Transcript Sales Force Management - Haas School of Business

Outcome vs. Behavioral
Control Systems
Definitions, theories and examples
Impact on salespeople
Implications for managers
Where on the continuum “should” a firm
be and why
Relationship to compensation
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Recall from the
Jamestown Case
Low
High
Control
Control
(OUTCOME)
(BEHAVIOR)
Mfr.
Reps
Direct with
commission,
low
supervision
Direct with
salary, high
supervision
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Outcome Control System
Salespeople are held accountable for their
results but not their behaviors
Low control of behaviors by firm
extreme is manufacturers’ reps: Jamestown
Need objective measures of results
3
Behavior Control System
Salespeople are held accountable for their
behaviors - the results are expected to
follow (at least in the long term)
High control of behaviors by firm
Firm knows (or believes it know) critical
success factors
Need to measure these behaviors
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Some Relevant Theories
Agency Theory
An approach that describes how principals can control the
activities of agents who work for them. Idea is to make the
agent’s incentives compatible with the principals
goals/outcomes.
Transaction Cost Analysis
Premise: Outcome control is preferred unless there’s an overriding circumstance.
“transaction specific assets”-- ex. Knowledge of brand/
firm/ customers.. Too valuable to replace
Organization Theory
Behavior vs. outcome vs. clan (socialization control)
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Outcome Measures
Orders
Number of orders
Average size of orders
Number of cancelled calls
Accounts
Number
Number
Number
Number
Number
of
of
of
of
of
active accounts
new accounts
lost accounts
overdue accounts
prospective accounts
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Outcome Measures- A little
more sophisticated
Volume & volume growth
Share by product, customer type, territory
Measures of retention: number of repeat
orders, customer satisfaction
Order size growth
Selling cost/sales
Sales over quota
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Behavior Measures
Calls
Number of calls
Number of planned calls
Number of unplanned calls
Time & time utilization
Days worked
Calls per day
Selling time versus nonselling time
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Behavior Measures
Nonselling activities
Letters written to prospects
Number of formal proposals developed
Advertising displays set up
Number of meetings held with
distributors/dealers
Number of training sessions for
distributors/dealers/customers
Number of service calls made
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Impact of Control Systems: How
Salespeople Think, Feel, Behave
 OUTCOME CONTROL
(high % commission)
 Oriented toward personal
bottom line
 “Get off my back”
 Take customers’ side more
than management’s side
 Generates short-term results:
sales, growth, etc.
 BEHAVIOR CONTROL
(high % salary)
 More oriented toward mutual
benefit
 Relatively cooperative w/
mgmt.
 Tends to see mgmt’s
viewpoint more when
balancing customer interests
 Generates strategic results:
customer satisfaction, new
product introduction, lower
turnover, etc.
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Impact of Control Systems: How
Salespeople Think, Feel, Behave
• OUTCOME CONTROL
(high % commission)
– Long term= next week
– Often work harder
– More interested in tangible
rewards, such as money,
trips
– More likely to sell on
personal relationships,
closing techniques
– Lean and mean
• BEHAVIOR CONTROL

(high % salary)
– Can think, move in LT
fashion
– Often work smarter
– More interested in nontangible rewards, such as
feeling of achievement,
personal growth, etc.
– More likely to sell on
expertise
– Kinder, gentler, and fatter
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Is it really a dichotomy?
The world’s a little messier
Personal characteristics
attitude, initiative/aggressiveness,
appearance/manner, citizenship
often addressed in hiring decisions
Other subjective measures
product knowledge, communication skills, ethical
behavior, report preparation, selling skills
often addressed in training opportunities
12
Managerial Implications of
more “behavioral” control
 Can direct reps to perform activities with unspecified
payoffs
paperwork, market research
 can direct to pursue long-term goals
new market penetration, customer satisfaction
 can monitor and redirect activities
call patterns, service, nature of presentation, image
projected
 can resolve disputes via authority
e.g. which products to emphasize
 “closer to market” - better knowledge
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What to consider
Environment:
demand uncertainty, sales volatility
Firm:
comfort with risk, current culture, outcome
measurement feasibility, behavior measurement
feasibility, product characteristics
Salesperson:
goal congruence, risk aversion, sales “expectancy”,
specialization to products/industry/firm
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Behavioral Control Fits
when:
You want a loyal sales force
turnover is particularly expensive
job knowledge, relationship, experience are
highly valuable
You want an obedient sales force
want to know what they’re doing
want to direct them to do particular
behaviors
You can afford to support the overhead
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Outcome Control Fits
when:
You want a very motivated sales force
effort
You are willing to let salespeople
be very independent
make a good deal of money
You are in a hurry
You can’t afford or don’t want to support
an expensive sales organization
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How does all this fit with
Compensation?
How do we use the compensation system
to communicate the control system?
Focus here is on financial compensation
Fixed
Salary & benefits
At risk
Commission,incentive payments or bonuses,
sales contests
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What do different
components accomplish?
Salary:
motivate effort on nonselling activities
adjust for differences in territory potential
reward experience and competence
Benefits
satisfy reps’ security needs
match competitive offers
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What do different
components accomplish?
Commissions:
motivate a high level of selling effort
encourage sales success
Bonus:
direct effort toward strategic objectives
provide additional rewards for top performers
encourage sales success
Contests:
stimulate additional effort targeted at specific shortterm objectives
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How are people getting paid?
Salary plus
commission
Salary plus
bonus
Salary plus
commission and
bonus
Commission
only
Other
Sales Reps
Managers
25%
14%
22%
48%
21%
21%
15%
2%
17%
15%
Mercer/Compensation & Benefits Review Survey- 1994
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Compensation Practices
Trends
From sales volume to profits
From new customers & prospecting to customer
retention and satisfaction
From individual pay to team/group pay
From “straight” commission or salary to
combination plans
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Compensating for Customer
Retention and Satisfaction
In 1994, 10% of 450 companies surveyed by
SMM said they link some portion of sales force
compensation to customer satisfaction
11% said they are implementing such a plan
within the next 12 months
Of these companies, 64% say that less than
30% of a salesperson’s compensation is tied to
customer satisfaction
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Compensating for Customer
Satisfaction
Pros:
consistent with quality emphasis
fits with trend toward consultative selling and
relationship-building account management
fits with customer retention objectives (long term
profits)
fits with higher% of sales coming from lower % of
customers
Cons:
primarily measurement (mostly survey-based)
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Compensating Teams
Individual Component
salary
individual incentives based on team performance and
any individual work
Group/team component:
pre-arranged % contribution, job responsibilities
sales manager observations
intragroup performance evaluations
contingent on success of all who share a particular
client
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Bonus: Group vs. Individual
Consistent finding in compensation literature
across job categories:
Group/team bonuses become less motivating as the
group gets bigger
sense of “who cares”
social pressure not to free ride decreases
So why not give individual bonuses exclusively
leads to cut-throat behavior
no teamwork
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Additional considerations
Ethical Issues
Plans which encourage inappropriate behavior on the
part of the rep;
Caps on Compensation
Quotas
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Use of Incentive Caps by
Industry
Food and Beverages
91.7%
Soaps, Cosmetics, Consumer
Packaged Goods
83.3%
Pharmaceuticals
66.7%
Telecommunications
42.0%
Forest Products
40.0%
Publishing
20.0%
Office Equipment/Computers
20.0%
SOURCE: Lesley Barnes, “Finding the Best Sales Compensation Plan,” Sales and Marketing
Management, (August 1986), pp. 46-49.
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Steps in Designing
Compensation Programs
Assess the firm’s marketing and sales objectives, and current
performance of the sales force
Determine aspects of job performance to be rewarded (desired
instrumentalities)
Assess personal characteristics of salespeople and their valences for
alternative rewards
Determine most attractive and motivating mix of rewards
Decide on most appropriate level of total compensation
Decide on form and % of incentive-Commission,Bonus, Contest
(short-term incentive awards)
Do analysis to determine the cost of program under various
scenarios/ modify plan if necessary.
Communicate the program to the sales force
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