Real World Decisions Biomed Co., Ltd.

: Designing A New Sales Compensation Plan PrOACT 1) Problem Identification: What is the problem (root cause) and the consequences of no decision (no action)? How do we change the sales strategy to be aligned with the marketing strategy? How is Biomed going to design a new sales compensation plan that suits the new marketing strategy? 2) Objectives: A - Increase sales and profitability (ie. Increase market share) (ie. Price between low to medium-low) B - Optimise portfolio (ie. number of drugs) (ie. from over 100 items of generic products to 10-15 products) C Introduce an intelligence system D - Change focus to drugstores and doctor clinics (ie. avoid the hospital market) 3) Alternative Courses of Action and 4) Consequences: Alternatives Focus on the hospital market (ie. avoid the drugstores and doctor clinics) by alliances with other manufacturers Sales representatives to divide the market segments among themselves Change manufacturing capability from generics to premium drugs Reduce price range: low to medium-low Consequences A huge profits B better manufacturing efficiency C N/A D Reduced focus on different markets A no turn wars B more information about selected products C less products to monitor D easier to achieve targets A economies of scale B better manufacturing efficiency C less products to monitor D N/A A may affect sales, harder to achieve historical revenues B hard to select products C N/A D easier to achieve targets

5) Trade-Offs: a. High profit margin but low demand products. If the target markets are drugstores and doctor clinics, manufacturing capacity would be devoted to these products. If the target market is hospitals, the focus of production should be low profit margin but high demand products due to economies of scale. By changing the market strategy, there may be a need to change the sales force. Depending on the sales numbers after changing the market strategy and compensation system, there may be a need to hire sales representatives if business is good and vice versa. Risk changing the existing company culture by introducing a new market strategy and compensation system. If bottomline is identified as a priority, the level of business relationships and customer service offered by current sales representatives may be affected.

b.

c.

Report by: Vishal Kumra (216687)

Real World Decisions Three areas that overshadow research, examination and analysis of the alternatives: 1. Uncertainty: Every decision has a degree of uncertainty. Chance Least likely Somewhat likely Somewhat likely Most likely Consequences Bad. Thai Drugs may close down Biomed. Bad. Sales representatives may leave for greener pastures. Pretty good. Sales representatives may stay. Wonderful. Challenging task. Will greatly enhance Biomeds revenues and profits.

Outcome No change in strategy and compensation system (ie. maintain status quo) Change in strategy but not the compensation system Change in compensation system but not in strategy Change in both compensation system and strategy 2.

Risk Tolerance: Each decision alternative has risk associated with it. If Biomed does not change the existing strategy, it risks closure by Thai Drugs. Biomed risks losing their current sales representatives if the existing strategy is changed.

3.

Linked Decisions: Decisions made today will influence decisions that are going to be made tomorrow. The change in market strategy will allow Thai Drugs to continue operating the Biomed subsidiary. If market strategy is not changed today, there is risk the revenues and profits may stagnate for the following years and this will be a reason for Thai Drugs to close the Biomed subsidiary.

Implementation of the Decision Decision: The new marketing strategy from Thai Drugs has to be adopted and consequently, the compensation system has to be changed. The first task for Ponlerd Chiemchanya is to have a meeting with the sales representatives. The most important people in a sales organization are the sales representatives. There is a need to get them to buyin to the new sales strategy. They need to realize that its imperative that the new marketing strategy be adopted. The timeline during which these changes has to be made and an improvement in financial figures needs to be reported to Thai Drugs is one year. The priority concern for the sales representatives is whether their paycheck will be affected with the new marketing strategy. Therefore, it is important to let the sales representatives know that the company risks closure if the compensation system is not changed. Even though there is a change in compensation system, the sales representatives will be compensated through incentives when certain targets such as good feedback or low complaints from customers are received by Biomed. In addition, sales representatives may receive cash rewards for creating new accounts or increasing the order size from the same customer. At the moment, Biomed does not have any information regarding its most profitable and most in-demand products. This is an easy task to accomplish as an Excel file can do the job. In the long-term, Biomed can approach an IT consulting company to develop a proprietary software, such as the Enterprise Resource System (ERS), to track the orders and deliveries.

Report by: Vishal Kumra (216687)