Notes

Outline

INCENTIVISATION Of Sales and Customer Care Executives

Background For many decades now, the building blocks of sales incentive schemes have remained unchanged. They are: Cash Merchandise Holidays Recognition

"Unfortunately," Unfortunately, the design and implementation of the scheme has is in most organisations been left to either the HR Department which does not understand the process of selling. Or the Sales Department which does not understand the process of motivation Of course, sometimes neither is in sync with the overall long-term strategy of the organisation Short-term, short-sighted incentive schemes are often the result.

"Before we look at some..." Before we look at some recent innovations and current concepts about motivation through incentives, let us first quickly run through the basic steps involved in devising a suitable incentive scheme.

"Any scientifically designed incentive scheme..."     Any scientifically designed incentive scheme must be developed by following certain steps: Gathering Information Setting Objectives & Strategies Engaging the Stakeholders Designing the Programme Ensuring Open Communication Gaining Stakeholders Acceptance Rolling Out the Plan Reaching the Goal

Gathering Information Explore various aspects of the business and their relationship to the selling process Are all products equally profitable? Are there strategic reasons to push any products? Are target / goal setting processes equitable? Are territories matched in terms of potential, geographic spread, number of customers?.

Setting Objectives & Strategies Agree on corporate strategies, individual product strategies, profitability and pricing strategies Establish critical parameters of the customer relationship: Is it installation, after sales service, supply of consumables, linked services, etc What are the business strategies: penetration, extension, market spread, repeat demand, exclusivity, segmentation, etc.

Engaging the Stakeholders Involve the sales reps as well as the sales managers / executives in the process. Ideally make a task force consisting of reps from HR, Finance, sales managers and sales reps This ensures involvement, commitment, acceptance Ultimately this task force shall act as the agents of change to ensure wide acceptance of the new scheme.

Designing the Programme Define Objectives: Set Your Goals Determine your Budget Measure Progress. Structure the programme Select your Awards Run the Programme.

Designing the Programme Define Objectives: Set Your Goals: To change the entire goal setting process To update the sales incentive budgeting process Redirecting the selling focus Redefining sales management styles Re-leveraging the components of the sales compensation plan Aligning sales performance criteria with the business strategy.

Designing the Programme The specific goals could be inter-alia: Increase sales of specific products Raise market share Generate new accounts Increase customer retention Improve store displays Support a simultaneous dealer or consumer promotion Enhance morale and team spirit of sales force Increase customer satisfaction levels.

Designing the Programme Determine your Budget It is imperative at an early stage determine what percentage of the sales turnover can be spent upon this scheme. Else there is a danger of runaway costs. Cost of incentives as well as the administrative cost must be calculated. Do you want to have an open-ended or a closed-ended scheme. Or even a plateau scheme, which can also be combined with other schemes.

Designing the Programme How to Measure Progress: Structure the programme Design and lay down criteria for measuring progress and performance This becomes more important when goals are based on criteria other than sales volume and revenue In case growth has to be measured, then what are the base figures to be? Criteria for dealing with returns, refunds, exchanges should be clarified.

Designing the Programme Select your Awards: Are the awards to be cash? If so how paid? Taxed or tax free? In paycheck (not recommended) or separately? Is it merchandise? What items? What value? Does the winner want / value the gift? Any choice to winner? Is it a holiday? Group? Individual? Overseas? Indian? Can wife and child accompany? Spending money? Is the award an individual award or is it a group award for the team?

Designing the Programme In case of a team award what is the ratio to be between team members? Or should all get the same value? If values have to differ, is one restricted only to cash?

Ensuring Open Communication The design process must be transparent and all stakeholders, through their reps given a chance to express their concerns The new goal-setting process must ensure a level playing field and be perceived as fair All criteria should be easy to understand and compute and economical to implement Systems should be set-up to inform sales reps of the ongoing performance – their own and that of others.

Gaining stakeholders’ acceptance Explain, with the help of the task force members, the details of the new goal setting and incentive scheme to all stake holders. Examples should be worked out to demonstrate earnings at various levels of performance so as to get the commitment of sales managers and sales reps to the new scheme.

Rolling Out The Plan Any new sales incentive plan MUST be announced with a lot of fanfare and hype. A mere office memo or circular will just not do First the senior managers are briefed in totality about the plan, its implications, costs, caveats, goal setting processes, review parameters, etc Then the sales managers and supervisors and finally, the sales reps are briefed and information dockets individually distributed to each person.

Reaching the Goal The days when the sales teams’ goal was merely to push sales are gone. In a heavily competitive situation the focus has now shifted to customer satisfaction Many organisations have also changed their nomenclature from Sales Reps to Merchandisers, Customer Care Executives, Travel Advisors, Product Consultants, etc.

Reaching the Goal In many companies, front line sales people book no orders e.g. P&G, ITC, SKBGlaxo In ITC the sales people look after the 4 Ds - Distribution (availability at retail outlets) - Display (stocks and POP materials) - Date (Freshness of perishable stocks) - Dented & Damaged (exchange of unsaleable goods) Target achievement not easy to measure in such cases: Process-based performance.

Reaching the Goal Already some companies are following new approaches to incentives: Rewards are for teams and not for individuals Rewards are based on customer satisfaction measures, not on sales (measured by outside agencies) Goal setting is done through an MBO type of interactive exercise and is accompanied by a 360° appraisal / feedback exercise.

Reaching the Goal Whatever the goals and whatever the rewards selected, just remember that sales people are competitive animals. They must be given regular feedback of their status in the race vis-à-vis their colleagues. Half the incentive in a race is lost if one cannot judge one’s place in the race.

Sales Contests as Special Incentives A Review

Sales contests There is hardly any published material on sales contests prior to the 1980s. Since then a fair amount of work has been done. Researchers have now examined the effectiveness of the various forms of each of the elements that comprise a sales contest, including: Goals Competitive format Number of potential winners Awards Duration

Some propositions… A salespersons’s expectancy, instrumentality and valence estimates have a direct effect on attitude toward sales contests A salesperson’s perception of the congruence of contest goals with the strategic goals of the territory also directly affect the attitude Subjective norms, such as perceived social pressures to participate in the sales contest, affect intentions to pursue contest goals.

Some propositions… Over the course of a contest, management uses interim contest promotion and feedback to engender contest enthusiasm and support Even for sales force members who are performing poorly in a contest, management may be able to maintain enthusiasm and commitment through proper interim contest promotion and feedback Finally, the endpoint performance determines the winners at the end of the contest.

Goals Sales contest goals are either - Process based, or Outcome-based While outcome-based contests are more frequent, some industries, particularly services prefer to use process-based contests Let us examine the pros and cons of both types of contests.

Goals… outcome based Pros: Easy to administer and understand Recognise that there can be varied routes to success Accountability limited to end results only Appear more objective than behaviour-based goals Higher expectancy estimates by salespeople Associated with higher instrumentality of sales staff Clarity in the performance to rewards relationship.

Goals… outcome based Cons: Can lead to malpractices like dumping, cycling, bogus billing Lead to neglect of promotional efforts Can lead to queering relationships with customers because of too much ‘hard-sell’ Not suitable for perishable products.

Goals… process based Pros: Provide an opportunity to demonstrate effectiveness on targeted skills / activities without need to gain revenue / volume - outcomes that are influenced by forces beyond their control Improvement in service quality, display, sales promotion, etc, does eventually lead to increase in sales revenue Suitable for service industries where eventual sales volumes are a result of various complex factors including service delivery by someone other than the salesperson.

Goals… process based Cons: Difficult to administer Judgment by managers can be subjective Reduce expectancy estimates since increases in desired behaviours may not be observed Salespersons may feel a loss of control over the linkages between performance and awards – reduced estimates of instrumentality by them.

Competitive Format There are basically two types of competitive formats: Individual Team Since team formats require that salespeople rely on the performance of their peers to attain performance goals, salespeople prefer the individual format as this has both higher expectancy and higher instrumentality But there is a caveat …

Competitive Format In some environments the norm of doing business has teams of salespeople working with customers, an individual format is likely to be inappropriate, even detrimental to productivity A team selling environment is established because coordination between salespeople is essential to sales success Hence we cannot always use an individual format.

Number of Potential Winners Again two types of contests prevail: Where everyone (or every team) has an opportunity to win by attaining a certain performance goal; or Where only a predetermined number of persons can win the award The first method is more prevalent, but studies show that the second type is considered a better reward by the winners.

Number of … Why is this so? Challenging but attainable goals may provide better motivation for salespeople. These designs induce difficulty by offering the win to only a percentage of the sales team The friendly competition of such schemes lends a sense of excitement to the pursuit of the goals These designs heighten reward valences: the prestige & recognition value is higher.

Awards Cash or cash equivalent is the most frequently used award in sales contests. Its benefits are: The philosophy that cash always motivates The “true” value of the award is known to all The winner has flexibility to use the award in any way he wants But cash has no lasting reminder value and often gets frittered away by the recipient. Perceived value of merchandise or travel awards is often higher.

Awards At small values, cash may seem like “peanuts” to salespeople but merchandise of comparable ‘retail price’, though bought ‘wholesale’ by the firm, will be more highly valued by the winner Merchandise has a greater lingering effect The winners get a chance to obtain items they might not otherwise purchase on their own Even so, for merchandise to lead to higher award valence, management may need to provide an ample selection of merchandise from which winners select their award.

Awards Travel awards have a perceived value even higher than either merchandise or cash Travel awards, usually shared by winners, spouses, and supervisory staff, provide an opportunity to enjoy the win with other winners and seniors and give winners a chance to take a vacation to destinations that might otherwise not be visited, and provide lasting memories.

Duration Duration though not in itself a motivator is definitely a hygiene factor Durations should not be shorter than the sales cycle of targeted goals or else only pending sales would be relevant for the contest and no new business could be initiated On the other hand, too long a time span, robs the contest of any sense of urgency and makes salespeople complacent.

Finally The effect of subjective norms on intentions to pursue the behaviours necessary to attain contest goals will be stronger when organisational commitment is higher A strong relationship with a supervisor strengthens the effects of subjective norms on the intention to pursue contest goals. Those closer to their supervisors receive more attention and greater support and so have greater motivation to engage in behaviours that maintain and build this valued relationship.

Finally Many firms are today adopting sales practices unfamiliar only a few years ago. These practices include team selling and national account management, along with TQM and relationship management principles. The implications of these changes on the use of sales contests are not yet fully known.

Bibliography Murphy, Dacin. Sales Contests: A Research Agenda. Journal of Personal Selling & Sales Management, Summer 98 Vol. 18 Ghosh. Experimental Evidence for Agency Models of Salesforce Compensation. Marketing Science, Fall 2000 Vol. 19 Alonzo. Beyond Sales Quotas. Incentive, February 94, Vol.168 Feiertag. Sales Incentives. The Voice of Foodservice Distribution, May 98 Vol. 34.

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