Joseph Mahoney, general manager of Universal Automotive, Inc., Chicago, recommended a sales contest to improve declining sales performance. This was his response to first-quarter results that saw sales fall substantially below quota. Mahoney believed that a sales contest would, among other things, provide the incentive to get sales up to or beyond territorial quotas.
Universal manufactured and distributed a complete line of automotive parts and accessories. Its sales force of sixty persons operated out of nine district offices located throughout the United States. The sales forced compensation plan consisted of a base salary and a bonus. The bonus was based upon the territorial quota, which was set by the general sales manager in consultation with the branch sales manager.
Mahoney proposed a sales contest that he believed would motivate sales personnel to achieve their quotas. He felt that the salespeople’s spouses should be involved in the contest. The proposed contest would run thirteen weeks, and each salesperson would be assigned a weekly sales volume quota, determined by the general sales manager and the district manager. In addition, each of the nine sales districts would have a district sales volume quota.
Each week, a $200 cash bonus would go to the sales personnel exceeding their quota by the greatest percentage, although Mahoney had seriously considered using total sales volume instead of a percentage. Each salesperson achieving quota for the thirteen-week period would get a $300 bonus. The person exceeding the thirteen-week quota by the greatest percentage would receive an additional $400, with $250, $200, and $100 bonuses for salespeople in second, third, and fourth places, respectively.
Spouses would also participate in the sales contest proposed by Mahoney. For each $100 worth of bonus earned by a salesperson exceeding his or her weekly or quarterly bonus, the salesperson’s spouse would receive five chances to win a merchandise prize.
All quota-making salespeople and their spouses would attend a three- day convention at the Chicago headquarters. The three days would mix business and pleasure, culminated by a gala dinner dance and drawing for the merchandise prize.
In the competition among the sales districts, the district exceeding quota by the greatest percentage would receive an $800 prize with the money to be divided among that district’s salespersons. Second, third, and fourth places for the districts would be worth $600, $400, and $200, respectively.
When Mahoney formally proposed his plan for a sales contest, several criticisms were voiced. Objections centered around the disappointments and frustrations of those people who did not win, the over aggressiveness that might result from ambitious salespeople striving to win at all costs, the disruption of normal activities caused by the convention, and the temporary nature of the stimulation provided. Several executives opposed the contest, arguing that the negative aspects outweighed the possible benefits.
Mahoney countered that a contest would help correct a poor sales performance, it would appeal to the sales force’s competitive spirit, it would enable salespeople to earn some recognition, and it would raise the morale of the entire sales force. In spite of the lack of agreement, Mahoney scheduled a meeting of his staff of eight people to discuss the advisability of conducting a sales contest.
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.