Personal Selling

European Journal of Marketing
Personal Selling
Peter Hammann,
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by Peter Hammann
Personal Selling
Abstract
The strength of personal selling lies in the fact that it allows for communicative
interchange, a process more subtle but, at the same time, more hazardous than
classical methods such as advertising, which rely on one-way communication. In
terms of efficiency, communicative interchange results in a reduction of reach
losses; it is of primary importance in the marketing of commodities which have to
be explained or demonstrated to the buyer and particularly, therefore, in industrial
marketing and the marketing of services. It is recognised, however, that personal
selling is a relatively expensive means of communication.
The author undertakes a taxonomical review of the various constituents of the
personal selling scene, analysing the tasks involved and the composition of the
sales force. In the latter half of the monograph he selects certain sales force
management problems of special importance to discuss in greater detail with
regard to the optimisation of efficiency and job satisfaction.
About the Author

Professor Peter Hammann graduated from the University of Munich in 1964 with a
Dipl.-Kfm. in Studies in Economics, Management, Statistics and Operations
Research and, since obtaining a PhD in Statistics in 1965, has held a variety of
academic posts.
He began his career as Research and Teaching Assistant at the Institute of
Operations Research, University of Munich moving, in 1970, to the. Technische
Universitaet Berlin to become Professor of Management and Marketing. He ob-
tained a similar position at Ruhr-Universitaet Bochum after having worked for a
year in the USA and, in 1978, became President of the European Academy for
Advanced Research in Marketing.
Copyright © 1979 M C B Marketing & Logistics Limited

Distributed by MCB Publications Limited, 198/200 & 210 Keighley Road
Bradford, West Yorkshire, England BD9 4JQ
ISSN 0309 0566 ISBN 0 905440 84 6
Printed by J Ward & Co (Printers) L t d , Dewsbury, West Yorkshire

I 141
I. Personal Communication
in Marketing
Transactions in commodity markets are prepared, accompanied and effected
through communication between buyers and sellers. Communication can be
established either directly (involving personal contacts) or indirectly (making use of
intermediaries or technical devices). The established relationship may be permanent
and (relatively) stable over time or it may be unique and confined to only one
transaction.
The purpose of communication in commodity markets is to influence (potential)
market partners towards some kind of behaviour which increases marketing utility
for the communicator.
According to the general theory of communication we may distinguish the following
constituents of direct one-step communication systems [1]:
—sender (source, communicator)
—channel (carrier)
—recipient (sink, target, destination)
—message (signal).
Signals are coded messages. Communicated signals or messages can differ from
those received by the recipient. Transmission of signals or messages may be
disturbed by noise which originates from sender, channel or recipient, individually
or simultaneously. Any message is designed to initiate information processing
activities by the recipient. Processed information, in turn, leads to behavioural
reactions. Their intensity depends on the perceived (or processed) information
content of the signal. Quite generally, the communicator is interested to measure the
effects of communication (i.e., reactive behaviour by recipients). Transmission of
measured communication effects is called feed-back. A graphical representation of a
direct one-step communication system is seen in Figure 1.
142 | European Journal of Marketing 13, 6
Its content may be summarised in five questions as proposed by Lasswell (1949, pp.
37 ff.):
-Who says
-what in
-to what channel
-whom with
-to what effect?
The establishment of communicative links between market partners is supposed to
be tied to the following conditions [2]:

(1) agreement on the significance and usage of the sign repertory;
(2) sufficient information processing potential of the recipient;
(3) importance of the message to the recipient;
(4) adaptivity of the message.
The importance of the message is generally higher if the recipient needs informa-
tion on the commodities to be purchased, i.e., the recipient is an information seeker.
Seen through his eyes, information is required to reduce his buying risks (be they
functional, economic or social risks). For the communicator, the message has a dif-
ferent function. It is not only a means to [3] convey information but, in consequence
and more specifically, to:
— alter perceptions
— stimulate desires
— produce conviction
— direct action and
— provide reassurance
for individuals or groups of recipients. Communicative action of a seller in
marketing may be classified into two areas:
(1) non-personal communication (i.e., advertising, sales promotion and public
relations);
(2) personal communication (i.e., personal selling).
Generally, personal communication often also involves forms of non-personal
communication. These, however, are (more or less) a vehicle or foil for personal
contracts between communicator and recipient.
Personal selling is a set of activities directed to the attainment of marketing goals

by establishing and maintaining direct buyer-seller relationships through personal
communication. It is of primary importance in the selling of commodities which,
due to their complexity, have to be explained or demonstrated to the buyer.
Industrial marketing and the marketing of services, in particular, depend on
personal selling. Contrary to classical promotion (e.g., advertising), with one-way
communication, personal selling allows for communicative interchange. In terms of
efficiency, communicative interchange results in a reduction of reach losses. On the
Personal Selling \ 143
other hand, however, personal selling is a relatively expensive way of communication. In

general the relationship shown in Figure 2 can be seen.
II. Personal Selling Tasks

Direct buyer-seller communication aims at the fulfilment of two principal marketing
tasks:
—holding of customers
—conversion of prospects.
These tasks, however, have to be differentiated with respect to buyer categories (or
segments) and the level of negotiation between buyers and sellers.
Generally, we may distinguish two forms of buying:
—organisational buying
—individual buying.
Organisational buying occurs when the "buyer" is an organisation of individuals,

involving more than one individual in the buying process. Typically, individuals who
participate in the buying process form a so-called "buying centre". It comprises the
following categories of individuals:
(1) Deciders (e.g., members of top management);
(2) Buyers (e.g., members of the purchasing department);
(3) Users (e.g., members of the production deparment);
(4) Influencers (e.g., staff members, consulting engineers);
(5) Gate Keepers (e.g., members of the marketing research group).

Organisational buying may be found, e.g., in industrial or commercial firms as well
as in private households if the buying centre contains more than one person.
Individual Buying occurs when the buyer is an individual or when the buying
centre of an organisation is scaled down to only one individual, responsible for all
negotiations and the final purchasing decision. Individual buying, therefore, may be
encountered in private households and firms as well. Its occurrence depends on the
degree of centralisation (or decentralisation) of the buying function and the type of
the purchasing decision (strategic versus tactical) in the organisation.
In what follows we shall deal with personal selling to three groups of buyers:
—industrial buyers
—wholesalers/retailers
—consumers.
Intensity and duration of negotiations between sellers and (prospective) buyers in
these categories differ in the various stages of the buying process. As suggested by
Robinson, Faris and Wind[4] we may distinguish eight stages:
(1) anticipation or recognition of a problem (need) and a general solution;
(2) determination of characteristics and quantity of needed item;
(3) description of characteristics and quantity of needed item;
(4) search for and qualification of potential sources;
(5) acquisition and analysis of proposals;
(6) evaluation of proposals and selection of supplier(s);
(7) selection of an order routine;
(8) performance feedback and evaluation.
Originally conceived to permit classification of buying behaviours and
organisational buying responses to sellers' marketing strategies, this framework also
applies to individual buying processes as well. However, in these cases some stages
can be drastically shortened (e.g., in habitual buying or the purchasing of
convenience goods) or even totally neglected.
In different stages of the buying process different members of the buying centre
are negotiating. Therefore, personal selling strategies have to be adapted to each
stage of the buying process and to changing (groups of) negotiators.
Personal Selling | 145
Generally, personal efforts will require higher intensity in "new task buying"
than in straight re-buy situations, depending on the buyer's greater need for
information. From this we may conclude that new task buying processes are more
extended and of longer duration than re-buy processes, with much closer
negotiations between buyer and seller. The need for strategy adaptation in different
stages of the buying process has given rise to the question whether — especially in
organisational buying and selling — the buying centre should not meet with an
equivalent institution on the seller's side: the selling centre. Member categories are
roughly the same (viz. deciders, influences, gatekeepers). The above categories of
buyers and users change to those of sellers (e.g., members of the marketing
department) and makers (e.g., members of the production department),
respectively.
The following paragraphs will examine in detail the necessary interactions between
members of selling and buying centres at different stages of the buying process.
Selling to Industrial Buyers

Personal selling is of paramount importance in industrial marketing. Most industrial
markets today can be described as direct one-step communication systems with
feedback. Typically, we find direct buyer-seller negotiations without intervention of
mediators. The dominant goal in most cases is the establishment of in-supplier
relations, i.e., a permanent position as "appointed" supplier to a particular firm.
Industrial buyers may be classified by the categories of industrial goods[5]; i.e.,
buyers of:
(1) Goods entering a product completely (materials and parts)
(a) Raw materials
(i) Farm products (e.g., wheat, cotton, livestock, fruit and vegetables)
(ii) Natural products (e.g., fish, lumber, crude petroleum, iron ore)
(b) Manufactured materials and parts
(i) Component materials (e.g., steel, cement, wire, textiles)
(ii) Component parts (e.g., small motors, tyres, castings)
(2) Goods entering a product partly — capital items
(a) Installations
(i) Buildings and land rights (e.g., factories, offices)
(ii) Fixed equipment (e.g., generators, drill presses, computers,
elevators)
(b) Accessory equipment
(i) Portable or light factory equipment and tools (e.g., hand tools,
lift trucks)
(ii) Office equipment (e.g., typewriters, desks)
(3) Goods not entering a product — supplies and services

(a) Supplies
(i) Operating supplies (e.g., lubricants, coal, typing paper, pencils)
(ii) Maintenance and repair items (e.g., paint, nails, brooms)
(b) Business services
(i) Maintenance and repair services (e.g., window cleaning, typewriter
repair)
(ii) Business advisory services (e.g., legal and management consulting,
advertising services).
Typically, industrial buyers can be found in different categories at various times
depending on the goods demanded. If several goods are demanded simultaneously,
industrial buyers may have to negotiate in different buying processes (of varying
durations and intensities) at the same time, requiring different buying centres and,
possibly, different negotiators at each stage.
Industrial goods are input factors for
— industrial goods
— consumer goods.
In the production of industrial goods we may quite often encounter a situation
where buyers in other industrial markets determine the outcomes of the first three
stages of their suppliers' buying processes. A clear-cut solution is already outlined,
the characteristics and quantities of needed items are known and no further
descriptions of these items are required. Thus, the negotiating process between seller
and buyer starts out with the search for potential sources. The buying process, more
or less, culminates in extended bargaining. In this situation, the efforts of users
(makers), influencers and gatekeepers are more or less subdued, whereas deciders
and buyers (sellers) carry the main burden of the negotiations. In repeat buying, both
parties could even leave out the deciders if their responsibility is taken over by the
buyers (sellers). In a new task situation, however, the importance of the first three
stages of the buying process is particularly emphasised. The lack of information
forces all members of the buying centre to concentrate on the purchasing of
information from various sources and the analysis of alternative solutions. These
activities, on the other hand, require the development of an integrated marketing
strategy by the selling centre, directed to meet the highly differentiated demand for
information of the buying centre at all stages. Personal selling through personal
communication by members of the selling centre constitutes a conversion strategy in
new task situations and a holding strategy in repeat buying.
Generally, the following members of the buying centre play an active role in new
task and repeat buying processes as shown in Table I.
This allocation can be repeated for the supplier. Hence, the application of personal
selling effort at various stages of the buying process in new task and repeat buying
cases involves the following members of the selling centre, as seen in Table II.
Personal Selling | 1 4 7
Table I: Negotiators in the Buying Process
Process Stage New Task Repeat Buy
Problem recognition User User

Influencer
Gatekeeper
Determination of User User

need Influencer
Description of User User

needed item(s) Influencer
Buyer
Supplier search Influencer Buyer

Buyer
Decider
Proposal Influencer Buyer

acquisition Buyer
Decider
Proposal User Buyer

evaluation Buyer Decider
Decider
Gatekeeper
Order routine Buyer Buyer
Performance User User

evaluation Gatekeeper Buyer
Buyer
Influencer
In the production of consumer goods, the repeat buying situation will be much the
same as above. However, in new task buying we may encounter two different
processes depending whether or not the buying centre faces a ready solution. If a
solution has been found the buying process starts with the fourth step, i.e., supplier
search. The same applies to the purchase of inputs for new products which are
imitations or replacements of the firm's own or competing products. Here, personal
selling may sometimes be cut down to a low level of frequency and intensity. More
effort, however, will be required in the development of innovations. Here, users and
influences co-operate in the generation of new product ideas. Quite often inputs
have to be created specially. Therefore, intense co-operation with makers and
influencers of potential suppliers is necessary before step one of the buying process
can be completed. As with many negotiations in personal selling, these co-operative
activities have to be conducted strictly confidentially until a solution and purchasing
agreement is reached.
Table II: Members of the Selling Centre Involved in the Buying process
Process Stage New Task Repeat Buy
Problem recognition Seller (Seller)

Influencer (Gatekeeper)
Gatekeeper
Determination Maker (Seller)

of Need Seller
Influencer
Description of Seller (Seller)

needed itcm(s) Influencer
Maker
Supplier search Seller (Seller)

Influencer
Proposal Seller Decider

acquisition Decider Seller
Maker Maker
Influencer Influencer
Gatekeeper Gatekeeper
Proposal evaluation Seller Decider

Decider Seller
Order routine Seller Seller
Performance Seller Seller

evaluation Gatekeeper Gatekeeper
Selling to Wholesalers and Retailers

Personal selling to middlemen is generally confined to the marketing of consumer
goods. It is done by establishing direct firm-to-firm communication between
manufacturers and middlemen. Contrary to the relations between industrial sellers
and buyers, where buyers often enter first, communication in this case is initiated by
the seller. It is he who informs wholesalers and retailers of his sales programme and
transaction conditions. This means that the first five steps of the buying process may
be shortened. The reason for this may be seen in the fact that neither wholesalers nor
retailers transform purchased goods as manufacturers do; i.e., most consumer
goods are sold unaltered. Therefore, it is often unnecessary to negotiate over input
characteristics as an industrial buyer often would have to do. In the purchasing of
inputs for middlemen services, however, we may find some of the properties of
industrial buying processes again (viz. buying of supplies, installations and
accessory equipment).
The special functions of middlemen in consumer markets imply a slightly reduced

buying centre. Typically, buyers and deciders will be one and the same person, there
may be no influencers and there are no users in the former sense. This also has to do
with the fact that the number of repeat buying cases is much higher than that of new
task buying.
Suppliers in consumer markets sometimes face a multitude of middlemen.
Therefore, a relatively large selling centre is required to stand opposite a relatively
great number of small buying centres. In the selling centre, the sellers quite often
dominate in number and importance. They constitute the so-called sales-force. Their
selling task is to negotiate in repeat calls with (potential) customers over a multi-item
sales programme of which only a relatively small proportion is of relevance or
importance to buyers. Most of these items will be branded.
Power in the distribution channels of many markets today is in the hands of
wholesalers and retailers. Therefore, personal selling effort must be applied (in
conjunction with other marketing instruments) to achieve penetration and access to
store capacities. Vertical marketing strategies (of a co-operative nature) are required
to over-ride competitive activities along the channel from manufacturers to
consumers.
Personal selling contacts in selling to wholesalers and retailers occur between
buyers and members of the sales force in the first place. If negotiations are difficult
to start or to continue, deciders (or influencers) are called in to solve ties or remove
deadlocks. Hence, the dominant management principle is management by exception.
Selling to Consumers
For a manufacturer there are two kinds of selling to consumers:
— direct selling (through regional outlets or through salesmen at the door)
— indirect selling (through middlemen who in turn sell directly).
Here, we may restrict ourselves to direct selling by manufacturers and middlemen.
Typically, the length and duration of the buying process in consumer buying depend
on the kind of the needed goods. We may distinguish the following categories of
consumer goods[6]:
(1) Convenience Goods
This category contains those goods "which the customer usually purchases
frequently, immediately, and with the minimum of effort in comparison and
buying (e.g., tobacco products, soap, newspapers)", i.e., in an extremely
shortened buying process. It is for these goods that consumers tend to show
habitual buying behaviour. Many non-durables belong to this category.
(2) Shopping Goods
Here we subsume all those goods "which the customer, in the process of
selection and purchase, characteristically compares on such bases as
suitability, quality, price, and style (e.g., furniture, dress goods, used
automobiles, and major appliances)", i.e., where we have a buying process

which normally starts at the supplier search phase and where the order
routine phase is left out.
(3) Speciality Goods
This epithet circumscribes those consumer goods "with unique
characteristics and/or brand identification for which a significant group of
buyers are habitually willing to make a special purchasing effort (e.g.,
specific brands and types of fancy goods, hi-fi components, photographic
equipment and men's suits)"; i.e., we find a buying process where also the
solution search and strategy formulation steps are completed.
Shopping and speciality goods include durables and non-durables as well. For the
consumer, time spent on gathering information and planning of purchases increases
product utility as it diminishes after-purchase risks.
"Consumers" may either be
— individuals or
— acting heads of private households (families).
Private households constitute a buying centre of a rather special nature where the
roles of buyers, deciders, users, influencers and gatekeepers (initiators) can be
clearly identified. However, individuals may assume different roles over time.
Individual consumers decide for themselves. They, more than anyone else, are
dependent on influencer information before and after a buying decision has been
reached. In private households, all members exert influence on each other. Besides,
consumer buying behaviour is influenced directly or indirectly by other individuals
(outside the family household). Direct influence on consumer purchases is exerted
by members of face-to-face groups (preferably of the same social class). Indirect
influence occurs through members of so-called reference groups in which the
individual has no membership but with which he (dis-) likes to identify and to which
he may or may not aspire. Members of face-to-face groups often acquire a special
property which renders their influence indispensable to others in buying processes:
the status of opinion leader. In many cases, opinion leaders assume the role of
gatekeepers to household buying centres in the truest sense of the word. Though
their importance is especially felt in mass communication (through mass media),
their influence may be noticed in personal selling situations as well (e.g., selling of
TV-publicised durables at the household door).
The direct personal selling situation vis-à-vis the consumer for the manufacturer
can be characterised by the fact that — generally — his salesmen approach the con-
sumer who may or may not need the offered goods. The goods have to be explained or
demonstrated. The selling effort may mainly consist of persuasion in order to win or
convert the customer. The a priori probability of winning will be higher if gatekeepers
have exerted a positive influence on the individual before the call was made. In retail-
ing, on the other hand, the seller is approached by the buyer, who often conies as an
information seeker. Prospective customers need advice, explanation of demostration
and probably leave a shop to rethink their decision. The personal selling effort,
therefore, will be directed, not only towards winning the customer at the first
contact, but also to make him come back - if not this time, then on a later occasion.
Consequently, quite different personal selling strategies have to be developed in
direct personal manufacturer-consumer and retailer-consumer communication.
Seeking out customers by personal callers may be a much more efficient way of
selling than waiting for customers at an outlet, but it is at the same time much more
costly. This fact partly explains why direct selling by manufacturers occurs only
rarely in consumer markets. Obviously it pays to leave the fulfilment of the
distribution function to the middlemen (i.e., to sell indirectly) if a large amount of

information is needed by the consumer.
As we have seen, the consumer buying centre is structurally much the same as in
industrial buying though roles may change with time. The selling centre which
consumers face, however, is relatively stable. It is structurally reduced, but —
according to circumstances - much enlarged in the number of members. There are no
makers and — though they may be found — the importance of influencers and
gatekeepers is noticeably reduced. Sales forces tend to be large in direct selling of
manufacturers. In retailing, comparable sales force sizes can be found only if the
firm operates a large number of, or very large, full-service outlets. In other cases,
selling personnel are found to be cut down to a minimum number (especially in self-
service outlets with reduced supply at discount prices).
Intensity and duration of negotiations depend on the information needs of
consumers as well as on their buying propensity.
III. Composition of
the Sales Force
In the analysis of personal selling activities, we shall focus on one particular group
of selling centre members the sales force. Before we can deal with operations
planning, we would have to determine its size and how its members are recruited and
selected.
Sales Force Size

The problem of sales force size determination can be solved analytically by
comparing marginal utility and marginal cost of salesmen[7]. A simple example may
clarify the point. Let us assume that the firm operates in non-overlapping sales
territories or market segments. Assume further that market response functions are
available for each segment with respect to the number of salesmen in operation.
Then marginal analysis can be conducted as follows. Let:
Si = sales in segment i (i = l,...,m)
xi = number of salesmen operating in segment i
Pi = sales potential in segment i
The market response function is of the general form
Si = fi (xi | Pi) (all i) (1)
If we assume that Si increases exponentially with xi up to the saturation level Pi we

would have:
Si = Pi ( l - e - b i x i ) (all i) (2)
Where bi is a constant which would have to be estimated subjectively or by
regression analysis provided that time series of Si and xi for a given Pi exist.
Implicitly, we have assumed further that salesmen do not differ in efficiency. If
marginal cost of each salesman is constant, say ci monetary units in area i, then we
can set up the following decision model. If we wish to maximise profit, we should
have:
Maximise (3)
where di is contribution to profit per sales unit in area i and R is fixed cost. If we
assume that no further restrictions on the xi exist, we may find the optimal values xi*
which maximise (3) by taking partial derivatives of Z :
= 0 (all i) (4)
with negative second-order derivatives. We find xi-by solving a set of m equations in

m unknowns. The number of salesmen in this case depends in the first place on the
values of bi, the reaction constants. We might assume d and c to be different
constants in various market segments, thus approaching a more realistic set-up.
There may also exist production capacity and/or financial constraints which limit
sales force size.
Another solution proposed[8] relies on a given allocation of customers to pre-
specified size classes. To show this approach we introduce the following symbols:
Ci = number of customers in size class i (i = l,...,m)
F i = desirable number of calls per time unit to be made to customers in size class i
P = average number of calls per time unit made by a salesman.
The number of salesmen N can be computed from the relation:
(5)
where Fi, in fact, is a critical and subjectively estimated parameter.

Recruiting Salesmen
If the number of salesmen needed is known, the process of recruiting potential
candidates is set in motion. This process, typically, shows the following stages:
(1) job analysis and description of position (requirements and duties);
(2) determination of qualification needed to fill the job;
(3) search for sources of salesmen;
(4) invitation of applications;
(5) processing of applications;
(6) selection of salesmen.

This process clearly shows some similarity to organisational buying processes
discussed above.
The first step may start out from an analysis of the function a salesman takes over
in working in a particular marketing channel. It can be complemented by results of
work study to show not only the organisational relations, job duties and
responsibilities, but also the specific mental, physical and psychological
requirements of the job. Together with experience, personality and environmental
factors they may be used to derive the qualification needed to fill the job. Personal
histories can be used to set up job standards which can be applied in the evaluation
and selection phases.
Potential sources of salesmen are, among others, the recruiter's own company,
other competing or non-competing companies, educational institutions or
employment agencies. It depends on the importance of the job and the specific
qualification whether or not one or more of the above sources can be put to use.
Invitations for applications may be aimed directly and personally at some potential
candidate(s). On the other hand, mediators (e.g., consultants) can be approached to
get help in finding the right salesman. The third — and most often used —
alternative would be advertisements in newspapers and trade journals. In this latter
case, very careful selection of media and a sufficient amount of job information in
the copy are required. The processing stage comprises all activities which are
directed towards making applications comparable. This, however, depends on the
amount and quality of information handed in or obtained from applicants. In order
to make the material comparable, application blanks can be used which the
candidates fill out by themselves or which are completed from their records. Quite
often, in-depth interviews are conducted to get an impression of the personality of
prospects. Information from interviews may be collected on an appended
standardised reporting sheet to the application blank. Sometimes, applications and
interviews arecomplemented by tests and physical examinations. Tests are
conducted to examine the intelligence and mental ability of candidates. It would lead
too far to give a detailed description of a variety of tests and their pitfalls-
here[9].
1 5 4 | European Journal of Marketing 13, 6
Selecting Salesmen
If all relevant material about applicants has been collected and standardised,
selection among candidates may proceed. A very useful device in this context are
scoring models. They require the definition of pertinent decision (or selection)
criteria which — according to their importance — can be weighted. Every candidate
is rated by the decision-maker and a weighted sum of his ratings calculated.
Candidates are then ranked according to their summated ratings and selected if their
summated ratings exceed a pre-specified critical level.
The procedure runs roughly as follows. Let:

Rij = rated value of criterion j on candidate i (i = 1,...,m; j = 1,...,n )
Wj = weight of criterion j
Then the summated rating of candidate i is:
Si WjRij (all i) (6)
If Si >S*i,the critical rating level, then candidate i is selected, otherwise rejected.
Scoring models can be further differentiated to include benefits and costs of
recruiting and selecting which we have neglected here for simplicity's sake.
IV. Planning Personal

Selling Operations
Out of the multitude of possible personal selling operations we select five sales force
management problems of special importance which we shall subsequently analyse in
greater detail:
(1) determination of sales territories;
(2) allocation of salesmen to territories;
(3) development of call, commission, quota and routing policies;
(4) compensation and motivation of salesmen;
(5) training of sales personnel;
With the exception of the last category all problems have been subjected to
quantitative analyses of which some examples are given in the respective paragraphs.
Determination of Sales Territories

The principal question in this context is the following: How should a large sales area
be districted so as to give each salesman either:
— equal sales potential, or
— equal work load (i.e., number of calls)?
In answering this question we may put to use some solutions of the election zoning
problem which deals with the finding of independent and mutually exclusive zones
with equal voting potential[10]. We can set up an optimisation model with
"geographic compactness" of districts as decision criterion. This can be
transformed into a distance or cost criterion if we keep in mind that, with less
compactness, the firm incurs higher operation cost.
Let us assume that we can represent the n geographical units in an (x, y) co
ordinate space, where the centre of each geographical unit can be characterised by its
co-ordinates: (XJ, yi), j = l,...,n. Our aim is to redistrict the area into m independent
and mutually exclusive sales territories (i = 1,...,m) . Let Bj be the number of calls
delivered by a salesman in the geographical unit j. Bj could also be interpreted as the
demand for calls in j .
On the other hand, let us define a centre for each of the sales territories. We start
out with a given zoning solution which we try to improve in a heuristic iterative
routine which consists of solving a series of linear optimisation problems (of the so-
called transportation type).
The centres of sales territories can be characterised by the following co-ordinates
in an (x, y) space: (Xik, Yik), i =1,...,m,with k = 1, 2, 3,... being the index of the
respective sub-optimisation problem.
The distance djjk between unit and territory centres may be computed as follows:
dijk = (Xik -x j ) 2 + (Yik - yj)2 (7)
Let Vijk be that of unit j which at round k is allocated to territory i. Then the
objective function at round k is:
Minimise Zk = dijk Vijk Bj (8)

The objective function could be transformed into a cost function if we weight the
djjk with an appropriate cost factor (8) is to be minimised under a call constraint of
the following form:
(i = 1,...,m) (9)
The right-hand side of equation (8) is the average call frequency.
Furthermore we have to observe that
Vijk≥0 (i,j as above) (10)
and
Vijk = 1 (j = 1,...,n) (11)
At each round the iterative procedure produces m + n-1 values Vijk>O if the
solution is non-degenerate. If geographical units have been allocated to more than
one territory, we should re-allocate by the following rule:
(12)
which renders Vjjk integer. In order to calculate the co-ordinates of territory centres
for the next round we have:
(alli) (13)
and
(all i) (14)
These values are inserted into (7) and the routine begins again. It ends if (8) and
(13) or (14) cannot be improved any more. As we shall only obtain local optima,
sensitivity analyses should be conducted with respect to parameters such as Bj and

m.
In recent years the districting problem has been approached with the help of
multivariate classification techniques such as cluster or discriminant analysis. The
basic idea is to group potential customers according to their manifold characteristics
into regionally self-contained and disjoint market segments of approximately equal
potential or work load[11].
Allocation of Salesmen to Territories

If a general sales force and sales territories have been designed for direct selling we
may approach the problem of allocating salesmen to territories. Allocation depends
on buyer demand and cost of operations. An equivalent problem arises in allocating
salesmen to customers or product groups. In the first part of Section III we dealt
with the general decision on sales force size. We may adapt this approach for our
purposes here and require that the objective function (3) shall be maximised subject
to the following constraints:
Xi = X (sales force constraint) (15)

and
ci xi ≤ B (budget constraint) (16)
with X standing for sales force size and B total operations budget. We arrive at a
nonlinear optimisation problem which can be solved by the Lagrangian method if
we assume that equality holds in (16). Then we have the following objective
function:
Maximise L = [diPi(1-e - b i x i )-c i x i ]- (17)
xi - X] - µ [ 1 ci xi -B] - R
with A and µ Lagrangian multipliers. We obtain the optimal values x*i, λ* and µ*
from the nonlinear equation system with m + 2 equations in m + 2 unknowns:

= O (i = l,...,m) (18)
xi-X = O (19)
cixi- B = O (20)
To evade computational difficulties numerical solutions can be obtained by

simulation.
Solving allocation problems generally requires knowledge of response functions
which measure the effects o f changes in control variables. If a functional
relationship between sales and number of salesmen in a territory cannot be
established and validated empirically, subjective estimation of the relationship may
be considered as a substitute.
In the above model situation we have implicitly accepted the hypothesis that there
exist no differences in salesmen's efficiency. In order to take account of such
differences we would have to adjust the optimal allocation plan as follows.
Let x*i be the number of salesmen allocated to territory i. This quantity can be
transformed into an equivalent number of sales calls, qi, with a being the average
number of calls to be made by a salesman per time unit.
q i = a x * i (all i) (21)
Assume that we have X salesmen of different efficiency. Efficiency shall be
measured by the number of calls a salesman j (j = 1,...,X) is able to make per time
unit (e.g., a salesman of average efficiency makes ej = a calls per time unit). As
efficiency may depend also on environmental factors in territory i, the efficiency
measure of salesman j would have to be expanded to eij. For various reasons,
salesman.j should be working in only one territory (the ideal case would probably be
the one where we have only one salesman per territory). Thus, we introduce the
following binary variable:
1, if salesman i works in territory j
yij =
0, otherwise (22)
with
Σiyij = l (j = 1,...,X) (23)
As we seek to minimise total effort, we arrive at the following objective function and
constraints:
Minimise Z = eijyij (24)
subject to (22), (23) and

eijyij = qi (25)
This constitutes a binary optimisation programme for which a number of
algorithms have been devised[12]. The solution is an optimal salesmen assignment.
The critical inputs to this kind of model are the efficiency ratings of salesmen. In
order to obtain the m, scoring procedures might be applied. However, efficiency
scores would have to be transformed into call quantities which probably could be
done only by subjective estimation.
Call Plans and Routing

In planning sales calls there arise two different, but interlinked problems:
(1) How should a salesman allocate his time to
• holding
• winning (conversion)
activities?
(2) How many calls should a salesman make to a (prospective) customer?
The first of these problems may be termed the "macro" problem as opposed to the
second, the "micro" problem.
The macro problem was the first analysed by Brown, Hulswit and Kettelle[13].
Since their approach stemmed from a case study in a printing agency, product
interdependences were neglected. Their basic idea was to obtain an equilibrium
solution, making use of the concept of equal marginal utilities (per call).
To this effect, a market experiment was conducted. The results were reaction
functions of (prospective) customers with respect to sales calls. These functions give
the probabilities of conversion or holding of (prospective) customers if they receive
calls in the amount of x hours per time unit.
Let C(x) be the conversion function (in a steady state). It gives the probability that
a prospect converts after x hours of sales calls per time unit. Similarly, let H(x) be
the holding function which gives the probability that a converted customer continues
to order as before if he is subjected to x hours of calls per time unit.
If we would strive for a maximum of expected conversions (per call hour) we
would have to maximise the ratio C(x)/x, which is equivalent to maximising C(x) for
fixed x or to minimising x for fixed C(x). A similar argument can be found for
holding activities. An "equilibrium" is given if
(26)
The validity of the above assumptions may be questionable in different
environments. However, if we accept them for the purpose of demonstration, we
may derive an optimal allocation Q of each salesman to prospects and converts.
Let
P = number of prospects,
W = number of converts,
a = conversion hours per time unit,
b = holding hours per time unit,
a = equilibrium conversion rate per time unit,
β = equilibrium holding rate per time unit.
Then we have
aP + bW = Q (27)
and
aP = βW (28)
From these relations (two equations in two unknowns) we may compute P and W:
P = βQ/(aβ + ba) (29)
W = aQ/(aβ + ba) (30)
This means that each salesman should have the following number of appointments:
B= P + W = (a + β) Q/(aβ + ba) (31)
Due to oversimplification, the above analysis should not be viewed as a general
solution procedure to the problem.
This model, however, was further developed by Kotler[14] to incorporate other
important real-life features such as customers' sales, the notion of diminishing
returns to selling effort and dynamic effects of salesmen's calls. Let x1 be the
number of conversion calls and x2 the number of holding calls per time unit. If Q is
the maximum number of calls to be made by a salesman per time unit, we have
x1 + x2 ≤ Q (32)
Let h be the holding rate which is assumed to depend on
- hO = holding rate if no calls are made
- h* = holding rate if saturation with calls occurs
- a = reaction constant (a > O) which measures sensitivity of h with
respect to x2.
Then h may be defined as follows:
h = hO + (h* - hO)(l - e-ax2) (33)
On the other hand, sales of customers in period t, Sht, depend on S h t - 1 according to
the relation:
Sht = h S ht-1 (34)
If we insert (33) in (34) we obtain
Sht = hO + (h * - hO) (1 - e-ax2) Sht-1 (35)
Similar relationships refer to the case of prospects. Let Snt be sales of new
customers in t, Snt maximum sales of new customers in t and b a reaction constant
(b>0) which measures selling effects on sales. Then we have:
Snt = (1 - e-bx1). (36)

We may adopt total sales in t, i.e.,
St = Sht + Snt (37)
as decision criterion, which we want to maximise. Hence, we put:
Maximise St = [h O + (h* - hO) (1 - e-ax2) Sht-l + (1 - e-bxl)
subject to (32). If equality holds in (32) we may obtain an optimal solution through
application of Lagrange's method:
Maximise L = St +λ(Q - x1 - x2). (39)
Taking partial derivatives (with second order conditions negative), we obtain:
= Snt(e-bx1)b - λ = O (40)
= aSht-l (h* - hO) e-ax2 -λ= O (41)
= X - x1 - x2 = O (42)
We have a set of three non-linear equations in three unknowns. Taking logarithms
and solving by insertion of (42) in,(41), we arrive at the following:
aSht-1(h* - hO) e-ax2 =b nt[e-b{X-x2)]. (43)
This, in turn, leads to:
X*2 = 1n[aSht-1(h* - hO)/b ntenbX] (44)
and through (32):
X*1= {X(a + b)- 1n [aS ht-1 (h * - hO)/b nte - b X ]} • (45)
Required information input for this approach would Be a valid estimation of (33),
(34) and (36). If we assume that time series of Sht, Snt, x1 and x2 exist, estimation
can be undertaken with the help of regression analysis. If not, Little[15] has
indicated how subjective estimation might be achieved in such cases. Another vital
assumption of the foregoing model is that company and salesmen's objectives are
assumed to be identical (e.g., if salesmen receive compensation on a sales basis, with
other objectives being irrelevant). Quite often, that need not be the case. We shall
develop this point further in the following part of this section.
The micro problem in call planning has been analysed in particular by Lodish[16].
The firm is interested to determine the numberxiof calls to be made to any customer
i(i = 1,...,m). The differentiation of task is neglected in this case. General objective
is to maximise revenue minus travelling costs. The calls to customer i are bound to
the activity period (of average length), whereas expected sales or revenue are bound
to the reaction period which exceeds the activity period. Typically, call norms are
constrained by upper and lower bounds:
xoi≤xi≤xi (i = l,...,m) (46)
with:
xi≤O (all i) (47)
If other marketing variables are kept on an unaltered level, we may assume that all
variations of sales are due to variations of call policy. The core of the analysis rests
with the validation of the reaction functions of individual customers[17]. It is
postulated that these functions are of the well-known S-shape, viz:
Si(xi) =Soi+(S*i-Soi)xri/ (y + xri) (48)
where:
Si (xj) = revenue of customer i
Soi = revenue of customer i with no calls
S*i = maximum revenue of customer i

y,r = reaction constants which reflect the sensitivity of S to variations of x.
In assessing (48), Lodish makes use of Little's proposal (referred to above) to
estimate the shape of the reaction function (i.e., its parameters) subjectively.
A special feature of this model is that it takes travelling to geographical regions
into account. Geographical regions can be formed by partitioning the territories
assigned to the salesmen. Each customer i is characterised by the geographical region
gi of his situation (i = 1,...,m). It is assumed that the average call time per salesman
in i is ti time units (an integer, including an average travelling time to customer i).
The number of travels Rj to a geographical region j (j = l,...,n) is defined as
maximum number of calls to a customer in j during the activity period. Each travel
to j takes an average of nj time units and it costs cj monetary units. A particular
sequence of calls is ignored. However, we can determine the optimum number of
travels to a region with the help of the model.
Since the reaction period (e.g., one year), typically, shall be longer than an activity
period (e.g., one month), we have e activity periods per reaction period (with e ≥ 1).
From this we find that a salesman has to undertake eRj travels to region j . The
decision model, then, is one of the following form:
Maximise (49)
subject to (46), (47) and
(50)
with T the average time capacity of a salesman in an activity period. In (49) and (50)
we have to observe that Rj is defined by:
Rj = max {xi so that gj = j (51)
i.e., that the number of travels depends on the number of calls per customer in
region j .
Because of the tricky nature of (51) the author has developed an iterative heuristic
routine to find the optimal setx*ifromthe model which cannot be outlined here[18].
The model can be particularly useful in repeat selling situations where an observance
of call times is very opposite[19].
In the context of travel planning another type of problem arises: routing of

salesmen, i.e., sequencing of calls to customers in a given territory, starting and
ending at the firm's location. This problem — a typical case of sub-optimisation —
has attracted the interest of operations researchers fairly early in the development of
marketing planning. Related theory can be found under the description "Travelling
SalesmanProblem"[20]in any standard textbook on mathematical programming.
As the number of customers (or customer locations) is given, we may adopt an
input criterion (such as travelling time or travelling cost) as decision criterion. It is
assumed that distances between any two locations are constant (and hence travelling
times and costs). Salesmen are bound to pre-specified carriers on certain routes (i.e.,
the selection problem has been solved).
Let us investigate here the "symmetrical case" of the routing problem (with equal
distances between locations inbound and outbound). A graphical example for a
four-location round-trip is shown in Figure 3.
A special feature of the standard model is that all locations have to be checked
before returning to the starting point. Any location may only be called on once
during the round trip, i.e., the call frequency per (activity) period is one.
Let
(52)
(i = 1,...,n; j = 1 n; i | j)
and cij be travelling cost on route (i,j). Then we have the objective function:
Minimise Z (53)
This is subject to the following constraints:
(j = 1,...,n) (54)
(i = 1,...,n) (55)
and
Yj1 j2 + Yj2j3 +...+ yj m j 1 ≤ m-1
(56)
with m = 1,...,n - 1
which is the loop condition[21].
The solution of the problem (52) - (56) can be found with the help of heuristic
procedures, methods of restricted enumeration (e.g., branching-and-bounding
techniques) or — in some special cases - linear and dynamic programming
methods[22].

Compensation and Motivation

Personal selling efficiency depends to a very high degree on salesmen's motivation,
the attitude towards their jobs, the feeling of responsibility to identify themselves
with it and to act in conformity with the company's objectives. Typically, company
and salesman objectives are conflicting. A salesman's motivation can be seen to be
influenced primarily by two factors:
— the job
— the kind and level of compensation.
In the first place, the job, its organisational institutionalisation, the work climate
and the non-monetary incentives (promotion opportunities, sales contests, insignia,
efficiency-club memberships etc.) provide stimulation for a salesman's activities. By
"job" we mean
(a) quantity and (b) quality,
both of which can be controlled by management. The quality of a salesman's job,
however, is largely dependent on quite typical characteristics which are featured in
Kotler's statement on the nature of the job[23]:
"The selling job is unavoidably one of frequent frustration. The salesman works
alone; his hours are irregular; he does not lead a normal family life; he
confronts aggressive competing salesmen; he is in an inferior status relative to the
buyer; he sometimes does not have the authority to do what is necessary to win an
account."
These characteristics cannot be abolished, but their negative effects on salesmen's
morale may be softened to a certain degree. Loneliness can be constrained by
making salesmen operate on a day-to-day basis from headquarters with a modicum
of time per week spent in the office. These measures also will bring some regularity
to a salesman's daily workload if territories are not too large. On the other hand,
aggressive competition may be quite desirable. Through effective training, salesmen
can be moved into a better a priori position. Training does also provide some insight
for the salesmen into the seller's role vis-à-vis more or less "superior" buyers.
Finally, salesmen's authority to negotiate depends on the firm's decentralisation
philosophy: salesmen's morale will be lowered the more decision-making in the
company is centralised.
The quantity of the job may be circumscribed by a variety of different criteria:
— number of calls
— time to be devoted to (prospective) customers
— quotas (conceivable either on a dollar or sales figure basis).
We have implicitly dealt with the number of calls and activity time in the
preceding chapter. This leaves us with some explanation of the nature of quotas.
The most common way of setting quotas is the following. Let Qt be the quota for a
salesman in period t (t = 1,...,T), St-l his achieved sales in period t-1, Pt estimated
territory sales potential in t and a a fraction (O < a ≤ 1), which is dependent on the
salesman's reaction to pressure. Then we have

Qt = St-1 + a (Pt - St-1) (57)
= aPt + (1 - a) St-1
which in a way resembles the exponential smoothing forecasting model[24]. That is,
the quota is a non-decreasing function of estimated sales potential if the salesman
fulfills his quota in the preceding period.
In many cases quotas are the basis of compensation plans. Here, a salesman
selling more than his quota receives a bonus or his commission jumps to a higher
level. If he does not fulfill his quota he earns his straight salary.
In this context, we shall deal only with monetary forms of compensation. Non-
monetary incentives are too varied and numerous to be analysed in detail here[25].
Any monetary compensation plan should have the following four properties[26]:
(1) it should be flexible in order to adjust to a changing marketing environment;
(2) it should be simple and easy to understand for the addressees;
(3) it should be competitive with similar plans by other companies;
(4) it should be fair to salesmen (i.e., bound on controllable variables).
Basically, there exist two kinds of reference concepts for compensation plans:
— sales volume
— (contribution to) profit.
The latter has been favoured in those cases where the company is interested to direct
selling effort to the most profitable items of its product line. Sales volume as a
compensation basis, often, is preferred if production capacity objectives are of
paramount importance.
Above, we made a passing reference to conflicting objectives of the company and
its salesmen. This aspect can be shown by the following analysis[27]. Let tij be the
time which salesman j lavishes on product i (i = l,...,m;j = 1,...,n),Ai the sales of
product i, aij sales of product i through salesman j . Then
At (58)
Moreover, let:
Ci (Ai) = cost of producing Ai
Pi = price of product i
ri = commission for product i
Tj = time budget of salesman j .
Let us assume that personal selling effort is the only marketing variable of the
firm and that a law of diminishing returns holds for aij:
aij = fi(tij) (59)
and
(60)
If commissions are based on sales volume per product, then the following objective
function holds:
Max Zi [(1-ri)p i A i -C i (A i )] (61)
In the case of commissions based on contribution to profit, we have
Max Z 2 {(1-ri) [ p i A i - C i (A i )]} (62)

In both bases, the following constraints have to be observed:
(j = 1,...,n) (63)
and
tij ≥ O (all i,j) (64)
For salesman j , the income function corresponding to (61) is:
Max Ij1 (65)
and the income function corresponding to (62):
Max Ij2 (66)

In the case of sales-orientated compensation, we shall have identical (non-
conflicting, jointly optimal) solutions to the problems {(61), (63), (64)} and {(65),
(63), (64)}, i.e., of the company and any salesman j , if
for all i = l,...,m (67)
holds. On the other hand, for profit-orientated compensation, problems {(62), (63),
(64) } and { (66), (63), (64) } field identical (non-conflicting, jointly optimal)
solutions only if we have the following relations:
for all i = 1,...,m (68)
where ki are constant marginal costs of i with respect to time allocation, and
r1 = r2 = ... = rm. (69)
Relation (68) implies linear cost functions for all i, relation (69) implies identical
commissions for all i - a not very realistic condition. Finally, perfect information for
all salesmen (as implied by the model) does not hold.
Typically, Ci (Ai) is not known[28].
Generally, we find four types of compensation plans:

— straight salary
— straight commission
— combined salary - commission plans
— bonus.
Straight salary applies in cases where there exist no controllable and/or measurable
job elements which should be used to devise compensation plans. Straight
commission has been found to be damaging to the morale of salesmen, especially if
they are not responsible for low income. Thus, a combination of salary and quota-
bound commission (with either sales or profit reference) is most widely applied.
Straight bonus will be found in situations where all-over efficiency of the sales force
(as measured by total sales or profit) is rewarded by a fixed or salary-bound annual
bonus. However, bonuses are a flexible instrument to stimulate personal selling
effectiveness if applied to individual salesmen in conjunction with quota setting.
Training of Sales Personnel

Establishing, maintaining and increasing personal selling efficiency require
continuous training of sales personnel. Typically, each salesman has to undergo
initial training before becoming an active member of the sales force. This is done to
provide salesmen with the necessary background information on
— company products
— competition and competive action
— sales techniques.
Through studying sales techniques salesmen learn how to approach buyers and
how to negotiate over purchases, how to deal with different members of the buying
centre at various stages of the purchasing process and to maintain in-supplier
relationships.
After initial training which can be provided by means of on the job training, or
role playing salesmen enter continuous training programmes. These are designed to
maintain and increase selling efficiency and salesmen's morale. Efficiency is
measured by criteria such as sales volume or cost. Continuous programmes,
generally, provide opportunities to update (not just refresh) information on the
three categories mentioned above. They have become important correlates to the
innovation process.
Initial and continuous training are typically effected by special training forces
which may be composed from members of the company (mostly line personnel) or
outsiders or both. Especially with role playing and the teaching of sales techniques
as well as general business facts and knowledge, trainers from outside the company
have been more successful than insiders. Information on the market, the company,
its products, the competition and competitive action, perhaps, is best conveyed by
company members.
In special cases, training of sales personnel can be geared to executive

development and creativity training programmes. It would lead too far to cover
these subjects in detail here.
The efficiency of a training programme can be tested by experimental methods. A
typical design to measure the effects of training would be a complete randomised
two-group experiment with pre-test. This involves one experimental and one control
group. Salesmen are randomly allocated to these groups.
Let X be the experimental factor (in our case training), Y the uncontrolled variable
(e.g., sales) and R a sign indicating randomisation[29]. Then we would have the
model design
(70)
Experimental effects arc measured by the following relation:

E = (Y2 - Y1) - (Y4 - Y3). (71)
By pre-testing, differences between experimental and control groups can be
measured if advanced sampling techniques (cluster or stratified sampling) are
applied in order to provide for external experimental validity[30]. If X1 stands for,
say, "special" and X2 for "normal" training, a positive E would be a quantitative
indicator of the effectiveness of the "special" training programme.
V. Supervision and Control

of the Sales Force
In the foregoing chapter we have dealt with various planning devices which enable
management to formulate performance plan values for the sales force. As a
necessary consequence we would have to exert supervision and control over its
members and to undertake evaluation of individuals and groups with respect to
performance achieved. Supervision, in one sense, is a continuous activity with
emphasis on the qualitative aspects of salesmen's performance. Control, on the
other hand, is a regular activity (recurrently undertaken at discrete points of time
during the year) which focuses on the quantitative aspects of salesmen's
achievements.
Methods of Supervision
The reasons for supervision — contrary to control — are manifold. Whereas control
is a more or less formal procedure, supervision stresses the human side of selling.
Thus, supervision is exerted to:
(1) enforce salesmen to fulfil company policies and orders;
(2) provide technical assistance and necessary feedback in critical selling
situations;
(3) gather information in direct communication with the salesman;
(4) train salesmen on the job (if required).

Typically, we encounter direct forms of supervision by various line executives

(e.g., sales managers, branch managers or field supervisors). The most often
implemented forms are
— personal supervision
— supervision by written reports.
If personal supervision is exerted by field supervisors (which is appropriate with
large sales forces), special training of supervisors with respect to sales techniques,
human relations, educational methods and management principles would be
required. Reports, on the other hand, are a much less costly method of supervision.
However, they are not very efficient if they are applied as the only method of
salesmen supervision. In many cases, a combination of personal and impersonal
supervision takes place thus merging the best features of both methods. Reports are
supposed to cover not only the past and present of selling performances but future
steps to maintain and increase efficiency as well.
In personal supervision, another difficult problem arises: how many salesmen
should be covered by one supervisor? This is the problem of the optimal control
span. It has been analysed by Hanssmann[31] and we shall explain his approach in
more detail.
Assume that performance depends only on monetary incentives and job size. In a
company, the line organisation shown in Figure 4 could be encountered.
Let on any level i (i = l,...,n)
Xi = salary ( /year)
Yi = control span (number of individuals)
Si = quality of exerted supervision on any individual at level i + 1
Si-l = quality of received supervision of any individual at level i
with
0 ≤ Si ≤ 1O (i = l,...,n) (72)
Assume that Sn (i.e., effort received at the customer level) is defined by average
annual sales achieved by any salesman.
Assume further that
— we have a constant number of hierarchical levels
— there are identical jobs for all individuals at any level i
— Xi is the same for all individuals at any level i
— Yi is the only control span relevant to any level i.
We are to find the optimal Xi and Yi (which can be influenced by the sales
organisation) which maximises that part of the company's total profit. The core of
the model is the following supervision function, which can only be estimated
subjectively:
Si = ui (Xi, Yi/Si-1) (73)
Let
SO = 1 (74)
and
Yn = 1 (75)
Then
S1 = u1(S1, Y1) (76)
and
Sn = un (Xn| S n - l ) (77)
Typically, Si will follow a law of diminishing returns, where a decrease in Yi
produces an increase in Si. On the other hand, Sn will include commissions (besides
a straight salary), which also requires subjective estimation.
Let a, the achievable market share, be defined as follows:
a = h(Sn | S n-1 ) (78)
where, again, ft has to be estimated subjectively. Then we can compute V, the
number of salesmen required to achieve a:
V = M h(Xn| Sn-1) [un (Xn | Sn-l)]-1 (79)
with M the annual sales potential. The number of individuals on any level i is Ni.
Obviously, we have
Ni = Y1 Y2 ... Yi-1 (i = l,...,m) (80)
and
V = Nn = Y1 Yn ... Yn-1 (81)
If we insert this into (79), we find the following constraint for Xi and Yi:
Mh (Xn | Sn-1) = Y1 Y2 ... Yn-1 un (Xn | Sn-1). (82)
Let β, the achieved contribution to profit per salesman, be defined by a percentage
of total sales achieved per salesman (leaving out personal selling costs). Then, we
can formulate the objective function:
Max G = (83)
or — with the help of (78) and (80) -

Max G = βMh (Xn | Sn-l) - X1 -Y1X2 - Y1 Y2 X3 - ...- (84)
- Y1 Y2... Yn-1 Xn
subject to (82). Application of dynamic programming (with two state variables)
gives the optimal compensation and control span plans[32].
Performance Evaluation
Evaluation of salesmen's performance can be done either individually or for the
entire sales force. The first of these alternatives is generally preferred, not least
because individual performance is often the basis for salesmen's commissions.

Any evaluation of performance should cover its quantitative as well as its
qualitative aspects. Qualitative aspects, however, are far too numerous to be dealt
with in detail here. Suffice it to state that the most important categories are the
following:
— knowledge
— ability
— personality
— motivation
— compliance.
These general criteria may be highly differentiated if considered appropriate.
They should be made known to the salesmen to allow for self-judgement and
transparence of evaluation. Salesmen are rated by supervisors with respect to
pertinent performance criteria[33].
Quantitative evaluation is, typically, done in three different forms:
— comparisons of individual salesmen,
— comparisons of individual past and present achievements,
— comparisons of individual salesmen's achieved and potential territory sales.
The first of these alternatives requires the establishing of suitable criteria. Most
often, salesmen are compared to each other with respect to achieved contribution to
profit. Its computation is shown in a simple and fictitious numerical example[34]. In
this example we explain a step-wise procedure which allows the checking of the
profitability of orders, call tours and salesmen's activities in general. The data are
summarised in Table III.
The determination of contribution to profit (as shown in Table III) or of achieved

sales volume eventually leads to a revision of performance plan data. This, however,
requires the application of suitable methods to obtain relevant plan data. One
efficient way to do this is to conduct an analysis of market structure. The objective
of this analysis is to show the dependence of company sales in certain territories on
four important categories of independent variables:
— marketing activities of the company
— customer sales potential
— intensity of competition
— territory size.
Existence and significance of the associative relation between these variables can
be discovered and tested with the help of multivariate regression analysis. The
contribution of independent variables to the variation of company sales in a
territory is then measured by the regression coefficients. An application of this kind
of analysis in an industrial marketing case study has been shown by Boecker[35].
Table I I I . Salesman Performance Evaluation by Contribution to Profit
TOUR 2 TOUR 3 TOUR 4 OTHER ORDERS

TOUR 1 OBTAINED
ORDERS
O1 °2 O3 O4 O5 °6 °7 O8 O9 O10 O11
GROSS EARNINGS 4.000 1.000 2,000 2.000 4.000 3.000 7.000 2.000 5.000 1.000 3.000
./. DISCOUNTS 500 50 200 200 300 900 100
NET E A R N I N G S 3.500 950 1.800 2.000 3.800 2.700 6.100 2.000 4.900 1.000 3.000
./ DIRECT COSTS 2.200 550 1.100 1.200 2.300 1.200 4.200 700 2.600 550 1.900
CP I (per order) 1.300 400 700 800 1.500 1.500 1.900 1.300 2.300 450 1.100
.I. DIRECT ORDER COSTS (less commission) 200 50 100 100 700 200 300 150 600 50 250
CP II ( p e r o r d e r ) 900 350 600 700 800 1.300 1.60O 1.150 1.700 400 850
.I. COMMISSION 36 14 24 28 32 52 64 46 68 16 34
CPE (per order) 864 336 576 672 768 1.248 1.536 1.104 1.632 384 816
CP I (per tour) 1.248

./. TRAVELLING EXPENSES 1.200 2.016 148 2.640
350 416 720
CP II ( p e r t o u r ) 850 1.600 1.100 1.920
CP I ( per salesman ) 8,302

.I. TELEPHONE EXPENSES 102
.I. STRAIGHT SALARY 600
CP II ( per salesman) 7.600

The relation between sales and market structure variables of any territory i (i =
1,...,m) was assumed and tested to be:
= bO + b1 Ii + b2 √Ai + ε (all i) (85)
where
= reference sales for territory i (which is assumed to be covered by one
salesman)
Ii = market index for territory i
Ai = area of territory i
bO, b1, b2 = regression coefficients (to be estimated through application of least

squares regression analysis)
residual variable.
The variable Ii accounts for differing market potentials among territories (which
can either be explained by differences in usage rates or differences in market
representation of the various customer groups). Taking the square root of territory
area in (85) signifies a law of diminishing returns with increasing area size.
Application of regression analysis requires the availability of time series data for Ii
and Ai.
Reference sales may be applied directly to control salesmen's performance or it
may be transformed into a reference contribution to profit This, in turn, acts as
a yardstick for comparisons with CPi, the actual number calculated from Table III.
References
1. See, e.g., Lazarsfeld, P. F., "Communication Research", in Rennis, W, (ed.), Current Trends in Social
Psychology, Pittsburgh, 1949; Katz, E., "The Two-step flow of Communication (An Up-to-date report
on a hypothesis)", Public Opinion Quarterly, Spring, 1957, pp. 61-78; Cherry, C , On Human
Communication, Cambridge, Mass., London, 1966.
2. See Cartwright, D., "Some Principles of Mass Persuasion", Human Relations, Vol. 2, 1949, pp. 253-57:
Kotler, P., Marketing Management - Analysis, Planning and Control, 2nd edition, Englewood Cliffs, N.
J., Prentice-Hall, 1972, pp. 630ff.
3. Kotler, P., op.cit.,p.639.
4. Robinson, P. J., Faris, C. W., Wind, Y. A., Industrial Buying and Creative Marketing, Boston, 1967, p.
14; Webster, F. E. and Wind, Y. A., Organisational Buying Behaviour, Englewood Cliffs, N. J.,
Prentice-Hall, 1972, p. 23 ff.
5. Kotler, P., op.cit.,p. 141.
6. Ibid., p.96.
7. See Buzzell, R. D., Mathematical Models in Marketing Management, Boston, 1964, pp. 316 ff. for a
similar approach.
8. Talley, W. J., "How to design sales territories", Journal of Marketing, January 1961, pp. 7-13.
9. The interested reader is directed to the literature. See, e.g., Stanton, W. J. and Buskirk, R. H.,
Management of the Sales Force, 4th edition, Homewood, Ill., 1969, pp. 198 ff., Wotruba, T. R., Sales
Management: Planning, Accomplishment and Evaluation, New York, 1971, pp. 333 ff; Dodge, H. R.,
Field Sales Management, Dallas, 1973, pp. 216 ff.
10. Lodish, L. M., "Sales Territory Alignment to Maximise Profit", Journal of Marketing Research, Vol.
12, February 1975, pp. 30-36; see also Cloonan, J. B., "A note on the compactness of sales territories",
Management Science, Vol. 19, December 1972, p.469.
11. The interested reader is referred to the literature. See, e.g., Lessig, V. P. and Tollefsen, J. O.
"Market segmentation through numerical taxonomy", Journal of Marketing Research, Vol. 8,
1971, pp. 480-87.
12. Balas, E., "An Additive algorithm for solving Linear Programs with Zero-One-Variables", Opera
tions Research, Vol. 13, 1965, pp. 517-46.
13. Brown, A. A., Hulswit, F. T., Kettelle, J. D., "A Study of Sales Operations", Operations
Research, Vol, 4 No. 3, 1956, pp. 296-308.
14. Kotler, P., Marketing Decision Making, New York, 1971, pp, 396 ff.
15. Little, J. D. C , "Models and Managers: The Concept of a Decision Calculus", Management
Science, Vol, 16 No. 8, 1970, pp. B466-B488.
16. Lodish, L. M., "CALLPLAN: An Interactive Salesman's Call Planning System", Management
Science, Vol. 18, December, 1971, pp. 25-40.
17. In many cases, individual reaction functions might be too tedious to obtain. Here the formation of
customer clusters, using taxonomical techniques, might be an apposite proposition. A typical reac
tion function for each cluster is then derived and weighted by the market potential of the cluster.
18. The interested reader is referred to Lodish, L. M. op. cit., 1971, pp. 29 ff.
19. See also the approach of Brown, Hulswit and Kettelle, referred to in [13].
20. Solutions of the problem have been mostly associated with the name of Merrill Flood whose efforts
in this area date back as early as 1937. See Ackoff, E. L. and Sengupta, S. S., "Mathematical Pro
gramming", in Ackoff, R. L. (ed.), Progress in Operations Research, Vol. 1, New York, 1961, pp.
105-210. See pp. 150-57, particularly p. 152 on the scentific history of this classical problem in com
binatorics.
21. There exist (m - I): inequalities of the type in (56) for any m. Without the loop condition we
would have the standard assignment problem.
22. See, e.g., Bellmore, M. and Nemhauser, G. L., "The Travelling Salesman Problem: A
Survey", Operations Reasearch, Vol. 16 No. 9, 1968, pp. 538-58, for a survey of efficient algorithms
to the travelling-salesman problem.
22(a)Hess, S. W., and Samuels, S. A., "Experiences with a Sales Districting Model: Criteria and Im
plementation", in Management Science, vol. 18, No. 4, Part II, 1971, pp. p-41—p-54.
23. See Kotler, P., op. cit., 1972, p. 738.
24. Expansion of (57) gives:
Qt, = (1 - a)τPt-τ (57a)
25. The interested reader is referred to Stanton, W. J. and Buskirk, R. H., op. cit., pp. 430 ff., or Wotruba,
T. A., op. cit., pp. 451 ff.
26. Stanton, W. T., and Buskirk, R. H., op. cit., p. 294.
27. Davis, O. A. and Farley, J. U., "Allocating Sales Force Effort with Commissions and Quotas", Manage
ment Science, Vol. 18 No. 4, Part II, 1971, pp. 55-63; see also Farley, J. U., "An Optimal Plan for
Salesmen's Compensation", Journal of Marketing Research, Vol. 1 No. 2, 1964, pp. 39-43.
28. This analysis has been more systematically developed by Weinberg, C. B., "Jointly optimal sales commis
sions for non-income maximising sales forces", Management Science, Vol. 24 No. 12, August, 1978,
pp. 1252-58, to cover also the cases of minimising activity time subject to income and marginal return con
straints.
29. By randomisation we mean that population elements are randomly allocated to experimental and control
groups. This device ascertains that effects of non-controllable factors with the exception of random devia
tions are evenly distributed among experimental and control groups, thus affecting the internal validity of
the experiment.
30. A good source for further reading on these subjects is Banks, S., Experimentation in Marketing, New
York, 1965.
31. See Hanssmann, F., "Optimierung der Organisationsstruktur", ZeitschriftfiirBetriebswirtschaft, Vol. 40
No. 1, 1970, pp. 17-30.
32. The interested reader is referred to the original paper. See Hanssmann, F., op. c i t . , pp. 25 ff.
33. See Boyd, H. W. and Massy, W. F., Marketing Management, New York, 1972, p. 437, for an example.
34. Cf. Köhler, R. and Rudolphi, M., "Nutzen sie ihr Rechnungswesen zur Steuerung des Aussendienstes".
Marketing Journal, No. 1, 1977, pp. 61-68; see p. 61 for a similar example.
35. Böcker, F., "Die Evaluierung der Leistungen von Aussendienstmitarbeitern", in Böcker, F. and Dichtl,
E., (eds.), Erfolgs - Kontrolle im Marketing, Berlin, 1965, pp. 238-52.
Additional Bibliography
ANDERSON, B., Professional Selling, Englewood Cliffs, N. J., 1977.
BARNH1LL, J. A. (ed.), Sales Management-Contemporary Perspectives, Glenview, Ill., 1970.
BEARDEN, J. H. (ed.), Personal Selling. Behavioural Science. Readings and Cases, New York,
1967.
BOLLING, C. L., ROGERS, L. A., Sales Management, London, 1970.
BUELL, V. P. (Ed.), Handbook of Modern Marketing, New York etc, 1970.
DOYLE, P., WEINBERG, C , LAW, P., Analytical Marketing Management, London, 1974.
HAMMANN, P., ERICHSON, B., SCHEEL, W.-D., Entscheidungsanalyse im Marketing, Berlin,
1975.
LASSWELL, H. D., Power and Personality, New York, 1948.
MARKHAM, V., Effective Industrial Selling, Edinburgh, 1970.
MEFFERT, H., Marketing, 2nd Edition, Wiesbaden, 1977.
MONTGOMERY, D. B., SILK, A. J., ZARAGOZA, C. E., "A Multiple-Product Sales Force
Allocation Model", Management Science, Vol. 8 No. 4, Part II, 1971, pp. P-3 - P-24.
MONTGOMERY, D. B., URBAN, G. L., Management Science in Marketing, Englewood Cliffs,
N. J., 1969.
NEWTON, D. A., Safes Force Management, Georgetown, Ont. 1970.
NIESCHLAG, R., DICHTL., E., HOERSCHGEN, H., Marketing, 9th Edition, Berlin, 1976.
PEDERSON, C. A., WRIGHT, M. D., Salesmanship, Homewood, Ill., 1971.
PEDERSON, C. A., WRIGHT, M. D., Selling: Principles and Methods, Homewood, Ill., 1976.
ROWE, D., ALEXANDER, I., Selling Industrial Products, London, 1968.
STILL, R. R. CUNDIFF, E. W., Sales Management, Englewood Cliffs, N. J., 1969.
THOMPSON, J. W., Selling: A Behavioural Science Approach, New York, 1966.
WOTRUBA, T. R., OLSEN, R. M. (eds.). Readings in Sales Management, New York, 1971.
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About the Author

Copyright © 1979 M C B Marketing & Logistics Limited

ISSN 0309 0566 ISBN 0 905440 84 6

Printed by J Ward & Co (Printers) L t d , Dewsbury, West Yorkshire

be tied to the following conditions [2]:

Personal selling is a set of activities directed to the attainment of marketing goals

other hand, however, personal selling is a relatively expensive way of communication. In

II. Personal Selling Tasks

Organisational buying occurs when the "buyer" is an organisation of individuals,

(5) Gate Keepers (e.g., members of the marketing research group).

Selling to Industrial Buyers

(3) Goods not entering a product — supplies and services

Table I: Negotiators in the Buying Process

Process Stage New Task Repeat Buy

Problem recognition User User

Determination of User User

Description of User User

Supplier search Influencer Buyer

Proposal Influencer Buyer

Proposal User Buyer

Order routine Buyer Buyer

Performance User User

Process Stage New Task Repeat Buy

Problem recognition Seller (Seller)

Determination Maker (Seller)

Description of Seller (Seller)

Supplier search Seller (Seller)

Proposal Seller Decider

Proposal evaluation Seller Decider

Order routine Seller Seller

Performance Seller Seller

Selling to Wholesalers and Retailers

The special functions of middlemen in consumer markets imply a slightly reduced

automobiles, and major appliances)", i.e., where we have a buying process

distribution function to the middlemen (i.e., to sell indirectly) if a large amount of

Sales Force Size

If we assume that Si increases exponentially with xi up to the saturation level Pi we

with negative second-order derivatives. We find xi-by solving a set of m equations in

where Fi, in fact, is a critical and subjectively estimated parameter.

(6) selection of salesmen.

The procedure runs roughly as follows. Let:

IV. Planning Personal

Determination of Sales Territories

Minimise Zk = dijk Vijk Bj (8)

sensitivity analyses should be conducted with respect to parameters such as Bj and

Allocation of Salesmen to Territories

Xi = X (sales force constraint) (15)

ci xi ≤ B (budget constraint) (16)

Maximise L = [diPi(1-e - b i x i )-c i x i ]- (17)

from the nonlinear equation system with m + 2 equations in m + 2 unknowns:

To evade computational difficulties numerical solutions can be obtained by

subject to (22), (23) and

Call Plans and Routing

Snt = (1 - e-bx1). (36)

S*i = maximum revenue of customer i

In the context of travel planning another type of problem arises: routing of

This is subject to the following constraints:

Personal Selling | 163

Compensation and Motivation

salesman's reaction to pressure. Then we have

Max Zi [(1-ri)p i A i -C i (A i )] (61)