Reasons for Establishing or Revising Sales Territories

Sales territories are set up, and subsequently revised as market conditions dictate, to facilitate the planning and control of sales operations. More specifically, there are five reasons for having sales territories: (1) to pro­vide proper market coverage, (2) to control selling expenses, (3) to assist in evaluating sales personnel, (4) to contribute to sales force morale, and (5) to aid in the coordination of personal-selling and advertising efforts.

1. Providing Proper Market Coverage

Sometimes a company loses business to competitors because it does not have proper market coverage. Sales management has not matched sell­ing efforts with sales opportunities effectively, competitors have a better match, and they obtain the orders. To overcome problems of this type, generally management must establish sales territories, if the company does not have them, or revise those that it has. If sales territories are set up intelligently and if assignments of sales personnel to them are carefully made, it is possible to obtain proper market coverage. Note that mere establishment or revision of the sales territories is not enough. The design of the territories should permit sales personnel to cover them con­veniently and economically. Territories, in other words, should represent reasonable workloads for the sales staff while assuring that all prospects who are potentially profitable can be contacted.

Good territorial design allows sales personnel to spend sufficient time with customers and prospects and minimizes time on the road. This per­mits them to become thoroughly conversant with customers’ problems and requirements. Successful selling is based upon helping customers solve their problems, not just upon making sales or, even worse, upon taking orders. Well-designed sales territories, combined with appropriate sales force assign­ments, result in calls upon different classes of customers and prospects at needed frequencies. Call regularity is important in selling products purchased on a repeat basis, and persistence turns many a prospect into a regular account.

2. Controlling Selling Expenses

Good territorial design combined with careful salesperson assignment results in low selling expenses and high sales volumes. Sales person­nel spend fewer nights away from home, which reduces or eliminates many charges for lodging and food; at the same time, cutting travel miles reduces transportation expenses. These savings, plus the higher sales volumes from increased productive selling time, reduce the ratio of selling expenses to sales. In fact, even if dollar-selling expenses remain unchanged, the sales increase produced through proper market coverage reduces the selling expense percentage.

Reduced selling expense ratios do not, however, follow automatically. If territorial planning is inaccurate or unviable or is not combined with appropriate assignments of sales personnel, selling expense ratios increase. If the planner, for instance, ignores normal travel routes and geographical barriers, sales personnel spend time travelling when they could be calling on customers; this results in higher selling expenses and lower sales volumes.

Nor should management overlook the possibility that dollar sell­ing expenses may have to go up to obtain a lower selling expense ratio.

To secure larger sales volumes, sales personnel may have to incur addi­tional expenses. Securing larger orders may require more frequent sales calls, which increases selling expenses. Well-designed sales territories and appropriate assignments of sales personnel increase the total time avail­able for contact with customers and prospects, thus preparing the ground for improved sales volumes.

Sales management’s problem in controlling selling expenses is not to minimize them but to obtain the best relation between dollar selling expenses and dollar sales volumes. Short-term reductions in the selling expense ratio are not always desirable; the long-term result is important. Rises in selling expenses may not be followed immediately by increased sales volumes and higher sales volumes in the future. The intelligent set­ting up or revising of sales territories is one step management takes to see that selling expense dollars are spent to the best advantage.

3. Assisting in Evaluating Sales Personnel

Well-designed sales territories assist management in evaluating sales personnel. Selling problems vary geographically, and the impact of compe­tition differs widely. When the total market is divided into territories, anal­ysis reveals the company’s strengths and weaknesses in different areas, and appropriate adjustments can then be made in selling strategies. Through analyzing the market territory by territory and pinpointing sales and cost responsibility to individual sales personnel, management has the informa­tion it needs to set targets and to evaluate each salesperson’s performance against them.

4. Contributing to Sales Force Morale

Good territorial designs help in maintaining sales force morale. Well-designed territories are convenient for sales personnel to cover; they represent reasonable-sized workloads, and sales personnel find that their efforts produce results. All are responsible for achieving given levels of performance within their own territories, so all know what management expects of them. Results that come from each sales territory are cor­related with the efforts of individual sales personnel. Good territorial design plus intelligent salesperson assignment help to make each person as productive as possible and make for high earnings, self-confidence, and job satisfaction. Morale is high also because there are few conflicting claims of sales personnel to the same accounts—when sales territories are not used, there are numerous conflicts. Even with well-designed sales territories, some conflicts arise, because some customers transact busi­ness in more than one territory, but well-designed territories reduce the magnitude of the problem. Finally, sales force morale is high because excellence in planning territories and making territorial assignments causes sales personnel to spend minimum time on the road.

4. Aiding in Coordination of Personal Selling and Advertising

Management may set up sales territories or revise existing territorial arrange­ments to improve the coordination of personal selling or advertising efforts. In most situations, personal selling or advertising alone cannot accomplish the entire selling task efficiently or economically. By blending personal selling and advertising, management takes advantage of a synergistic effect (the “2 + 2 = 5” effect) and obtains a performance greater than the sum of its parts.

Sales personnel play key roles in capitalizing upon synergistic opportunities. Prior to launching an advertising campaign for a new con­sumer product, for example, sales personnel call upon dealers to outline the marketing plan’s objectives, provide them with tie-in displays and other promotional materials, and make certain that adequate supplies of the product are on hand in the retail outlets. Territorial assignments make every dealer the responsibility of some salesperson, and proper routing ensures that sales personnel contact all dealers at appropriate times rela­tive to the breaking of the consumer advertising campaign. In some cases, the manufacturer’s marketing plan calls for dealers to share in the costs of advertising the product; here, again, sales personnel “sell” such cooperative programs to dealers. In situations where sales personnel do work related to the advertising effort, the results are more satisfactory if the work is delegated on a territory-by-territory basis rather than for the entire market.

Source: Richard R. Still, Edward W. Cundliff, Normal A. P Govoni, Sandeep Puri (2017), Sales and Distribution Management: Decisions, Strategies, and Cases, Pearson; Sixth edition.