Kroeger Company Case

Sales Force Management

By: Pritha Sarkar Chandra Shekhar Vaibhav Khandelwal

CASE OVERVIEW
What Business were they in ? B2B business of Steel equipment manufacturing sold to chemical manufacturers technical expertise required. Customized specification based product sales performance. Centralized sales office at Wisconsin.

Sales Department Mechanical & chemical engineers hired to train both at factory & home office before they were assigned a territory Salary on training $1400. Annual earning of a sales person varied widely from $19,000 to $35,000. Huge demand variation - based on the demand by Krogers customers. Industry Scenario Highly unstable environment - Customization & B2B marketing scenario. Downturn Morale slumped, turnover increased. Upturn Employees complaining about the inflated pay sales employees are receiving.

Compensation plans
Existing Compensation Plan
Strict commission based compensation plan sales persons were paid fixed % commission on the actual $ sales

Proposed Compensation Plan

Base Pay 60-70% of total take home, rest is commission Base sales credit method to equalize territorial potential

Commission Plan Above base sales credit, 3% on first $50,000; 1.5% on next $50,000;1% in next100,000 etc
Sales Credit Full Sales credit if the order is sold and shipped in the salespersons area 50-50 share if order is sold by one person and shipped in other salespersons area Windfall sales To even out compensation full credit on first $100,000; 50% credit on next $50,000; 10% credit thereafter

Case Questions
Should the proposed Sales Compensation plan be adopted?
Existing System
Disadvantages Discouragement of sales persons in low selling territories Advantages Weeds out low performing employees

High employee turnover - increased training Easy to understand costs Easy to sell products get preferred Flexibility easily revise commission rates

Proposed System
Disadvantages Prioritization of sales in one's own territory Hard to understand and remember Advantages Elimination of house accounts will boost sales persons' morale Sense of security

Payment is made at the time of order booking => should be done on 50-50 basis

Reduced employee turnover savings in training costs

Case Questions
Should the proposed Sales Compensation plan be adopted?
Comparison Criteria Proposed Existing

Should provide guaranteed income Fit with motivational program of company

Fair - shouldn't penalize sales persons on their Should have provision of change in salary as per changes in performance Help in attaining organization's objectives Should be economical to administer Easy to understand

Yes Yes
Yes Yes Yes No No

No No
No Yes Yes Yes Yes
Administrative Employee morale

Insight
The proposed plan focuses on Employee morale and has a tradeoff with administrative aspects of a compensation plan

Case Questions
Appraise the plan from the standpoint of individual salesperson Sales Person
High selling territories
Fear of decrease in commission margins and sales credits (credit sharing and equalizing)

Medium selling territories

Low selling territories

Brings about security (base pay)

Highly encouraging as stresses on equalizing and commission is based on sales credit. Brings about security

Difficult to plan monthly sales targets and possible commission

Better coordination among sales persons of different territories

Elimination of home accounts Increased encouragement

Payment on order booking high motivation

Case Questions
What part should timing have played in the introduction of new plan?
Timing Options available
Beginning of financial year
Easy to plan In sync with the accounting procedures

During low business period

Least resistance from sales persons Easily implementable Transition easy

Recommendations
Design a system which introduces new plan to the sales personnel Pay the commission in 2 parts first part during order booking and second part during installation Setup employee redressal mechanism during the initial launch of the compensation plan