The emphasis in the sales territory concept is upon customers and prospects rather than upon the area in which an individual salesperson works. Operationally defined, a sales territory is a grouping of customers and prospects assigned to an individual salesperson. Many sales executives refer to sales territories as geographic areas, for example, the South Mumbai or the North Mumbai territory. But, in contrast, in some companies, particularly those in which the technical selling style is predominant, geographical considerations are ignored and sales personnel are assigned entire classes of customers, regardless of their locations. Whether designated geographically or not, a sales territory is a grouping of customers and prospects that can be accessed conveniently and economically by an individual salesperson.
For further emphasis on the point that designations of territories should not be done solely along geographical lines, consider the following situations. When sales personnel sell mainly to personal acquaintances, as in selling property insurance, investment securities, and automobiles, little logical basis exists for dividing the market geographically. Similarly, in selling real estate, where the market is localized and where the customer usually seeks out the firm rather than the salesperson, geographically defined territories are meaningless. In these cases, sales personnel are, for the most part, inside order takers; customers seek out the supplier. But even, as in life insurance selling, where sales personnel are outside order-getters and seek out prospects, the personal and localized nature of the market makes geographical assignments of territories inappropriate.
Other situations exist in which sales territories are not designated geographically. Certain companies have highly specialized sales personnel, each with responsibility for serving customers who need his or her special skills. For instance, one maker of complicated machinery has only five salespersons, each specializing either in part of the product line or in particular product applications. In other companies, it is common to have more than one salesperson assigned to work in the same city or metropolitan area, and it is difficult to divide the area among them, not only because of the scattered locations of accounts but because “leads” furnished by established customers often require calls in different parts of the city.
Small companies, and companies introducing new products requiring the use of different marketing channels, often do not use geographically defined territories at all or, if they do, use rough divisions, such as entire states or census regions. In these instances, there is no reason to assign territories, since existing sales coverage capabilities are inadequate as compared to sales potentials.
In most marketing situations, however, it is advantageous to “assign” sales personnel to territories. Determining the territorial assignments requires consideration of customers’ service requirements and the costs of providing service. Geography affects both a company’s ability to meet customers’ service requirements and the costs of meeting them. Even when territorial boundaries are geographical, each salesperson’s assignment is a grouping of customers and prospects, and only for reasons of convenience and economy in a geographical cluster—the emphasis is on the customers, not on their locations.
A house account is an account not assigned to an individual salesperson but one handled by executives or home office personnel. Many are extremely large customers, most of whom prefer—indeed, sometimes demand—to deal with the home office. Frequently, house accounts are responsible for significant shares of a company’s total business. When house accounts are excluded from territorial assignments, adverse effects upon sales force morale are possible—if sales personnel feel that the company is depriving them of the best customers.
Most companies prefer to minimize the number of house accounts. However, some large customers refuse to do business any other way. Companies in which sales personnel understand that their territories are particular groupings of customers and prospects—rather than specific geographical areas—find that house accounts have little adverse effect on sales force morale.
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.