Assigning Territories to Salespeople01/09/2020
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 of the companies emphasize geographical territories, some companies with 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 in shares and securities and automobiles. In all situations when the salespersons are internal order takers, 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.
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 bulk of 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 effort.
(vi) To control selling expenses.
(vii) To coordinate personal selling and advertising.
Sales Territories: Meaning and Definitions
It is a geographical area including the customer group or groups that is 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 sales people 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 salesperson, 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 serve as a contact point within these markets. This helps to give a 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 sales planning and sales control.”
In the words of Stanton and Buskrik, “A sales territory is a number of present and potential customers located within a geographical area, and assigned to a sales person, branch or middlemen (retailers or wholesaler).”
Characteristics of Sales Territories
- Sales territory is a geographical area containing a number of present and potential customers.
- Different groups of customers are formed by a firm through allotment of territories.
- It is a group of customers or geographical area assigned to a salesman.
- It is the area that can be effectively and economically served by a single salesman.
Sales Territory Planning and Management:
- Research the geographical area
- Divide the area on the basis of population, accessibility, potential etc.
- Study the consumer behaviour of the territory
- Assess the revenue potential from the respective territories
- Analyze the hurdles that may be present in the territories
- Define the products suitable for the territory
- Probe further to find out specific needs and wants of the people within the territory
- Prepare a plan for each territory with quotas and tasks to be accomplished
- Appoint sales people or sales team for each territory
- Monitor and track the performance of each territory
- Review sales people performance for each territory, and
- Avoid overlapping territory because it causes conflict among the sales people.
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, 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 the 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 is a problem 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 favour 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 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 a higher demand due to an upturn in the economy.