In this competitive environment, companies are trying to differentiate themselves from other

companies. Some companies are making efforts to improve sales force ethical behaviour and
customer oriented selling, while others are trying to increase sales force motivation and selling
skills by indulging in training and development programs for salespeople. All these efforts are
directed at one goal – to increase sales organization effectiveness Sales organization
effectiveness consists of a summary evaluation of overall organizational outcomes (Churchill,
Ford, Hartley, & Walker, 1985). Total sales volume, market share, profitability, and customer
satisfaction, compared with the major Competitor and the sales unit objectives are the most
popular measures of sales organization effectiveness. Other measures like assessment of costs,
profit contribution, residual income and return on assets have also been used by researchers.
Studies have revealed that sales organization effectiveness is affected by several salesperson
as well as organizational factors. According to Cravens, Piercy and Low (2006), sales
management’s behaviour control strategy, compensation control, satisfaction with sales unit
design and sales force outcome performance are expected to influence sales unit effectiveness.

Increased attention has focused on the importance of sales territory design choices as
determinants of the performance of salespeople and the effectiveness of sales organizations
(Weitzet al., 1986). As territory design is a major determinant of salespeople’s opportunity to
perform well, and their ability to earn incentive pay where incentives are linked directly to
territory-level individual performance (Grant, Cravens, Low and Moncrief, 2001), it is likely
to have an impact on sales organization effectiveness. The objective of this paper is to examine
the impact of sales territory design and sales force performance on the effectiveness of the
organization. First, the paper defines sales territory design and sales force performance.
Second, it describes the framework for organizing the study. Third, it highlights the impact of
sales territory design and Salesforce performance on sales organization effectiveness based on
the review of studies. Lastly the paper concludes with research implications and directions for
future research.

Territory management is a customer group or geographic area over which either an individual
salesperson or a sales team has responsibility. These territories are usually defined based on
geography, sales potential, its history or a combination of these factors. The ultimate aim of
this division of areas is to maximise sales and profits, and to allocate resources efficiently.

It is very important to create sales territories that are balanced. When a sales territory is out of
balance, there are two things that can happen. If a territory is being under-serviced, the sales
team or salesperson is spread too thinly and it leads to sub-optimal levels of activity. Those
responsible for the territories will seek out too few leads, identify too little prospects and spend
too little time with customers because they are overworked. This leads to customers going to
competitors and you losing sales.

Over-servicing in a territory is where the sales team has too little work and too many team
members to service a small area. This raises costs and prices overall which ultimately leads to
reduced sales. Precious resources are also then not being utilized in more important areas. This
can lead to under-servicing in other areas.

Unbalanced territories can cause many problems. Some of these include the unfair distribution
of sales potential amongst the sales force, distorted compensation amongst sales reps and, reps
leaving the company to seek out better balance and compensation elsewhere.

One of the things people can do to form good sales territories is sales potential forecasting.
This helps to determine sales targets and identifies areas that are worthy to allocate sparse
resources to. Forecasting determines the number of prospects in an area and their combined
(and individual) buying power.

There are three main reasons why sales management usually employs territories. It can be
customer-related which increases market coverage and provides good customer service. This
makes for higher sales figures and greater customer satisfaction.

The second reason can be related to the salespeople themselves. It increases enthusiasm and
motivation in teams. It is great for effective performance evaluation and decreases employee
turnover while providing reward potential for the amount of effort taken.

The last reason can be related to management. Control is enhanced with territory allocation and
is great for promotion coordination. It provides potential for staff incentives and better
allocation of costs per territory.

What do you need to take into consideration when establishing territories?

 Type of product or product line you have

 Competition in territories
  Channels of distribution and the transport system

 Workload of the salesperson and the nature of the assignment or job

 Sales potential and servicing requirements of territory – territories with limited

potential can serve as a training ground for new sales reps

 Performance of a particular salesperson – this will determine if they get more or less
challenging territories

Territory management can help spread out the workload for your sales team, allowing them to
complete tasks more efficiently, build better customer relationships and increase the good-
quality leads that they get. Just as important is the motivation it provides to your sales team if
they feel like they are being productive and accomplishing a lot of the sales goals they set out
to do.

Objectives of Allocation of Sales Territory

The main objective of allocation of sales territories can be summarized as:

1. To hold the salesman responsible for sales and services.

2. Supervise and control over the sales force.

3. To meet competition easily.

4. To save time and expenses.

Factors Determining Allocation of Sales Territories

The allocation or division of sales territories among the salesmen is based upon several
considerations or factors, such as the nature of the product, the potential demand for the
product in the area, the extent of competition present in the area, transport and communication
facilities available, channels of distribution, types of customers, the capacity of the salesmen,
the types of customer services to be provided, the sales expenses ratio, etc. Each of these factors
are explained in detail.

1. Nature of the product

First, the nature of the product is of utmost importance. There are certain consumer items which
have constant demand in the market. They are high turnover goods and they need little selling
efforts. Thus, for such products a large territory can be assigned. For luxurious, bulky and
durable articles, which need concentrated selling efforts small sales territory can be assigned.

2. Demand for product

While allocating sales territories to salesmen, the demand for a particular product should also
be taken into account. If the demand for a particular product is constant and frequent, then the
whole sales filed can be divided into small sales territories. However, in case of low demand
and infrequent purchase of articles, the size of the sales territory should be large.

3. Transport facilities

The marketing of a particular product depends to a large extent on the availability of transport
facilities. If the transport facilities like road, railway and air links etc., are satisfactory, then
large sales territories can be allotted to salesmen. However, areas having poor transport
facilities should be divided into very small sales territories. If the company provides vehicles
such as a car or motor cycle for the salesmen, then larger sales territories can be assigned.

4. Competition and Frequency of Contact

Competition cuts the size of the territories and increases the frequency of contact. In other
words, the salesman has to meet dealers and customers very frequently in highly competitive
areas. On the other hand, limited competition or near monopoly situation lengthens the
frequency of contacts between the salesmen and the dealer/customer. In such situations, the
salesmen can be assigned larger sales territories.

5. Population

The density of population in a particular area determines the size of the territories. In other
words, if particular area of a territory is thickly populated, there arises the need to divide the
sales field into small sales territories. On the other hand, if the area is thinly populated, then
larger sales territories can be allocated to salesmen.

6. Distribution System

Very often the distribution system of a particular organization determines the size of its sales
territories. In case the company sells through middlemen like wholesalers, dealers, retailers
etc., larger sales territories can be allocated to salesmen. On the other hand, if the product is
sold directly to consumers or very few middlemen are used, then small sales territories can be
assigned to salesmen.
7. Advertising and Sales Promotion Activities

Companies which have widespread advertising and other sales promotion activities, can assign
small sales territories to each salesmen in view of the demand for the product created by
advertisements. This enables them to sell extensively in territories allotted. On the other hand,
low advertised products need large sales territories for each salesman.

8. Ability and Experience of Salesman

The size of the sales territory also depends on the ability and experience of the sales force.
Experienced and talented salesmen are able to sell more and, therefore, they can easily be
allotted large sales territories. New and inexperienced salesmen are usually allocated small
sales territories as their ability to sell is limited. A salesman is expected to produce maximum
sales turnover from his area with the minimum amount of time and effort. The commonly used
division are states, districts, cities and trading areas.

The allocation of sales territories is often followed by the planning of the route which a
salesman should follow within his sales territory. The planning of the route involves the
determination of places to be visited (including exploration of new markets), the number of
customers to be contacted and the number of calls to be made every day by the salesman.

Sales territory design procedure

At the time of designing the territory, the manager has to keep in mind the size of the territory
that is going to be assigned to the salesperson. It should be neither too small nor too large. If
the territory is geographically too small, the salesperson would keep calling the same customers
repeatedly. In contrast, in a too large geographical area, the salesperson will not be able reach
the scattered customers as most of his time will be utilized in travelling. Hence the territory
should not be too large or too small; it should be such that all potential customers can be visited
as per the requirement.

The procedure of designing sales territories is the same for all companies, whether setting the
territories for the first time or revising the existing territories.

Select Control Point

As the name suggests, the management has to select a geographical control point. The control
points can be classified on the basis of district, pin codes, areas, states and cities.
At the time of selecting the control unit, the management should aim to select as small a control
unit as possible.

The following are the reasons behind selecting small control units.

Reason 1

If the control unit is too large, the areas with low sales potential will be hidden by the areas
with high sales potential. The areas with high sales will be concealed if the areas with low sales
potential will be included.

Reason 2

In case of any changes required in future, they can be done smoothly. Example − A company
wants to allot some territory to Mr. A. This part of territory had earlier been assigned to Mr. B.
It can be done easily, as the unit is small.

If the sales potential for the company is located in urban areas, the city can be used as a control
point. But there are some disadvantage also, as the adjacent areas to cities also possess sales
but they are covered by paying additional cost to the salesperson.

The control point can also be set up according to the trading areas. It is a sensible decision to
set up the control point according to the trading area. It is based on the flow of goods and
services rather than economic boundaries. Example − The wholesaler or retailer use trading
area as the control point.

Trading area can be considered as the geographical region that consists of a city and the
surrounding areas; this region works as the main retail or wholesale center of the region.
Generally, the customers from one trading area do not go outside the boundaries to buy goods.

Even an outsider customer will not enter the trading area to purchase a product. The main
advantage of the trading area is that the salesperson is aware of the buying habits of the
customers and the pattern of trade. It also helps the management in planning and control.

The control point can be decided on the basis of states. A state may be a capable control unit
when the organization has small sales force that is covering the market selectively. Example−
A company sells its products in the country in all states; in this case, the territory boundaries
could be based on states.

It is less expensive and convenient to gather data and make evaluation.

Making an Account Analysis

The next step after selection of geographical control unit is to plan an audit of each geographical
unit. The reason for performing this audit is to analyze the customer prospects and find out the
sales volumes for each account.

Accounts can be recognized by names; in recent times, there are many sources to pull out the
data, for example, the yellow pages. We can also collect the data through the past sales of the
company. After collecting the data, the next step is to estimate the sales for each geographical
unit. The sales manager estimates the sales volume that the company is expected to get in the
following years.

There are many factors to contribute such as competition, advantage of the company in that
geographical area, etc. Now there are many software available for calculation and the final
result. This can be done much quickly as compared to when it is done by the sales manager
manually.

After the sales potential estimates have been taken, the system divides into three types, which
is done through ABC analysis. This is one of the most common analyses used by companies.
Where the sales potential is greater than expected, it is classified as “A Category”. Average
potential is classified as “B Category” and the sales potential below average is classified as “C
Category”.

Developing a Salesperson Workload Analysis

The salesperson workload analysis is done on the basis of the time and effort taken by a
salesperson to cover a geographical unit.

The following are a few points needed to estimate workload −

 Frequency of calls

 Duration of calls

 Travel time

The estimates workload is calculated by considering these factors.

The most important factor is the duration of calls. These depend on the customers and issues.
If the problem is severe, it may take time to resolve and tackle the question from customers.
Another important factor is the travel time; this differs from one area to another depending on
the factors transportation, condition of roads, weather condition etc. The sales manager tries
and plans accordingly to reduce the travel time taken by the salesperson and utilizes the time
to call more number of accounts/clients.

Combining Geographical Control Units into Sales Territories

In the first three steps, the sales manager works on the geographical control units; now he has
to combine the control units into territories.

Initially the sales manager used to manually develop a list of territories by combining the
control units. It was a time consuming procedure and also the result was not accurate, as it was
done manually. Now computers handle this activity and complete it in a much shorter period
of time with accurate results. The operational error is reduced here.

All the salespersons cannot be considered equal and competitive; it depends on the basis of
experience and skills. The salespersons are assigned territories by the sales manager depending
on the basis of sales. The geographical areas with high sales are assigned to the salesperson
with experience, who can handle the workload. The new or less effective sales people are
assigned the areas with less sales potential.

Territory Shape

The sales manager has to decide the shape of the territory. The territory shapes affects the
selling expenses and also helps for sales coverage. There are four types of shapes, which are
used widely.

 The wedge

 The circle

 Hopscotch

 The cloverleaf
The Wedge

This shape is suitable for the territories, which contain both the urban and non-urban areas. The
radius starts from the most populated urban center. Wedges can be divided into many sizes and
the travel time can be maintained by balancing between the calls of urban and non-urban areas.

The Circle

When the clients are distributed evenly throughout an area, the sales manager chooses the circle
shape. The salesperson starts from the office, moves in a circle of stops until he reaches the
office again. This helps the salesperson to come near to the customer as compared to the wedge.

Hopscotch

In this shape, the salesperson begins from the last point from office and reach out the customers
while coming back to the office. While going, the salesperson does not stop anywhere and
attends calls in one direction while coming back to the office.

The Cloverleaf

When the accounts or client are located randomly in a geographical area, the cloverleaf shape
is used. This type of shape is more often found in industrial markets than in consumer markets.

Assigning Sales Personnel to Territories

Once the sales territory has been designed, the last step is to assign sales personnel to the
territories. All the salespersons are not equal in terms of ability, initiative, etc.; the workload
of one salesperson may be overload to another and may cause frustration.

The sales manager must rank the salespersons accordingly before assignment of territories. The
ranking should be done on the basis of ability, knowledge, communication, etc. The other
points, which the sales manager should look at, are the cultural characteristics of the
salespersons and how they match with the territory.
Example − If a salesperson is born and brought up in rural area, he would be able to do more
effective sales in that particular area as compared to urban area.

We can now conclude that the goal of a sales manager is to assign the geographical area to the
salesperson who would maximize the territory sales and where the customers are comfortable
with the salesperson.

Establishing the sales territory helps in planning and controlling the sales operations. A well
designed sales territory helps to increase sales volume and market coverage and provide better
services to customers. Once the sales territory is allocated to the salesperson, he is responsible
for making things happen.