales force to focus on the most
profitable products or customers
• Advantages
– Strongly motivated salespeople to improve productivity
– Easy to administer and compute
– Compensation costs vary directly with sales volume
• Limitations
– Management has little control over the sales force
– Difficult to motivate salespeople to build relationships with
clients
– Little motivation to engage in market analysis and other
similar functions that take time away from selling activities
Routledge 2013
Combination Plans
• Offer base salary plus a proportion of incentive pay
• Base salary provides salesperson with a stable
income and gives a method for rewarding
salespeople for performance
• Questions to consider while designing the plan:
1.
2.
3.
4.
What is the appropriate size of incentive relative to base?
Should a ceiling be imposed on incentive earnings?
When should the salesperson be credited with a sale?
Should team incentives be used and how should they be
allocated across members of a sales team?
5. How often should the salesperson receive incentive pay?
Routledge 2013
Proportion of Incentive Pay to Total
Compensation
• Proportion of incentive to base salary should be
based on the degree of relationship selling involved
in the job.
– If short-term sales then a relatively large incentive
component should be offered
– If customer service and non-sales objectives are
emphasized then the incentive component should be small
• If a combination plan is not very effective at
motivating salespeople, a common reason is that
the incentive portion is too small to generate
interest
Routledge 2013
Incentive Ceilings
• Incentive Ceilings are dealt with differently across
companies and industries
• Ceilings protect against windfalls such as increased
sales due to the introduction of successful new
products that sells without increased sales efforts
• Issues in incentive compensation for team selling
environments
• Problems occur with international sales
• Desired effects of ceilings can be accomplished
without limiting the motivation of the sales force by
having management test any new or revised
compensation plan before it is implemented
Routledge 2013
When is a Sale a Sale?
• The precise meaning of a sale must be defined to
avoid confusion and irritation
• Most plans credit salesperson with sale when the
order is accepted by the company, less any returns
and allowances
• Sometimes sales are only credited after the goods
have been shipped or payment has been received
from the customer
• Other plans credit salespeople with half a sale when
the order is received and the other half when
payment is received
Routledge 2013
Team versus Individual Incentives
• Increased use of cross-functional teams to win new
customers and service major accounts raises issues
about kinds of incentives to use in combination plans
– Should incentives be tied to the performance of the team?
– Should incentives be based on individual performance of
each team member?
– Should there be both team and individual incentives?
• Sales managers must address these questions when
designing team-based incentives
Routledge 2013
When Should the Salesperson Receive
Incentive Payment?
• Survey of 500+ compensation plans showed:
–
–
–
–
21% paid incentive earnings annually
3% paid incentive earnings semiannually
24% paid incentive earnings quarterly
52% paid incentive earnings monthly
• In general, plans offering salary plus commission
offer monthly payments, whereas salary plus bonus
plans often make quarterly or annual payments
• There is no “one size fits all” formula for
compensation plans design
Routledge 2013
Steps to Executing Compensation Plans
5-Step Plan that can be used to tailor compensation
packages to a specific company:
1. Research – look at past sales and relationships to
compensation structures
2. Define objectives – what are the goals?
3. Develop plan – choose pay plan type, target pay,
results to be rewarded and pay formula
4. Test – test the plan on a spreadsheet using realistic
sales results
5. Document – this should be easily read and
understood by the sales force
Routledge 2013
Exhibit 11.2
Characteristics of Compensation Methods for Salespeople
Routledge 2013
Sales Contests
• Short-term incentive programs to accomplish
specific objectives
• Winners receive prizes, recognition, sense of
accomplishment
• Successful contests require:
–
–
–
–
–
Clearly defined, specific objectives
An exciting theme
Reasonable probability of rewards for all
Attractive rewards
Promotion and follow-through
Routledge 2013
Contest Objectives
• Contests supplement the firms’ compensation
program, their objectives should be very specific and
clearly defined
• Incentive compensation needs to be consistent with
stated corporate objectives
• Average duration of a sales contest is three months
• Contest themes:
– Exciting theme helps build enthusiasm and promote the
event
– Theme should be designed to stress the objectives and
appeal to all the participants
Routledge 2013
Probability of Winning
• Three popular contest formats:
1. Salespeople compete with themselves by attaining
individual quotas
2. All members of the sales force compete with each
other
3. Organize sales force into teams, which compete for
group and individual prizes
• It is essential for every member of the sales force to
have a chance of winning an award
• Increasingly companies are focusing on incentive
programs like contests that seek to reward more
rather than fewer people
Routledge 2013
Types of Contest Rewards
• There is not a “one size fits all” reward
• Incentive Federation survey found that 79% of
respondents found non-cash rewards to be
extremely effective in motivation to achieve goals
• Merchandise also gives an opportunity to make the
reward presentation as part of a ceremony
celebrating success
• Regardless of form of reward the monetary value
must be large enough to be attractive to participants
given their level of compensation
Routledge 2013
Contest Promotion and Follow-Through
• To generate interest, contests should be launched
with a fanfare
• Firms should announce contests at national or
regional sales meetings
• Follow-up promotion is necessary to maintain
interest during the contest
• Salespeople should get frequent feedback
throughout the contest periods
• Winners should be recognized within the company
and prizes should be awarded promptly
Routledge 2013
Criticisms of Sales Contests
• May not produce lasting improvements
• Salespeople may borrow sales from another period
to increase sales during contest period
• Poorly administered contests can hurt cohesiveness
and morale
Routledge 2013
Nonfinancial Rewards
• Recognition makes peers and superiors aware of
outstanding performance
• Effective recognition programs:
– Offer everyone a reasonable chance of winning
– Recognize best performers across several
dimensions
• Nonfinancial rewards include perks, which may
include higher compensation, better automobiles,
and better office facilities
Routledge 2013
Recognition Programs
• Effective recognition programs should offer a
reasonable chance of winning for everyone in the
sales force
– If a large proportion of the sales force achieves
recognition, then programs lose appeal
• Effective programs recognize the best performers
across several different performance dimensions
• Recognition is an attractive reward because it makes
a salesperson’s peers and superiors aware of the
outstanding performance
Routledge 2013
Exhibit 11.3
Guidelines for Effective Formal Recognition Programs
Routledge 2013
Expense Accounts
• Often, field selling expenses may be $25K or more
per salesperson
• Types
– Direct reimbursement – of all “allowable and
reasonable” expenses
– Limited reimbursement – sets expense limits byitem or provides predetermined lump sum
– No reimbursement – salesperson covers all
expenses; usually combined with higher total
compensation
Routledge 2013
Making Compensation and
Incentive Programs Work
• Effective?
• Too complex?
• Even well-designed motivational programs lose their
effectiveness overtime
• Two major issues involved:
1. Assess relationship selling objectives
2. Determine job performance aspects to reward
Routledge 2013
Assessing the Relationship Selling
Objectives
• Managers should evaluate how salespeople are
allocating their time
– What activities do they spend time on?
– How much time do they devote to each?
– How good are their current outcomes on various dimensions
of performance such as total sales volume, sales to new
customers, or retention of existing customers?
• Compare current performance to firm objectives for
relationship selling
• Managers may need to adjust quotas to change
motivations
Routledge 2013
Leadership: The Perils of Rewarding “A”
While Hoping for “B”
• Frequently organizations establish reward systems
that pay off one behavior even though the rewarder
hopes for another behavior to occur
• Sales managers need to consider their reward
systems if salespeople’s behaviors do not match
organization goals
• Steven Kerr – “For an organization to act upon its
members, the formal reward system should
positively reinforce desired behaviors, not constitute
an obstacle to be outcome”
Routledge 2013
Determining Which Aspects of Job
Performance to Reward
• Different components of a compensation program
can be designed to reward different activities and
achieve multiple objectives
• Issues when rewards are tied to numerous aspects
of performance:
1. Becomes diff…
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