professor chip besio sales management marketing 3345 customer satisfaction and compensation
TRANSCRIPT
Professor Chip BesioSales ManagementMarketing 3345
Customer Satisfaction and Compensation
Convergenceselling
Accountmanagement
Leverage selling
New businessdevelopment
New
Current
Customers
Current NewProducts
The Customer-Product Matrix
Comp Type Best Performance Impact * Motivate effort on non-selling
activitiesSalary * Adjust for differences in territory
potential* Reward experience and
competence
Commissions * Motivate a high level of selling effort
* Encourage sales success
Compensating Salespeople
Comp Type Best Performance Impact * Direct effort toward strategic
Incentive objectivesPayments * Provide additional rewards
for (Bonus) top performers* Encourage sales success
Sales * Stimulate additional effortContests targeted at specific
short- term objectives
Compensating Salespeople
Comp Type Best Performance Impact Personal * Satisfy salespeople’sBenefits security needs
* Match competitive offers
Compensating Salespeople
Straight Salary 17Straight Commission 19Combination Plans (83%)
Salary Plus Bonus 24Salary Plus Commission 20Salary Plus Bonus Plus Commission 18Commission Plus bonus 1Total 100%
Percentage ofCompanies Using
Use of Compensation Plans
Source: Adapted from Sales Compensation Concepts and Trends (New York: Alexander Group, 2004).
Comparing Salary and Commission Plans for Field Sales Representatives
0 100 200 300 400 500
10,000
20,000
30,000
40,000
Straight Salary
10% C
ommission
Tot
al c
ost
per
per
son
(th
ousa
nd
s $)
Sales Per Person in Thousands
50,000
Comparing Salary and Commission Plans
IBM places significant resources toward monitoring customer satisfaction.
All customers are surveyed annually on: Overall customer satisfaction The rep’s knowledge of the customer The transaction or solution itself How satisfied the customer is with the solution The installation process (smooth or disruptive),
including how long it took The extent and clarity of the education provided The time needed to get the application(s) up and
running The capability and speed of technical support
Customer Satisfaction and Compensation
Results are benchmarked against prior IBM performance, as well as the competition
Results are used for compensating sales reps and managers.
Customer Satisfaction and Compensation
Total
Salary Incentive Compensation
Position ($000) ($000) ($000)
Top Sales Executive $91.0 $29.0 $120.0
National Account Manager 72.2 26.0 98.2
Regional Sales Manager 74.5 21.9 96.4
District Sales Manager 64.5 20.3 84.8
Key Account Rep 57.4 22.9 80.3
Senior Sales Rep 47.5 26.0 73.5
Intermediate Rep 36.1 15.3 51.4
Entry Level Rep 29.7 13.4 43.1
Compensation Levels for Firms using Salary Plus Incentives
Sales & Marketing Management Compensation Survey, 2012
•ENTERPRISE RELATIONSHIPS $121,800•Customer solution more important than price; team selling approach
•ENTERPRISE RELATIONSHIPS $121,800•Customer solution more important than price; team selling approach
$64,400 $64,400
$43,300 $43,300
•CONSULTATIVE RELATIONSHIPS $97,100•Creates new value; tailors product to customer needs
•CONSULTATIVE RELATIONSHIPS $97,100•Creates new value; tailors product to customer needs
$62,700 $62,700
$42,300 $42,300
•TRANSACTIONAL RELATIONSHIPS $83,300•Sells on price; product is a commodity
•TRANSACTIONAL RELATIONSHIPS $83,300•Sells on price; product is a commodity
$52,500 $52,500
$36,700 $36,700
Top-LevelMid-LevelEntry-Level
Compensation Levels by Account Relationships, 2012
Salespeople expect cars or allowances
Insurance and travel are very
common
Some plans offer a choice of
alternatives
Selecting Benefits
A. Straight Salary Control wage levels easier to control rep’s activities increases loyalty to firm fails to provide incentives high costs when sales are low most common in complex
business selling
Compensation Methods
B. Straight Commission maximum incentive all variable cost low costs when
sales/salesperson is low
Compensation Methods
B. Straight Commission hard to control reps low loyalty pay low when business is weak used in small firms, door-to-door,
retail sales, insurance, stock brokerage, printing
Compensation Methods
C. Combination Plans Most common today1. Salary + Commission
base for non-selling activities commission for incentive to push complex
industrial accounts
Compensation Methods
C. Combination Plans Most common today2. Salary + Bonus
base for non-selling activities bonus to reward completion of special
tasks in consumer products selling
3. Salary + Commission + Bonus rewards every activity, BUT costly to
administer
Compensation Methods
Trend toward TEAM selling difficult to reward team members for
group effort usually emphasize shared commissions /
bonuses
Other Considerations
Profit-based Commissions Gross margin commissions
Salesperson & firm attempt to maximize same $$
raise wages for salespeople often at expense of company profits
tends to increase industry price competition
tends to raise price elasticities in the long run
Other Considerations
Percentage Size Gross Percentage CommissionOrder Gross Margin of Margin to Commission on Paid toNumber on Each Order Order Company Gross Margin Salesperson
1 10 $1,000,000 $100,000 15 $15,000 2 20 $500,000 $100,000 15 $15,000
Comparing Gross Margin Commissions on Two Orders
Marketing Plan
DiscountedPrice
%Decline
Selling Price $100 $92Cost of Goods Sold 80 80Gross Margin 20 12GM% Commission 20% 20%$ Commission $ 4 $ 2.40 40%Contribution 16 12Overhead Costs 10 10 Net Profit $ 6 $ 2 66%
Gross Margin Commission Problems
Objective -- enough, but not too much. Types of plans
Unlimited Low supervision easy to abuse
Per diem controls costs but may restrict coverage
of distant accounts needs constant adjusting
Expense Accounts & Benefits
Types of plan (Cont’d.) Limited
can lead to wasted time on “cheat sheets”
limits for each category
Expense Accounts & Benefits
Hospital costs 90%Life insurance 77Dental plan 69Long-term disability 56Pension plan 55Short-term disability 49Profit sharing 44Thrift savings 22Employees stock purchase plan 21
Percentage ofFirms OfferingBenefit
Benefits Offered by Companies