CASE 1: Phillips Company
Sam McDonald, vice-president of sales of the Phillips Company, was concerned with the potential of his sales force in correcting his company’s image in the electric utility industry. The Phillips Company, one of the leading manufacturers of steam power plants in the United States, was located in Philadelphia. The company was started by Aaron Phillips, who began manufacturing small steam engines in Philadelphia in 1846. Currently the company had annual sales in excess of $200 million and sold power plants to industrial users throughout the world. McDonald was concerned because public utilities, important users of steam power equipment, only accounted for 12 to 15 percent of Phillips’ sales.
Some utilities were good customers, but many other major utilities never bought from the company at all. Concerned with whether this low acceptance was a result of a poor image of steam power plants as a power alternative or a poor image of the Phillips Company as a source of steam power plants, McDonald suggested to top management that they explore the buying attitudes and motivation of electric utility companies as completely as possible. To remove the risk of personal bias, an outside research agency was called in to conduct the survey.
The research agency set out to find out what customers and potential customers really thought of the Phillips Company. Depth interviews were carried out with influential buying personnel in a selected sample of all electric utilities. The results that were presented to the executive committee in September were not too pleasant to hear. In general, Phillips’ engineering skills were rated highly; product quality and workmanship were considered good. However, a number of respondents thought of Phillips as a completely static company. They were completely unaware of Phillips’ excellent research operations and many new product developments.
The research organization pointed out other useful information about the Phillips Company and its market. Sales were normally personnel related; that is, personal relationships and personalities were important in the buying decision. The buying responsibility was widely dispersed for products sold by Phillips. As many as forty people, ranging from the president down, might be involved in a purchase. Many Phillips salespeople were not too well informed about the details of new product developments and would probably need additional training to be able to answer technical questions.
It was obvious to McDonald that Phillips’ communications methods had failed completely to keep potential utility customers aware of changes taking place in the company and its products. Some method had to be devised to break down the communications barrier and sell Phillips products. At this point a disagreement developed between the advertising and sales departments as to how to go about changing the image. Representatives of the advertising department came up with two possible approaches that could be used separately or jointly. First, they might advertise in mass media to get across the Phillips story. Second, they could launch an intensive publicity campaign, blanketing all new media and particularly utilities trade media with information and press releases. McDonald’s suggested approach started with a complete upgrading of information to the sales force about new product developments and current research. Then, the sales staff could make presentations directly to prospects in the field. Flipcharts and visual aids could be used where appropriate. Alternatively, the company could try to schedule educational meetings for key electric utility personnel. This would require a traveling symposium, staffed by top personnel and equipped with audiovisual aids that could spend several hours with groups of employees in selected utilities across the country.
Q1. What action should the Phillips Company have taken to change the company image in the public utility field?
CASE 2: Diamond Pump
Homer Castleberry had held the job of vice-president at Diamond Pump for five years. Lately he had had the feeling he was running on an endless tread-mill, never getting anywhere. Returning from an extended trip visiting seven sales agents in the western states, a postponement of an eighth visit found him with two uncommitted days in Kansas City. For the first time in many months, he had the time to sit back and evaluate his job, his performance and his future.
Diamond Pump Company, a subsidiary of Greyson Industries, Inc., manufactured positive displacement pumps for use in the chemical, petroleum, and other industries. Diamond gear pumps, screw pumps, and progressive cavity pumps were sold through several hundred distributors. Distribution covered the entire United States, Canada, and most of the free world. In addition, Diamond sold specially designed pumps direct to original equipment manufacturers. Throughout its 118-year history, Diamond has been a strong competitor in the industrial market and enjoyed a fine reputation as a maker of quality pumps. The company had achieved a sales increase each year for twenty consecutive years. In spite of this success, management felt that the company could find better ways of handling certain nagging distribution problems.
INDUSTRY STRUCTURE AND PRICING
The industrial pump industry was dominated by several large companies, with Diamond among the largest. Because pumps were used in such a variety of applications, no one of these companies could provide the best pump for each application. Most companies, including Blackmer Company and Viking Corporation, two major competitors, produced only screw-type and gear-type pumps respectively. Diamond, in contrast, offered a diverse standardized line that included both types. These standard pumps were purchased by a wide variety of users, primarily for process applications.
Original equipment manufacturers (OEMs) comprised the other major customer group, a group that had become an increasingly important market segment. OEMs included petroleum tank truck manufacturers, for example, who required specially designed pumps not offered in Diamond’s standard product line.
Prices tended to be uniform among competing pump manufacturers. The customer’s decision to buy was based mainly on the quality of service. The pump’s performance characteristics were also important, and price played a limited role in the buying decision. While Castleberry tried to limit price increases to one a year, this objective recently had fallen victim to the escalating prices of raw materials, which comprised the major portion of costs, as well as to rising over-head costs.
National advertising in trade journals comprised the bulk of the promotional effort. Castleberry and the advertising agency aimed at two important targets: the first consisted of petroleum tank truck manufacturers, petroleum storage operations, and the like. Diamond appealed to these potential buyers through Fuel Oil News, Chemical Engineering, and National Petroleum. Inquiries resulting from these advertisements were turned over to the sales agents and distributor in the area from which the inquiry originated.
The second equally important target was comprised of engineers and product designers who determined what brands of equipment would be included in product specification sheets for new products. The jobs of sales personnel at the company and distributor level were made more difficult if the Diamond pump was not specified initially. Therefore, advertisements in trade journals such as Design News were placed to influence the design specifications.
Diamond also advertised in the Yellow Pages section of telephone directories in major metropolitan areas. These ads listed all Diamond sales agents and distributors in the metropolitan area.
Homer Castleberry achieved distribution through twenty-one commissioned sales agents who were responsible for marketing pumps in their respective geographic areas. While these sales agents personally called on OEMs in their territories, OEM accounts were serviced by distributors under the supervision of the sales agents. There were 425 Diamond distributors employing 2,000 sales personnel.
The sales agent was responsible for selecting Diamond distributors. Distributors were approved by Homer Castleberry, approvals being based on credit-worthiness and ability to promote Diamond products. Castleberry insisted that distributors not selling competing lines. Additionally, the distributor was required to have a quality image, that is, sell high-quality complementary products and provide excellent service and technical advice.
Because customers for Diamond pumps required good fast service and competent technical help, the sales agent tried to ensure that distributor salespeople were well informed. This was done through periodic training. In addition, the agents often accompanied distributor personnel on sales calls. Installation of a Diamond WATS line enabled sales agents to get fast answers to technical questions raised by customers.
Sales agents were required to establish and maintain personal contact with current and potential OEM customers. This was difficult at times because individuals involved in deciding specifications for new products were often hard to identify. Agents, however, agreed that the results could be worth the effort. Recently, diligence led one sales agent to a contract under which Diamond supplied the pumps used to filter hot oil in Kentucky Fried Chicken’s pressure cookers.
Despite success in increasing sales revenue and maintaining profitability, Castleberry felt that the company could be more efficient in-handling certain nagging distribution problems. Attracting high-quality distributors was becoming increasingly difficult. Sales agents testified that distributors were reluctant to “change partners” even though the Diamond Company offered a broader line than did present pump suppliers. Agents also pointed out that distributor sales personnel were often unwilling or unable to seek individuals who had significant input to buying decisions; for example, engineers and production people. “If the purchasing agent says, ‘no’ they just give up,” said a Diamond sales agent. Another agent said there weren’t enough hours in the day to supervise distributors and also work with OEM customers. Castleberry summed it up, “The numbers look good every month, but I get the feeling that we could do better. We need greater effectiveness in distribution.”
In evaluating his performance as a sales executive, Castleberry decided that he had been spending all his time on operating responsibilities. He had been so busy putting out fires and handling day-to-day problems, he had neglected planning almost entirely. He wasn’t even sure that he had done a very efficient job of handling operations.
Q1. Describe Castleberry’s major operations responsibilities. How well is he carrying out each of these responsibilities?
Q2. What kind of planning activities should Castleberry be carrying out regularly? What planning areas need immediate attention?
Q3. How do you suppose Castleberry’s time should be divided operations and planning?
CASE 3: Central CATV, Inc.
Thomas Wagner, sales manager of Central CATV, Inc., was concerned about a high turnover of sales personnel, as well as certain other problems that has surfaced recently. The average Central CATV salesperson stayed with the company for less than seven months. Although actual sales were close to projected levels, Wagner felt the need for immediate action. He believed that correction of the turnover problem would enable Central CATV to achieve higher sales.
Cable television was developed to alleviate signal reception problems in rural areas. Recognizing that people are willing to pay for variety in programming, CATV moved into cities that were receiving two or three channels and offered them between ten and twelve channels. Gaining acceptance in medium-sized cities, cable television went into large metropolitan areas and offered up to twenty-five television channels. CATV systems in the United States served nearly 13 million homes, or over 17 percent of the total homes with television sets.
The operational concept was simple. A large tower in antennas capable of bringing in signals from outlying centers was erected. The signals were then sent out via coaxial cables to subscribers’ homes. Amplifiers were used to clarify and boost the signals along the cable network.
Cable system start-up costs included construction of the master antennas, the cable network, and initial promotion. The initial outlay was relatively high and most cablevision companies did not earn a profit until the third year of operation. Once start-up costs were absorbed, generally there was excellent profit potential because of low operational costs.
For the previous three years, Central CATV had served a southern market comprised of over 60,000 persons, nearly 40 percent of whom were students at a large university. The company bought the cablevision system from the “pioneering” operator and immediately expanded the cable network from 100 miles to 200 miles and from six stations to ten stations. Central CATV charged an installation fee of $35 and a monthly service fee of $8.95.
Central CATV serviced nearly 30 percent of the TV viewing market in its operating area. The goal was to have 50 percent of the market by the end of the fifth year of operation. Wagner felt that a realistic objective since, without the cable, it was possible to receive only two television channels.
The only advertising Central CATV had sponsored occurred shortly after its takeover of the operation. There had been need to overcome the poor service reputation of the predecessor. Central used a three-month radio and newspaper campaign emphasizing the theme that “a new progressive company has taken over CATV.” After this campaign, there was no further advertising. Wagner believed additional advertising unnecessary as most people were aware of CATV and the product “sold itself.”
The sales force had one full-time and two part-time salespersons. Although the sales personnel reported directly to Wagner, his only “contact” with them, other than for occasional phone calls, were the billing invoices sent to the sales office after they had made sales. Sales personnel were paid straight commissions of $12 per sale. Management estimated that a full-time salesperson could earn up to $22,000 annually, although no person had ever been with Central that long. Part-time salespeople earned about $8,000. The personnel were not assigned territories, and there was no quota system.
Sales personnel attempted to close on the first call. They believed that most prospects already knew about CATV and had a predetermined opinion as to its value. Consequently, when salespeople could not close a sale on the first call, they generally did not make a callback.
In addition to the three salespeople, Wagner had an agreement with most local TV dealers. The dealers acted as cable television salespersons despite the fact that they competed with the cable service, since they sold rooftop antennas which were not needed with the cable hookup. Central paid dealers $15 for each sale made. The dealers liked this arrangement since, if they could not sell a customer a rooftop antenna, they usually succeeded in getting $15 commission for a cable system “sale.”
During the past several months, three developments caused deep concern for Wagner: (1) a large number of subscription cancellations, (2) an increase in customer complaints, and (3) a great increase in the number of mail and phone orders for the cable service. In addition, there was continued difficulty in retaining sales personnel. The subscription cancellations were over and above those associated with students leaving the university. The rapid turnover of accounts because of students leaving town was not a problem, according to Wagner.
Although sales were satisfactory, Wagner believed that investigation and correction of the problems, especially that of high personnel turnover, would enable Central CATV to attain and even surpass its projected sales goal. He could not understand why these problems had appeared simultaneously. He was not sure which problem to attack first but felt that the most important was the high personnel turnover.
Q1. Suggest what Wagner should have done to reduce personnel turnover and eliminate the other problems at Central CATV.
CASE 4: Driskill Manufacturing Company
Jack Dixon, sales manager, and Henry Granger, director of marketing research, of the Driskill Manufacturing Company, were in complete disagreement about the current method of preparing sales quotas.
The Driskill Manufacturing Company marketed a line of maintenance equipment used all over the country, in a variety of businesses, and had attained considerable prestige in the field. The company was comfortably successful, and its marketing effort showed no great sign of weakness. But the management, aware of external trends in motivation and control of sales personnel, and also aware of some internal friction among the sales staff, decided to scrutinize its motivation and compensation methods. Desiring the advantages of up-to-date knowledge and an unbiased point of view, Driskill engaged a management consulting firm specializing in selection, evaluation, compensation of employees, and management development to make a study of its existing practices.
The consulting firm discovered that Driskill’s current compensation and motivation practices were the result of adjustments to meet change almost on an emergency basis rather than a result of long-term planning. The original plan, adopted a number of years ago, had been continually amended piecemeal, and adequate consideration had not been given to the effect of amendments upon other provisions or upon the plan’s overall ability to promote the achievement of objectives. The result was a patchwork of policies, not an integrated program; it worked to the advantage of some sales personnel while inadvertently penalizing others.
Driskill knew that there was some dissatisfaction among the field sales force with its current practices and policies, but it did not know how strong this feeling was or how much it might affect sales. Recognizing that any new program was more likely to succeed if the sales force was given an opportunity to participate in its preparation, management emphasized that the private study would not be followed by a general announcement of sweeping changes. Instead, the study was to based upon general cooperation and interest, involving carefully worked out changes.
The sales force welcomed the chance to have a say, and indicated approval of management’s interest in their opinions. Many of the staff brought not only a spirit of interest but lists of subjects to discuss, having given considerable previous thought to the matter. Dissatisfactions were minor, often even unrecognized. The sales force generally agreed that the company’s prices were competitive and that the product was one of quality, superior to competitors’ in design and workmanship. Commission rates were generally satisfactory. Persons on straight commission felt, however, that an increase in commission rates on the new higher-priced equipment was due because of the greater selling effort required. But the staff on salary plus commission, who sold more of the lower-priced equipment, were not greatly concerned with the matter. The salary-plus commission personnel were mostly people with less than five years service with the company.
Approximately one-third of the sales force was paid on a straight-commission basis, receiving 7 percent on all sales and paying all their own expenses. These were the older salespeople, who had been with the company longest. The other salespeople were paid on a salary-plus-commission basis. New sales recruits were started at a salary of $18,000 and received semiannual increases on a merit basis. The average salary was $25,500. Every salaried salesperson was given an annual quota and received a commission of 4 percent on all sales above the quota. In addition, Driskill paid all selling expenses incurred by the salaried sales personnel; expenses averaged $700 per month per salesperson.
Earnings of the sales staff on a salary-plus-commission basis averaged $21,000. For example, R.C. Andersen, who had been selling for Driskill for five years, had a quota of $355,000 and received a salary of $18,500. Since his actual sales were $415,000, he earned a commission of $2,400, or a total income of $20,900. R.A. Scott, who had been selling for Driskill for fifteen years, was paid on a straight-commission basis. His gross earnings were slightly in excess of the average of $29,500 in gross income earned by the commission salespeople.
Since the commission sales personnel were generally more experienced, and since their incomes were directly related to their productivity, management had never felt it necessary to give them specific quotas or volume goals. Quotas for the salaried staff members were based on a running three-year average of each person’s past sales. Arbitrary figures were selected for sales personnel who had not yet been three years on the job; these quotas represented a compromise between the experience of the salespeople formerly in the territory and the level of experience of the new person. Jack Dixon, the sales manager, believed that the basis for determining quotas was a satisfactory one. During the past ten years, 85 percent of the salaried sales staff had managed to exceed their quotas and earn some commission. In Dixon’s opinion, therefore, the motivation was satisfactory to achieve maximum selling effort on the part of the sales force.
Henry Granger, the newly appointed director of marketing research, was less satisfied with the existing quotas. He claimed that any good salesperson could have exceeded quotas under conditions prevailing in recent years in the industry. He also believed that the existing system, based on past sales, merely tended to perpetuate past weaknesses. He suggested that future quotas be based upon a division of the annual forecast of sales among the individual territories and that the basis for division should be other than past sales.
Dixon supported the existing system, claiming that past sales had been an adequate basis for the establishment of quotas in the past. He held, furthermore, that if any new establishment of quota preparation were adopted, it should be based primarily of the buildup of sales estimates by the individual salespersons for the coming year.
Q1. If you were acting as a consultant for the Driskill Company, what recommendations would you make with respect to the preparation of quotas of the sales force?
Q2. How would you evaluate the arguments of the sales manager and the marketing research director?
CASE 5: Alderson Product, Inc.
Alderson Products Inc., a $15 million company, had recently become a wholly owned subsidiary of National Beverage Corp. of Baltimore, Maryland. National had purchased 100 percent of Alderson stock. The acquisition brought with it a number of problems common to such ventures, with the most pressing problems centering around the control of the sales effort.
Alderson Products, Inc., produced and sold packaging equipment exclusively to the soft drink industry. The company, located in Detroit, was established in 1951 by the
Alderson brothers, Jim and Frank, both of whom had worked for General Motors for several years but who wanted to be in business for themselves. After a five-year search while they were still working at GM, they decided to enter the packaging equipment industry when an opportunity came up to buy out a small bottle capping machine producer. For the first year of operation, Alderson produced only a limited line of bottle capping machinery. However, gradually at first and then more rapidly, the Alderson product line was expanded to include capping machines, decapping machines, bottle lifters, case painters, case rebanding equipment, parts, lubricants, blenders, fillers, water-coolers, carbonators, saturators, packers, decasers, washers, water treatment systems, conveyors, rinser load tables, warmers, water chillers, and refrigeration units. Most of the equipment bearing the Alderson name was manufactured by the company itself. Some equipment was purchased from other makers: the cappers and decappers came from the Zalkin Corp. (France), the bottle washers from Firton Manufacturing (Pennsylvania), rinser and warmers from Southern Tool (Louisiana), water chillers from Dunham Bush (Georgia), and the refrigeration units came from Vilter Manufacturing Company (Wisconsin).
The products offered by Alderson came in several different sizes to match the various different applications in the soft drink industry. In addition to the new products manufactured or purchased by Alderson, the company sold used equipment and machinery. The company got into used equipment after finding that a large number of its customers were too small to afford new equipment and could not perform extensive maintenance and repairs on their present equipment.
The market for used equipment grew to the point where it contributed 30 percent of v Alderson’s net sales. Most of the used sales were from rebuilt machinery. Alderson bought the used machinery from bottlers, brought it to Detroit, reconditioned it, and sold it. Other used machinery was sold “as is.” This was machinery that was bought in acceptable operation conditions and required minor modifications or repairs. Usually, the “as is” machinery was transported top the buyer directly from its original location.
The “rebuilt” phase of the business called for the customer to make a 25 percent of deposit on the order before the particular unit went through the shop. Once in the shop, the equipment was dismantled to its basic components and parts were added as required. The customer ended up with a “like new” machine or piece of equipment. Savings to the customers were typically about 30 percent with a new unit. Alderson’s rebuilt equipment carried a warranty. As an additional service, Alderson tried to maintain an adequate stock of spare parts for older units, even if the original manufacturer no longer made them available. There was some concern among management as to the future of the rebuilt equipment part of the business. About two years ago, the company began experiencing difficulty in acquiring used equipment that could be rebuilt. The supply of older units was dwindling, and competition for the used equipment was forcing prices up considerably. Alderson also found that more and more bottlers were reconditioning their own units. Although it constituted a profitable segment of the overall operation, there was some thought that it might be best for Alderson to get out of the used equipment business and concentrate on its growing business for new machinery and equipment.
Alderson served only the soft drink industry, despite the suitability of the company’s products and services for other industries, such as the beer or fruit juice producers. No attempt had been made to branch out into the other markets, largely because the Alderson brothers felt they knew the soft drink industry best. The company served primarily local and regional bottlers; however, plans were underway to increase coverage to national and, possibly, international markets. Future expansion plans did not include markets outside the soft drink industry.
Distribution of Alderson products was through two company salespersons and six manufacturers’ representatives. Both salespersons were paid straight salaries. One salesperson spent about one-fourth of his time appraising and procuring used equipment. The other salesperson spent about one quarter of his time piloting the company airplane. The representatives received a commission for their services, according to the following schedule: 5 percent for the first $50,000, 2.5 percent for the next $50,000 (up to $100,000) and 1 percent for anything over $100,000. This was bases on individual sales. The representatives received a sales commission on any sale in their territory, regardless of whether the company (Alderson) or the representative closed the sale.
In addition to using the personal selling, Alderson promoted its products through advertising, trade conventions, and direct mail. Alderson advertised in six trade publications, averaging one insertion every two months in each of the journals. The direct mail consisted of a newsletter, “Alderson’s News,” mailed to current and potential customers.
With the takeover complete, National sent its auditors to Alderson Products for a routine evaluation. Among other things, it soon became apparent that Alderson had been very lax in its sales control efforts. In particular, there was no evidence that a sales budget was used and there had been no attempt at a sales analysis. The sales manager, who had been in his position for two years after four years as a salesperson with Alderson, said there had been no sales budgeting or sales analysis effort for three years prior to his becoming sales manager. He did mention that a sales budget was used for a time before that, but he was unaware of its details. When questioned by the National auditor as to why he had not instituted sales control procedures, the sales manager said he had discussed it with Frank Alderson and they came to the conclusion that the company was moving along very well and there really was no need for tight control. He was, though, on the alert that, should sales results taper off, it might be necessary to have some controls at a future date. The sales manager also pointed out that he was so busy working on a personal basis with the company sales personnel and the sales representatives that he just didn’t have the time for budgets, quotas, sales analysis and “things like that.”
Q1. Was there a need for sales control at Alderson Products, Inc.? Why or why not?
Q2. What would have been the components of a good sales control program for Alderson products? Be specific and give your reasons for each element of sales control.