Sales Caselets

Cases for Part IV
CASE 4-1
DuNova Chemicals
Sales Thrills and Spills1
It was the hot month of July when Janvi Batra joined as a sales manager
at the Chandigarh headquarters for DuNova Chemicals, a leading chemical
products company with sales across the globe. Janvi’s predecessor, Aarti, and
her team had achieved 103 percent of the sales target in the first six months
of the year ( January–June) and earned a handsome incentive of `300,000.
Aarti is now the zonal manager for Northern India. All sales representatives
achieving 100 percent and more got an incentive of `100,000 and `125,000
respectively. They also won a trip to Singapore with their families as a team
incentive for achieving more than 100 percent. Only one team member, Jatin,
was not given any incentive as his performance was less than 100 percent.
Details of the team performance for the January–June period are as follows:
Annual Target Achievement

Target (Jan-June) (Jan-June) % Achievement Growth %
Name Territory (`000) (`000) (`000) (Jan-June) (Jan-June)
Mayank Jalandhar 7715 4500 4525 101 12
Jatin Ludhiana 8580 5000 4875 97.5 25
Brij Amritsar 6857 4000 4250 106 16
Jabraj Patiala 8142 4750 4800 101 11
Tanya Ambala 6429 3750 3900 104 20
Vishesh Chandigarh 6860 4000 4200 105 14
Manish Bathinda 5143 3000 3400 113 12
Team 49726 29000 29950 103 15
1
Name of the company and employees are disguised
470 Sales and Distribution Management; Decisions, Strategies, and Cases
Critically review the sales performance.

1. Is there an issue with sales targets for the sales representatives?
2. Who is the star performer here?
3. Jatin is considering leaving the organization as he feels overburdened and under-
paid. What can the company do to retain him?
4. What could be the territories of future growth?
5. Do you want to revise the annual targets? If yes, do suggest revised targets.
CASE 4-2
Martin Packaging Company,
Inc.2
Manufacturer of Packaging Products
and Systems—Use of Standard Costs
George Hannibal, manager of the Sales Department of the Martin Pack-

aging Company, Inc., faced the task of evaluating the marketing and sales
strategy imputations of the proposed new method of using standard costs
in budgeting sales costs. Because the averaging method currently in use
provided very poor estimates for budgeting purposes, Grady Winkler, the
Marketing Controller, proposed the adoption of standard costs.
MARTIN’S COST-CONTROL PROGRAM
Because of the very strong competition in the packaging and bottling indus-
tries, Martin management had found that careful cost control provided
2
For background information, see Case 1-10 Martin Packaging Company, Inc.,
Cases for Part IV 471
the difference between competitiveness and noncompetitiveness. To keep

costs in line Martin had operated under fairly rigid budgets for the past
decade. A continuing problem in the budgetary process had been the dif-
ficulty in estimating the various elements in selling costs. In the past, the
accounting department had estimated selling costs by adding up the total
selling costs in past months and dividing the total by the number of units
of the product being sold. The resulting budgeted selling expenses bore lit-
tle relationship to the actual expenses incurred and provided a continuing
source of friction between George Hannibal and Grady Winkler. Winkler
claimed that Hannibal and his sales force made little effort to stay within
budgetary guidelines; Hannibal claimed that actual costs varied widely
between salespeople in different regions. He argued that too rigid confor-
mance to budget limits would reduce the ability of some of the salespeople
to achieve sales goals.
Hannibal pointed out that he really had two sales forces, one sell-
ing in major urban areas to soft drink bottlers only, and another selling
in all other markets to a broader group of bottlers. The selling expenses
per dollar of sales for the thirty people in the nonurban sales force
were higher than for the ten urban salespeople. Costs also varied with
the size of the accounts being solicited. For these reasons variation
from the budgeted averages was so great that the budget was of little
value.
Winkler admitted that average costs had proven to be unsuitable for
budgeting selling expenses. As an alternative he suggested using standard
costs. Hannibal was highly suspicious of standard costs because of their
apparent inflexibility in times of changing costs. However, he agreed to a
test. After carefully observing the various tasks of salespeople in different
markets, Winkler developed a set of standard costs that allowed for varia-
tions according to degree of urbanization and size of customer. The result-
ing budgeted expenses provided figures that were, in some cases, widely
in variance from past performance of salespeople. As a consequence,
Hannibal was doubtful of his ability to secure sales force cooperation and
acceptance.
1. Explain why the new budgeted standard costs might be fairly accurate and yet
vary from previous budget estimates.
2. What are the limitations of attempting to use standard costs in budgeting selling
expenses?
3. How can George Hannibal explain the standard cost method to his sales force so
as to obtain their acceptance of the proposed new method?
4. Evaluate Hannibal’s claim that selling expenses change so rapidly that standard
costs would always be out of date.
CASE 4-3
Driskill Manufacturing Company
Maintenance Equipment Manufacturer—
Use of Quotas
Jack Dixon, sales manager, and Henry Granger, director of marketing

research, of the Driskill Manufacturing Company, were in complete dis-
agreement about the current method of preparing sales quotas.
The Driskill Manufacturing Company marketed a line of maintenance
equipment used all over the country, in a variety of businesses, and had
attained considerable prestige in the field. The company was comfortably
successful, and its marketing effort showed no great sign of weakness.
But the management, aware of external trends in motivation and control
of sales personnel, and also aware of some internal friction among the
sales staff, decided to scrutinize its motivation and compensation methods.
Desiring the advantages of up-to-date knowledge and an unbiased point
of view, Driskill engaged a management consulting firm specializing in
selection, evaluation, compensation of employees, and management devel-
opment to make a study of its existing practices.
The consulting firm discovered that Driskill’s current compensation
and motivation practices were the result of adjustments to meet change
almost on an emergency basis rather than a result of long-term planning.
The original plan, adopted a number of years ago, had been continually
amended piecemeal, and adequate consideration had not been given to
the effect of amendments upon other provisions or upon the plan’s overall
ability to promote the achievement of objectives. The result was a patch-
work of policies, not an integrated program; it worked to the advantage of
some sales personnel while inadvertently penalizing others.
Driskill knew that there was some dissatisfaction among the field
sales force with its current practices and policies, but it did not know how
strong this feeling was or how much it might affect sales. Recognizing that
any new program was more likely to succeed if the sales force was given
an opportunity to participate in its preparation, management emphasized
that the private study would not be followed by a general announcement
of sweeping changes. Instead, the study was to be based upon general

cooperation and interest, involving carefully worked out changes.
The sales force welcomed the chance to have a say, and indicated
approval of management’s interest in their opinions. Many of the staff
brought not only a spirit of interest but lists of subjects to discuss, having
given considerable previous thought to the matter. Dissatisfactions were
minor, often even unrecognized. The sales force generally agreed that the
company’s prices were competitive and that the product was one of quality,
superior to competitors’ in design and workmanship. Commission rates
were generally satisfactory. Persons on straight commission felt, however,
that an increase in commission rates on the new higher-priced equipment
was due because of the greater selling effort required. But the staff on sal-
ary plus commission, who sold more of the lower-priced equipment, were
not greatly concerned with the matter. The salary-plus commission person-
nel were mostly people with less than five years service with the company.
Approximately one-third of the sales force was paid on a straight-
commission basis, receiving 7 percent on all sales and paying all their own
expenses. These were the older salespeople, who had been with the com-
pany longest. The other salespeople were paid on a salary-plus-commission
basis. New sales recruits were started at a salary of $18,000 and received
semiannual increases on a merit basis. The average salary was $25,500.
Every salaried salesperson was given an annual quota and received a com-
mission of 4 percent on all sales above the quota. In addition, Driskill paid
all selling expenses incurred by the salaried sales personnel; expenses
averaged $700 per month per salesperson.
Earnings of the sales staff on a salary-plus-commission basis averaged
$21,000. For example, R.C. Andersen, who had been selling for Driskill for
five years, had a quota of $355,000 and received a salary of $18,500. Since
his actual sales were $415,000, he earned a commission of $2,400, or a total
income of $20,900. R.A. Scott, who had been selling for Driskill for fifteen
years, was paid on a straight-commission basis. His gross earnings were
slightly in excess of the average of $29,500 in gross income earned by the
commission salespeople.
Since the commission sales personnel were generally more experi-
enced, and since their incomes we;e directly related to their productivity,
management had never felt it necessary to give them specific quotas or
volume goals. Quotas for the salaried staff members were based on a run-
ning three-year average of each person’s past sales. Arbitrary figures were
selected for sales personnel who had not yet been three years on the job;
these quotas represented a compromise between the experience of the
salespeople formerly in the territory and the level of experience of the
new person. Jack Dixon, the sales manager, believed that the basis for deter-
mining quotas was a satisfactory one. During the past ten years, 85 percent
of the salaried sales staff had managed to exceed their quotas and earn
some commission. In Dixon’s opinion, therefore, the motivation was sat-
isfactory to achieve maximum selling effort on the part of the sales force.
Henry Granger, the newly appointed director of marketing research,
was less satisfied with the existing quotas. He claimed that any good salesper-
son could have exceeded quotas under conditions prevailing in recent years
in the industry. He also believed that the existing system, based on past sales,
merely tended to perpetuate past weaknesses. He suggested that future quo-
tas be based upon a division of the annual forecast of sales among the individ-
ual territories and that the basis for .division should be other than past sales.
Dixon supported the existing system, claiming that past sales had
been an adequate basis for the establishment of quotas in the past. He
held, furthermore, that if any new establishment of quota preparation were
adopted, it should be based primarily on the buildup of sales estimates by
the individual salespersons for the coming year.
1. If you were acting as a consultant for the Driskill Company, what recommenda-
tions would you make with respect to the prepararion of sales targets for the
sales force?
2. How would you evaluate the argumenrs of the sales manager and the marketing
research director?
CASE 4-4
Allied Board and Carton
Company
Manufacturers of Containers—
Difficulties with Sales Targets
The Allied Board and Carton Company manufactured and distributed

cardboard boxes, cartons, and other packaging materials. The sales force
of twenty-five persons, assigned to territories thoughout the United States,
made calls directly on purchasing agents of manufacturers of industrial

and consumer products. During the previous eighteen months, operating
losses had been experienced, and a firm of management consultants had
been retained to investigate the situation. The findings of the consulting
firm indicated that the losses did not stem from manufacturing ineffi-
ciency, as previously believed, but rather from the fact that selling costs
per order were significantly higher than for comparable companies in
the industry. The problem, then, was to find ways to step up selling effi-
ciency; management began its task by reviewing the methods used for
compensating sales personnel, with a view toward uncovering a possible
solution.
Salespeople were paid a base salary of $1,200 per month and a com-
mission of 3 percent on sales over quota. The monthly quota was deter-
mined by adding the individual salesperson’s expenses for the previous
month to the $ 1,000 base salary and multiplying the result by 20. Since
management was of the opinion that sales personnel would keep their
expenses down to gain from the next month’s lower quotas and increased
expenses, this system of quota determination was designed to minimize
selling expenses. Sales-persons drove their own automobiles, but their
expenses of operation were reimbursed at the rate of 25 cents per mile for
the first 100 miles, 20 cents per mile for the next 100 miles, and 16 cents
per mile for all miles over 200 travelled in any one month. Salespeople
were not required to submit bills and receipts for expenditures made for
rooms, meals, and incidentals. Reimbursements were made at the end of
each month. Salespeople were allowed to draw monthly on anticipated
commissions, and overdrawals were automatically wiped off the books at
the close of the fiscal year.
At the close of each month, sales personnel submitted a report detail-
ing the number of calls made, the number of presentations, and the num-
ber of orders written. At the same time, the monthly report of expenses
was submitted. The credit department was responsible for approving all
orders, but commissions were charged back against the salespersons when
customers failed to pay their accounts.
Upon completing the review of the method of quota determination,
management concluded that its effect was to increase, rather than decrease,
selling expenses. As shown in Exhibit 1, a salesperson who managed to
reduce his expenses by $200 in one month received an increase of only
$120 in commissions the next month. Thus, sales personnel could make
more money by increasing their expenses and quotas than they could by
reducing expenses and working with lower quotas. Consequently, a new
method of quota determination was adopted. The base for the new monthly
quota was the previous year’s sales for the corresponding month; this was
EXHIBIT 1 Effect of Method of Quota Determination

on Sales Expenses
Normal Increased
Expenses Salesperson Receives Expenses
Salary $ 1,000* $1,000* $1,000* $ 1,000
Expenses 400 400 600 600
Total 1,400 1,600
×20 ×20
Quota 28,000 32,000
Monthly sales 36,000* 36,000*
Quota 28,000 32,000
Excess over quota 8,000 4,000
Commission rate .03 .03
Commissions $ 240 240 120 $ 120
Total income to salesperson $1,620 $1,720
*Constants used for purposes of illustration.
adjusted to reflect changes in territorial potential, degree of competition

relative to the previous year, and the salesperson’s past performance.
At the same time, the expense-reimbursement procedure was changed.
Now, before salespeople could receive reimbursements, they were required
to substantiate their expenses by producing all bills and receipts. In addi-
tion, each salesperson was provided with a predetermined amount each
month, to be used for incidental expenses. Finally, the method of paying
commissions was changed, with the objective of avoiding large fluctuations
in the size of monthly paychecks. Salespeople were paid the same amount
each month, based on the previous average monthly earnings of the indi-
vidual. At the close of the year, total payments to sales staff were compared
to the amounts actually earned through salary and commission. If actual
earnings were in excess of the total paid to the salesperson, a check was
made out for the difference. In the event that actual earnings were less
than the amount paid, the salesperson was not required to make up the
difference; his or her monthly check, however, was adjusted to reflect the
new earning rate.
1. Evaluate the changes made in the method of quota determination of reimbursing

sales expenses.
CASE 4-5
Goodtime Equipment Company
Manufacturer of Playground Equipment—
Complaints About a Quota System
and Proposal for a New Bonus System
Based upon Quotas
The Goodtime Equipment Company, Minneapolis, was a medium-sized

manufacturer of playground equipment. The company produced an exten-
sive product line and marketed its products nationwide. The field sales force
numbered thirty-five persons, who were paid on a salary basis. In addition to
the salary plan, Goodtime Equipment Co. had a bonus program for its sales
personnel, whereby they could earn extra pay for achieving and surpass-
ing their quotas. Over the past several months, R.J. McNeil, the sales man-
ager, had received two recurring complaints from salespeople dissatisfied
with certain elements in the existing bonus program. The staff complained
about their bonuses being paid on a once-a-year basis, preferring instead
to have the payments spread out over the year. And, although roughly
80 percent of the sales force had received bonuses in the past, some com-
plained about the difficulty in achieving quotas. Specifically, the salespeo-
ple felt that their assigned quotas were set too high, keeping them from
earning larger bonuses.
McNeil believed that the complaint about the quota limit was prob-
ably nothing more than the usual griping from salespersons who thought
that their quotas were too high. As a matter of company policy, the sales
manager, in collaboration with the branch managers, set the quotas. Even
though the sales staff were not consulted about the quota limits, McNeil
felt strongly that the quotas were not only generous but also extremely fair.
In defense of the fairness, he pointed out that each person’s quota was set
individually, based upon conditions unique to the territory. Therefore, he
contended that the managers were bending over backwards to accomodate
the sales staff.
Regarding the number of bonus payments to the salespeople, McNeil
agreed that they had a legitimate complaint. Consequently, he carefully
studied the situation, in consultation with his branch managers, and came
up with what he believed to be an equitable solution. He prepared the
following communication, designed to announce the new bonus program
to the sales force.
PROPOSAL FOR NEW QUOTA-BONUS PROGRAM
It has been determined that our present bonus program is unsatisfactory.

The new bonus program outlined below will take effect in time for the
next fiscal year and will provide three major changes:
1. It will enable sales personnel to receive a bonus each quarter in-

stead of yearly.
2. It will provide an extra incentive to exceed 100 percent of quota.
3. It will increase the payoff amount by $10 in each category.
To show the difference in the programs, the old program should be

explained first.
Under the old program, each salesperson would receive a bonus at the
end of each year if he or she exceeded 80 percent of yearly quota. The payoff
was
1. 80-100% of quota = $30 per percentage point.

4. 121% and over of quota = $60 per percentage point.
Example
1. 95% of quota = 15 × $30, or $450.

2. 105% of quota = 20 × $30 = $600 + 5 × $40 = $200, or $800.
3. 115% of quota = 20 × $30 = $600 + 10 × $40 = $400 + 5 × $50 =
$250, for a total of $1,250.
The new bonus program will have a payoff of
1. 80-100% = $40.00 per percentage point.

4. 121-over% = $70.00 per percentage point.
In addition to the higher rate of payoff, the bonus will be paid on a quar-
terly basis. This will be done on a quarterly averaging basis. An example of
how this works is as follows.
1st quarter
146% of quota = 80-100% = 20 × $40.00 = $ 800.00
101-110% = 10 × $50.00 = $ 500.00
111-120% = 10 × $60.00 = $ 600.00
120-146% = 26 × $70.00 = $1,820.00
$3,720.00
$3,720.00 yearly bonus ÷ 4 = $930.00 per quarter. $930.00 bonus paid for
first quarter.
2nd quarter
114% of quota: to determine average rate, we add 146% +114% = 260% ÷ 2
= 130% for two-quarter average.
130% of quota = 80-100% = 20 × $40.00 = $ 800.00

101-110% = 10 × $50.00 = $ 500.00
111-120% = 10 × $60.00 = $ 600.00
121-130% = 10 × $70.00 = $ 700.00
$ 2,600.00
$2,600.00 yearly bonus ÷ 4 = $650 per quarter

$650 x two quarters = bonus due for first two quarters = $1,300. Since pay-
ment of $930.00 was made in first quarter, we owe’$1,300.00 - $930.00, or
$370.00 in second quarter. $370.00 bonus paid in second quarter.
3rd quarter
143% of quota: to determine average rate, we add 146% + 114% + 143% =
403% ÷ 3 = 134% average for three quarters.
134% of quota = 80-100% = 20 × $40.00 = $ 800.00

101-110% = 10 × $50.00 = $ 500.00
111-120% = 10 × $60.00 = $ 600.00
121-134% = 14 × $70.00 = $ 980.00
$ 2,880.00
$2,880.00 yearly bonus ÷ 4 = $720.00 per quarter. $720.00 × three quarters =

$2,160.00
$2,160.00 − $1,300.00 paid = $860.00
$860.00 bonus paid in third quarter.
4th quarter
138% of quota: to determine four-quarter average, we add 146% + 114% +
143% + 138% = 541% ÷ 4 = 135%. The yearly average is the same as it
would have been under the old system.
135% of quota = 80-100% = 20 × $40.00 = $ 800.00

101-110% = 10 × $50.00 = $ 500.00
111-120% = 10 × $60.00 = $ 600.00
121-135% = 15 × $70.00 = $ 1,050.00
$ 2,950.00
$2,950.00 is the yearly bonus. Fourth-quarter payment is $2,950.00 minus

previous payments of $2,160.00, or $790.00. Fourth-quarter bonus is
$790.00
As an additional incentive, we are making an extra bonus available to those
who exceed 100 percent of their quota. The payoff for this extra bonus
will be
100-110% = $10 per percentage point

111-120% = $15 per percentage point
121% or over = $20 per percentage point
An example of this is as follows:
135% of yearly quota = 100-110% = 10 × $10.00 = $100,00

111-120% = 10 × $15.00 = $150.00
121-135% = 15 × $20.00 = $300.00
$550.00
This $550.00 will be paid in addition to the $2,950.00, for a grand total of
$3,500.00 This shows an increase of $1,100.00 over the previous bonus
program. It is roughly estimated that this new program will cost an addi-
tional $40.00 per $100.00 spent under the old system. Bonus payoffs under
the new program are as follows:
Percent of Quota Regular Bonus Extra Bonus Total Bonus

81 $ 40.00 — $ 40.00
82 80.00 — 80.00
83 120.00 — 120.00
84 160.00 — 160.00
85 200.00 — 200.00
86 240.00 — 240.00
87 280.00 — 280.00
88 320.00 — 320.00
89 360.00 — 360.00
90 400.00 — 400.00
91 440.00 — 440.00
92 480.00 — 480.00
93 520.00 — 520.00
94 560.00 — 560.00
95 600.00 — 600.00
96 640.00 — 640.00
97 680.00 — 680.00
98 720.00 — 720.00
99 760.00 — 760.00
100 800.00 — 800.00
101 850.00 + $210.00 = 1,060.00
102 900.00 + 220.00 = 1,120.00
103 950.00 + 230.00 = 1,180.00
104 1,000.00 + 240.00 = 1,240.00
105 1,050,00 + 250.00 = 1,300.00
106 1,100.00 + 260.00 = 1,360.00
107 1,150.00 + 270.00 = 1,420.00
108 1,200.00 + 280.00 = 1,480.00
109 1,250.00 + 290.00 = 1,540.00
110 1,300.00 + 300.00 = 1,600.00
111 1,360.00 + 315.00 = 1,675.00
112 1,420.00 + 330.00 = 1,750.00
113 1,480.00 + 345.00 = 1,825.00
114 1,540.00 + 360.00 = 1,900.00
115 1,600.00 + 375.00 = 1,975.00
116 1,660.00 + 390.00 = 2,050.00
117 1,720.00 + 405.00 = 2,125.00
118 1,780.00 + 420.00 = 2,200.00
119 1,840.00 + 435.00 = 2,275.00
Percent of Quota Regular Bonus Extra Bonus Total Bonus

120 1,900.00 + 450.00 = 2,350.00
121 1,970.00 + 470.00 = 2,440.00
122 2,040.00 + 490.00 = 2,530.00
123 2,110.00 + 510.00 = 2,620.00
124 2,180.00 + 530.00 = 2,710.00
125 2,250.00 + 550.00 = 2,800.00
1. What is your position regarding the way the quota limits were established?
2. Critically evaluate the proposal for a new bonus system. What changes, if any,
would you suggest?
CASE 4-6
McBride Electric Corporation
Manufacturer of Electric Equipment Accessories—
Need for Revision of Sales Territories
McBride Electric Corporation, headquartered in Detroit, was a large pro-

ducer of electrical equipment and accessories. Established in 1910, McBride
grew steadily and became one of the major U.S. suppliers of electrical
products. McBride sold some of its products direct to a few large accounts,
but most of the product line was sold through a nationwide network of
distributors. The thirty-five person field sales force, working out of eight
district offices, was assigned territories that had been established along
county lines. In recent years, it had become increasingly clear that a need
existed for redesigning the sales territories.
Sales personnel had been assigned responsibility for covering a vary-
ing number of counties in a way that gave each as close to one thirty-fifth
of the total number of distributive outlets as possible. Management had
adopted this procedure for establishing sales territories because of a desire
to assure equal sales opportunity for each salesperson. Management had

also been convinced that this procedure would facilitate comparisons
among salespeople’s performances.
With the expansion of McBride’s business, there was no modification
in the design of the sales territories. Some salespeople, as a result, found
themselves with so much sales potential in their territories that it was
impossible for them to provide adequate sales coverage. Although this
situation had come to management’s attention several years ago, essen-
tially nothing had been done to improve territorial design. Management,
however, had submitted a revision plan to the sales force a few years ago.
This plan, which would have resulted in increasing the size of some ter-
ritories and decreasing the size of others, caused so much friction among
the sales staff that management backed off in the interest of maintaining
high sales force morale.
Recent analysis showed that this situation was becoming increasingly
serious. Investigation into the coverage of representative territories revealed
that salespeople were concentrating on the easy-to-sell, high-volume
accounts and were neglecting numerous good prospects. Consequently,
many potential orders were going unwritten. Thus, McBride’s competitors
were gaining accounts that, under normal circumstances, the company
should have secured. Furthermore, most territories were receiving uneven
sales coverage.
Several factors had combined to create this situation. The nature of
competition had changed substantially from area to area. In some territo-
ries, previously competitive environments became a salesperson’s dream
as competition disappeared for one reason or another. In other territories,
ones where competitors in the past had been weak, other competitors
had become firmly rooted, thereby making it necessary for McBride sales
personnel to cover those areas more intensively and more frequently to
just maintain a token share of the business. Therefore, some areas in cer-
tain territories received virtually no coverage by the McBride sales staff.
Besides shifts in the strength of competition, economic conditions had
changed from territory to territory making certain once-desirable territo-
ries considerably less profitable for the salespeople to cover. These market
influences indicated that management should expand some territories and
shrink others.
The vice-president of sales and the sales manager agreed that the situ-
ation had gotten out of hand. They both believed that the present territorial
setup needed reviewing and possible revision to improve sales efficiency
and sales control. They also agreed that more appropriate territorial design
could help to minimize the friction among sales personnel that would, in
all likelihood, appear when management announced its intention to revise
sales territories. Both executives had further agreed that the two criteria for
an improved territorial design pattern would be (1) lower selling costs and
(2) increased sales volume.
1. Should McBride Electric Corporation have revised its sales territories? Why or
why not? If you feel that the company should have changed its sales territories,
outline in detail the procedure that should have been followed.
CASE 4-7
Magnet Covet Barium
Corporation
Producer of Oil Drilling Mud—Sales Region Ceases to
Contribute Adequately to Profit
Magnet Covet Barium Corporation (Magcobar), a producer of oil drilling

mud, was having trouble with the performance of its Midwest region. The
products sold by Magcobar were used by oil producers to aid in drilling
oil wells. The line consisted of over twenty-five mud products. On its role
of customers were such big corporations as Exxon, Gulf, Texaco, and
Mobil. It also sold its products to smaller companies, such as Hunt Oil,
Sunray DX, Adams Petroleum Corporation, and even to smaller operators,
such as drilling specialty firms located close to a concentration of oil
fields.
Magcobar had experienced a steady growth in its twenty-five-year
history. Its products were sold nationally as well as in many foreign
countries. The American market was organized into regions, and the for-
eign market was under a separate import-export division. The basis used
for dividing the United States into regions was the concentration of oil
production in various areas. For example, there was a large amount of
oil-producing activity in southern Louisiana, and this area constituted the
company’s largest region from the standpoint of sales, warehouses, and

inventories. The following table lists the company’s nine regions and indi-
cates the general coverage of each:
Region 00—Independent dealers 4 districts

Region 10—Texas 3 districts
Region 20—Illinois-Ohio area 3 districts
Region 30—Midcontinent (Oklahoma, Arkansas) 3 districts
Region 40—Kansas-Missouri 3 districts
Region 50—California-Alaska 3 districts
Region 60—Rocky Mountain area 3 districts
Region 70—South Louisiana 2 districts
Region 80—Foreign division 4 districts
These regions and districts covered the major areas where mud prod-
ucts were needed because drilling activities were being carried on there.
Each region was divided into districts, and within each district the company
maintained its own warehouses or leased space in public warehouses. The
division into districts was based upon the number of ultimate users of the
product, expected sales, and the number of warehouses needed to cover
the area. A regional manager was in charge of each region. The district
managers, who were responsible to the regional managers, were in charge
of sales engineers and warehousers. The sales engineers advised customers
on the right type of Magcobar product needed to drill each oil well suc-
cessfully and without complications. Since these requirements varied from
well to well, the sales engineers found it necessary to visit the drilling sites
frequently.
The warehouses were the distribution points that maintained stocks of
mud for quick delivery to users. Magcobar management believed adequate
warehouse facilities were a very important element in the success of their
business. Transporting their product long distances overland resulted in
very high transportation costs. It was necessary to locate within a short dis-
tance of the concentration of the oilfields. The actual number of warehouses
within a district or region depended upon the concentration of oil activity.
Each warehouse kept an adequate inventory on hand to supply the needs
of customers immediately—usually all twenty-five products were stocked,
in varying quantities. The company considered an inventory turnover of
four to be average. The inventory section of the accounting department
at the home office kept monthly records of stock on hand in each region,
district, and warehouse. The warehouses sent in monthly stock reports of
material on hand and monthly records of sales receipts. Each region, dis-
trict, and warehouse was visited at least once a year by an auditor, who
checked inventory on hand against the records at the home office.
At the end of the current fiscal year, the company was faced with a
regional problem. Region 40, the Kansas-Missouri area, was incurring high
costs and disproportionately low sales. However, inventory turnover in the
region was above average. Magcobar was servicing many accounts in the
area but was not making a very good profit. In previous years the region
had done well in inventory turnover, sales, and efficiency of operations.
But in the past two years, sales declined to the point where operating
costs in the region were not even covered. The marketing manager could
not understand what was happening, because inventory turnover was still
quite adequate. The company had important accounts in the region and
did not want to abandon it; large capital investments were also tied up in
the area. The personnel in charge of the region had been with the com-
pany for some time and were very upset about the recent trends.
In addition to the Magcobar warehouses, there were a number of inde-
pendent dealers. These dealers were specialty firms, and they were supplied
with mud products by Magcobar. They, in turn, sold these products to the
drilling companies. These dealers made up a large part of the regional
volume.
Magcobar was faced with a major decision, since management did not
want to continue serving a region that was showing an inadequate contri-
bution to profit. The sales manager felt that there were three alternative
solutions: (1) they could shut down the area and write off the loss, (2) they
could supply the independent dealers but shut down the company ware-
houses, and (3) they could merge Region 40 with another adjoining region
to reduce overhead expenses. The decision required a balancing, not only
of monetary factors, but of human factors as well.
1. In your opinion, what decision should Magcobar have made concerning Region
40. Can you think of an alternative?
CASE 4-8
Arlington Paper Mills
Manufacturer of Paper Products—
Decision to Discontinue Sales to Accounts
with Unacceptable Profit Margins
John W. Ireland, sales manager for the Baby Products Division of Arlington
Paper Mills, manufacturer of baby diapers and other baby products, faced
a decision on what to do with a number of baby-diaper accounts that had
fallen below the “acceptable” profit margin. Since most of the accounts in
question returned some profit, he was reluctant to write off these customers
just because they did not reach the level of return desired by management.
In the past, he had been willing to discontinue sales to those accounts
that fell below the acceptable profit margin, but his position had changed
during the past year because of the decline in demand for Arlington Comfy
diapers. Ireland had strong opposition in this matter from Maurice Conte,
vice-president of sales, who had been the prime mover in establishing
return-on-profit criteria four years previously.
Arlington Paper Mills, founded in late 1910, was located in
Tuscaloosa, Alabama. Over the years, Arlington had acquired three paper
companies and grew to an annual overall sales volume of $75 million.
Originally, the company had produced only paper bags, but, through
acquisitions, it had expanded the product line to include a large array of
paper items. The Baby Products Division, organized in the 1950s, man-
ufactured and sold a line of baby diapers, crib linens, bibs, and related
items. Baby diapers constituted the single biggest item in the Baby Prod-
ucts Division product line, accounting for $16 million of the division’s
total sales of $21 million.
Arlington made diapers on machines that had been developed and
patented by the company. The company had been an industry leader in the
development of moisture proof and absorbent materials for diapers.
Arlington Paper diapers were distributed nationwide by a sales force
of twenty-four persons plus one selling agent. The twenty-four company
salespeople sold directly to retail outlets and hospitals. The company sales
personnel were salaried and averaged about $22,000 in earnings, exclud-

ing bonuses. In addition to distributing its products to retailers and hospi-
tals, Arlington also sold its diapers to Army and Air Force exchanges and
Navy ship stores. These sales were handled by a commission selling agent
who sold exclusively to the military.
The major competition for Arlington’s Baby Products Division
came from Procter and Gamble’s Pampers Division and Scott Paper
Company. Both promoted their lines of baby products heavily. In addi-
tion, there was competition from numerous other manufacturers in the
baby products line. Arlington’s prices were roughly the same as its
competition. Selling prices to retailers averaged 16 percent over pro-
duction cost.
During the past year and a half, an investigation had been made of
the profitability of baby-diaper accounts. This investigation was part of
an overall revenue cost analysis in the Baby Products Division, and its
starting point had been the baby-diapers product line, which accounted
for the largest sales volume in the division. The investigation revealed
that over 18 percent of the company’s 3,215 baby-diaper accounts (585)
fell below the profit goal set by management. Of these 585 accounts, 68,
or about 12 percent, were clearly unprofitable (this represented a frac-
tion over 2 percent of the total 3,215 baby-diaper accounts). The remaining
517 accounts, although yielding a profit, were nevertheless below manage-
ment’s profit return standards and therefore were considered accounts with
unacceptable profit margins.
Although company policy dictated the dropping of all accounts with
unacceptable profit margins, Ireland contended that certain factors made it
logical either (1) to revise the acceptable-unacceptable profit margin stan-
dards in view of changing market conditions or (2) to make exceptions to
the policy for a period of time to combat the decline in demand for baby
diapers. He pointed out that something had to be done soon, because over-
all demand for baby diapers had declined and Arlington had lost nearly
200 accounts in the past two years.
The two major reasons for the drop in demand were, according to
Ireland, the declining birth rate and the stiff competitive pressures in the
disposable paper diapers industry, led by names such as Pampers and
Kimbies. The birth rate and competitive factors combined to lead the firm’s
economic experts to project a drop in demand over the next five years.
Besides these conditions, Ireland argued that, regardless of any idealistic
standards desired by management, the simple fact that an account was
profitable should be sufficient reason to keep it, even if it was below the
desired level. There was always the opportunity to do something about

increasing the profitability of accounts. Discontinuation of an account,
however, meant the loss of this opportunity.
Conte, the vice-president, was adamant in his opposition to Ireland’s
suggestion for some sort of change in the profit margin policy. He thought
that a program for discontinuing accounts with unacceptable profit mar-
gins should be initiated without delay. He maintained that the profit mar-
gin policy had resulted from his spending a great deal of time and effort
in a thorough analysis of the situation. And he argued that under no cir-
cumstances should the policy he changed after being in effect such a short
period of time. He also said that he was not at all convinced that the
outlook for market and economic conditions was as gloomy as Ireland
believed. Consequently, he indicated that he would strongly oppose any
attempt by Ireland to have the profit margin policy changed.
1. Thoroughly evaluate the arguments of Ireland and Conte. Whose position do

you favor? Why?
2. Should Arlington Mills have discontinued sales to baby-diaper accounts with unprof-
itable margins even though they yielded some profit? Justify your stand.
CASE 4-9
Alderson Products, Inc.
Packaging Equipment Manufacturer—
Control of the Sales Effort
Alderson Products, Inc., a $15 million company, had recently become

a wholly owned subsidiary of National Beverage Corp. of Baltimore,
Maryland. National had purchased 100 percent of Alderson stock. The
acquisition brought with it a number of problems common to such ven-
tures, with the most pressing problems centering around the control of the
sales effort.
Alderson Products, Inc., produced and sold packaging equipment
exclusively to the soft drink industry. The company, located in Detroit,
was established in 1951 by the Alderson brothers, Jim and Frank, both of
whom had worked for General Motors for several years but who wanted to
be in business for themselves. After a five-year search while they were still
working at GM, they decided to enter the packaging equipment industry
when an opportunity came up to buy out a small bottle capping machine
producer. For the first year of operation, Alderson produced only a lim-
ited line of bottle capping machinery. However, gradually at first and then
more rapidly, the Alderson product line was expanded to include capping
machines, decapping machines, bottle lifters, case painters, case rebanding
equipment, parts, lubricants, blenders, fillers, water-coolers, carbonators,
saturators, packers, decasers, washers, water treatment systems, convey-
ors, rinser load tables, warmers, water chillers, and refrigeration units.
Most of the equipment bearing the Alderson name was manufactured by
the company itself. Some equipment was purchased from other makers:
the cappers and decappers came from the Zalkin Corp. (France), the bot-
tle washers from Firton Manufacturing (Pennsylvania), rinser and warm-
ers from Southern Tool (Louisiana), water chillers from Dunham Bush
(Georgia), and the refrigeration units came from Vilter Manufacturing
Company (Wisconsin).
The products offered by Alderson came in several different sizes to
match the various different applications in the soft drink industry. In addi-
tion to the new products manufactured or purchased by Alderson, the
company sold used equipment and machinery. The company got into used
equipment after finding that a large number of its customers were too
small to afford new equipment and could not perform extensive mainte-
nance and repairs on their present equipment.
The market for used equipment grew to the point where it contributed
30 percent of Alderson’s net sales. Most of the used sales were from rebuilt
machinery. Alderson bought the used machinery from bottlers, brought it
to Detroit, reconditioned it, and sold it. Other used machinery was sold “as
is.” This was machinery that was bought in acceptable operating condition
and required minor modifications or repairs. Usually, the “as is” machinery
was transported to the buyer directly from its original location.
The “rebuilt” phase of the business called for the customer to make a
25 percent deposit on the order before the particular unit went through the
shop. Once in the shop, the equipment was dismantled to its basic com-
ponents and parts were added as required. The customer ended up with a
“like new” machine or piece of equipment. Savings to the customers were
typically about 30 percent compared with a new unit., Alderson’s rebuilt
equipment carried a warranty. As an additional service, Alderson tried to
maintain an adequate stock of spare parts for older units, even if the origi-
nal manufacturer no longer made them available. There was some concern
among management as to the future of the rebuilt equipment part of the
business. About two years ago, the company began experiencing difficulty
in acquiring used equipment that could be rebuilt. The supply of older
units was dwindling, and competition for the used equipment was forcing
prices up considerably. Alderson also found that more and more bottlers
were reconditioning their own units. Although it constituted a profitable
segment of the overall operation, there was some thought that it might be
best for Alderson to get out of the used equipment business and concen-
trate on its growing business for new machinery and equipment.
Alderson served only the soft drink industry, despite the suitability
of the company’s products and services for other industries, such as the
beer or fruit juice producers. No attempt had been made to branch out
into the other markets, largely because the Alderson brothers felt they
knew the soft drink industry best. The company served primarily local and
regional bottlers; however, plans were underway to increase coverage to
national and, possibly, international markets. Future expansion plans did
not include markets outside the soft drink industry.
Distribution of Alderson products was through two company sales-
persons and six manufacturers’ representatives. Both salespersons were
paid straight salaries. One salesperson spent about one-fourth of his time
appraising and procuring used equipment. The other salesperson spent
about one quarter of his time piloting the company airplane. The represen-
tatives received a commission for their services, according to the following

schedule: 5 percent for the first $50,000, 2.5 percent for the next $50,000
(up to $100,000) and 1 percent for anything over $100,000. This was based
on individual sales. The representatives received a sales commission on
any sale in their territory, regardless of whether the company (Alderson)
or the representative closed the sale.
In addition to using personal selling, Alderson promoted its products
through advertising, trade conventions, and direct mail. Alderson adver-
tised in six trade publications, averaging one insertion every two months in
each of the journals. The direct mail consisted of a newsletter, “Alderson’s
News,” mailed to current and potential customers.
With the takeover complete, National sent its auditors to Alderson
Products for a routine evaluation. Among other things, it soon became
apparent that Alderson had been very lax in its sales control efforts. In par-
ticular, there was no evidence that a sales budget was used and there had
been no attempt at a sales analysis. The sales manager, who had been in
his position for two years after four years as a salesperson with Alderson,
said there had been no sales budgeting or sales analysis effort for three
years prior to his becoming sales manager. He did mention that a sales
budget was used for a time before that, but he was unaware of its details.
When questioned by the National auditor as to why he had not instituted
sales control procedures, the sales manager said he had discussed it with
Frank Alderson and they came to the conclusion that the company was
moving along very well and there really was no need for tight control. He
was, though, on the alert that, should sales results taper off, it might be
necessary to have some controls at a future date. The sales manager also
pointed out that he was so busy working on a personal basis with the com-
pany sales personnel and the sales representatives that he just didn’t have
the time for budgets, quotas, sales analysis and “things like that.”
1. Was there a need for sales control of Alderson Products, Inc.? Why or why not?
2. What would have been the components of a good sales control program for Alderson
Products? Be specific and give your reasons for each element of sales control.
CASE 4-10
Hair-N-Shine
Forecasting for a new product3
Vishit Jain took over as the national sales manager of S&S India at the
start of the new year. S&S plans to launch a brand extension of its “Hair-N-
Shine” shampoo in India in a tube form. A successful product in other Asian
countries, such as Singapore, Korea, Malaysia and Thailand, it contributes
9 percent of the total sales of “Hair-N-Shine” range in these countries. The
“Hair-N-Shine” range is growing by 18 percent in most of the develop-
ing countries, whereas its growth in India is by 11 percent. Company has
identified an opportunity for growth in India. The company is planning to
increase its sales and market share in the shampoo range with the launch
of “Hair-N-Shine” tube shampoo.
The shampoo market in India is growing at 17 percent, whereas the
S&S’s shampoo range is growing by 14 percent. The total revenue of “Hair-N-
Shine ” range in India was `230 million in the previous financial year (2016),
and the company is targeting `275 million in this financial year. Exhibit 1
Exhibit 1: Zone-wise sales and growth details of Hair-N-Shine range
Revenue Growth Growth Growth

Zone (` million) in 2016 in 2015 in 2014
North 60 9% 11% 8%
East 31 12 14 15
West 65 11 12 9
South 54 10 12 11
Central 20 16 19 19
Total 230 11 12.5 9
3
Name of the company and employees are disguised
shows the zone-wise sales and growth details, and Exhibit 2 shows the price
range for different packs.
Exhibit 2: Price range and percentage contribution from different packs of Hair-N-
Shine range
Price % Contribution Contribution to total
Size Pack (`) to total Sales Sales in value (`million) % Growth
200 gm Tube 179 New Product New Product New Product
675 ml Bottle 399 7 16.1 19
400 ml Bottle 239 14 32.2 14
170 ml Bottle 129 19 43.7 8
90 ml Bottle 69 31 71.3 10
6 ml Sachet 3 29 66.7 9
Total 230 11
1. Suggest the sales forecast for different zones that will achieve the sales target of $
275 million. Justify your answer with the reasons for the same.
2. Suggest the sales targets for tubes of “Hair-N-Shine” with your reasons for the
same.
product purchase, technical knowledge required to sell the product and

competition. The key members of a marketing channel are marketers,
intermediaries, and end users. The term ‘marketer’ refers to the producer
of the product or service. Marketers own the product till it reaches the next
member in the distribution chain. Marketers use different intermediaries
to reach their end users. These intermediaries execute different marketing
and selling functions to increase the sales of the company in a designated
area. Depending on their role in the distribution chain, intermediaries can
be classified as distributors, wholesalers, retailers and agents. Distributors,
wholesalers, and retailers differ from the agents as they own the title to the
merchandise, while agents do not own the title and act as facilitating inter-
mediaries. Examples of agents are carrying and forwarding agents (CFAs),
advertising agencies, export agencies, insurance agents, etc.
The distributors and wholesalers plays a critical role in the distribu-
tion system. Most of the companies use wholesalers and distributors to
reach their end customers through retailers. These wholesalers and distrib-
utors perform different functions like storage, delivery, credit and distribu-
tion to retailers. Retailing comprises of store as well as non-store retailing.
Store retailers are brick-and-mortar retailers like neighborhood grocery
stores, retail chains like Big Bazaar, Reliance Retail, Spencer’s, Tanishq, and
so on. Non-store retailers include online retailers like Amazon, Flipkart,
Snapdeal, and other retailers selling products through door-to-door sales,
mailers, etc. A typical transaction in a marketing channel involves the flow
of product from the company to the distributor to the retailer and finally
to the customer i.e. Company—Distributor—Retailer—Customer. Money
might flow in the reverse direction i.e. Customer—Retailer—Distributor—
Company.
CHANNEL FUNCTIONS
Channel members execute different marketing and selling functions to

increase the sales of the company in a designated area. Channel mem-
bers perform many functions, including creating utility and facilitating
exchange efficiencies. Channel functions play an important role in decid-
ing the channel structure. As the product moves through various stages in
the marketing channel, different members in the channel perform different
functions and add value for the end users.
The channel functions can be broadly classified into exchange,
logistics, and facilitation. Buying and selling of products are part of the
exchange function. The logistics function includes storage and transporta-
tion of products, while facilitation function includes financing, risk bear-
ing, providing market information and sales promotion.
CHAPTER 21: Marketing Channels 499
The functions performed by channel members are:
Inventory management. Good inventory management by different mar-

keting channels affects product availability in the market. It is a critical
factor as out-of-stock conditions can impact customer satisfaction, reten-
tion, and company’s profitability. The distribution channels need to main-
tain optimum stocks of different products to meet customer demands. The
channels need to order appropriate assortment of different merchandise.
Companies are using information technology to efficiently manage inven-
tories. Marketing channels also provide storage of merchandise in appro-
priate facilities.
Physical distribution. Another important function of marketing chan-

nels is to provide good market coverage to ensure the availability of the
products. Marketing channels coordinate the delivery schedules to meet
customer expectations. The marketing channels approach existing and
potential customers to increase the sales of the company. Marketing chan-
nels are also responsible for providing customer service in the form of
credit, delivery and technical assistance. It also a rranges for the return of
defective merchandise from the customers.
Bulk-breaking. Bulk-breaking refers to the process of breaking up the

large pack lots into smaller lots. Channel partners do bulk-breaking to
facilitate the sale at the retailer level. Companies usuallyhave large pack
sizes of different stock keeping units (SKUs). For example, Trident group
is having “Home Essential” brand of towels with 8 colors. The company
packs 24 towels of a single color in a pack. Distributors and wholesalers
are required to send their orders for minimum 24 towels of a single color
of Home Essential range, whereas retailers buy towels of different compa-
nies according to the sales in their area. Retailers may order for 4 SKUs of
a particular color and distributor will supply the required quantity to the
retailers. The retailer further breaks up the lots into smaller quantities to
sell to customers.
Marketing Communications. Channel partners play a significant role

in the promotion of the company’s products. Many channel partners design
their sales promotions to increase the sales in their territories. Distributors
and wholesalers help in advertising the product at the retail level. They
also help in increasing point-of-purchase (PoP) displays at the retailers.
Different channel partners also providing salesforce that offers information
and service to retailers and customers.
Market Feedback. Channel partners play a critical role in passing the

market feedback from the customers and retailer to the company. Channel
partners are an important source of information about the changes in
customer preferences, competitive strategies, and changes in the market.
Retailers directly interact with customers and are a good source of infor-
mation about the changing market dynamics.
Financial Risk. Channel partners help in financing the company’s oper-

ation in the form of advance payments for various products. They offer
credit to the retailers to increase the sales and availability of the products.
Many companies supply their products to distributors and wholesalers
against advance payments and few companies give a credit period of 7 to
21 days depending upon the location of the distributors and wholesalers.
Local distributors and wholesalers get 7 days and out-station distributors
get 14–21 days of credit, whereas retailers usually give payments to distrib-
utors and wholesalers in 30–60 days, depending upon the sector. Retailers
in FMCG sector take credit period of 30–45 days, whereas retailers in phar-
maceutical industry take credit period of 30–60 days. Channel partners,
by taking the responsibility of distribution, reduce manufacturers’ risks to
a great extent. Channel partners also manage the risks related to product
loss or deterioration. They also manage the risks related to product safety
and liability.
Guidance and technical support. Many customers need guidance on

how to use complex products like electronic equipment and medicines.
Although, companies are having field force to provide technical support to
its customers. Marketing channels also provide product information at the
time of sale and they also help to ensure post-purchase technical support
to the customers. Retail pharmacies provide information to the customers on
the right dosage of the medicines.
Although, most of these functions are performed through the joint
efforts of channel partners, some of these functions may be performed by
a single-channel partner. A well-managed distribution relationship among
the different channel members can establish an effective and efficient sup-
ply chain that benefits all members of the channel, including the company
and the end consumer. A well-managed channel management relationship
can establish an effective and efficient supply chain that benefits all mem-
bers of the channel, including the company and the end consumer.
DESIGNING MARKETING CHANNELS
Design of the marketing channel is critical for the success of a business.

The important factors affecting the designing of a marketing channel
are strategic objectives, product portfolio, target market, technological
advancements, competition, channel structure, channel intensity, the type
of intermediaries required at different levels and the costs involved in
selecting a particular channel. Channel structure states the number of
CHAPTER 21: Marketing Channels 501
levels of channel intermediaries like distributors, wholesalers, and retail-

ers used by an organization to reach its target customer, whereas channel
intensity denotes about the number of channel intermediaries required at
each level.
It is observed that the use of only one channel is not sufficient in the
current technologically advanced period. There is a need to develop differ-
ent channels to serve different-sized clients. Many companies are adopting
multichannel structure that optimises channel coverage, adjustability and
control. This also minimises the cost and conflict.
Channel length and channel breadth are also very critical in the
designing of a marketing channel. The channel length is the number of
channel partners between the company and the customers and channel
breadth is the number of outlets with product availability for the custom-
ers. Marketing channels can be either short or long. A short channel will
have few intermediaries and a long channel will have many intermediaries
working to move the products from the company to the customers. The
commonly used channel levels are zero level, one level, two levels, and
three levels.
Marketing Channels in the Consumer Markets

In a zero-level channel, the company sells the products directly to the
customers. This can be done through online retailing, direct selling, and
so on. Many companies like Kent, Oriflame, Eureka Forbes, Avon, Amway,
Tupperware, and Herbalife in India follow zero-level channel structure to
reach their customers. Online sale of Dell products is also an example of
zero-level channel structure. In a one-level channel, the company sell the
products to customers through one channel intermediary. This channel
intermediary can be a distributor or a retailer. One-level structure is mostly
used by companies selling electronic goods, petroleum products, automo-
biles. For example, Lenovo directly supplies its products to the authorized
dealers, who sell them to the customers. There are two-channel intermedi-
aries between the company and the customer in the two-level channel struc-
ture. Usually, these two intermediaries are the distributor and the retailer.
The company sells the products to the retailer through its distributor. The
retailer then sells the products to the customers. Two- level marketing
channel is mostly used by companies selling fast moving consumer goods.
Pharmaceutical companies also follow the two-level channel structure.
There are three-channel intermediaries between the company and the cus-
tomer in the three-level marketing channel. Usually, these three intermedi-
aries are the distributor, the agent, and the retailer. In the three-level chan-
nel structure, an agent mediates between the distributor and the retailer.

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Cases for Part IV

Annual Target Achievement

Critically review the sales performance.

George Hannibal, manager of the Sales Department of the Martin Pack-

MARTIN’S COST-CONTROL PROGRAM

the difference between competitiveness and noncompetitiveness. To keep

Jack Dixon, sales manager, and Henry Granger, director of marketing

of sweeping changes. Instead, the study was to be based upon general

The Allied Board and Carton Company manufactured and distributed

made calls directly on purchasing agents of manufacturers of industrial

EXHIBIT 1 Effect of Method of Quota Determination

*Constants used for purposes of illustration.

adjusted to reflect changes in territorial potential, degree of competition

1. Evaluate the changes made in the method of quota determination of reimbursing

The Goodtime Equipment Company, Minneapolis, was a medium-sized

PROPOSAL FOR NEW QUOTA-BONUS PROGRAM

It has been determined that our present bonus program is unsatisfactory.

1. It will enable sales personnel to receive a bonus each quarter in-

To show the difference in the programs, the old program should be

1. 80-100% of quota = $30 per percentage point.

1. 95% of quota = 15 × $30, or $450.

The new bonus program will have a payoff of

1. 80-100% = $40.00 per percentage point.

130% of quota = 80-100% = 20 × $40.00 = $ 800.00

$2,600.00 yearly bonus ÷ 4 = $650 per quarter

134% of quota = 80-100% = 20 × $40.00 = $ 800.00

$2,880.00 yearly bonus ÷ 4 = $720.00 per quarter. $720.00 × three quarters =

135% of quota = 80-100% = 20 × $40.00 = $ 800.00

$2,950.00 is the yearly bonus. Fourth-quarter payment is $2,950.00 minus

100-110% = $10 per percentage point

An example of this is as follows:

135% of yearly quota = 100-110% = 10 × $10.00 = $100,00

Percent of Quota Regular Bonus Extra Bonus Total Bonus

Percent of Quota Regular Bonus Extra Bonus Total Bonus

McBride Electric Corporation, headquartered in Detroit, was a large pro-

to assure equal sales opportunity for each salesperson. Management had

Magnet Covet Barium Corporation (Magcobar), a producer of oil drilling

company’s largest region from the standpoint of sales, warehouses, and

Region 00—Independent dealers 4 districts

personnel were salaried and averaged about $22,000 in earnings, exclud-

desired level. There was always the opportunity to do something about

1. Thoroughly evaluate the arguments of Ireland and Conte. Whose position do

Alderson Products, Inc., a $15 million company, had recently become

tatives received a commission for their services, according to the following

Exhibit 1: Zone-wise sales and growth details of Hair-N-Shine range

Revenue Growth Growth Growth

product purchase, technical knowledge required to sell the product and

Channel members execute different marketing and selling functions to

The functions performed by channel members are:

Inventory management. Good inventory management by different mar-

Physical distribution. Another important function of marketing chan-

Bulk-breaking. Bulk-breaking refers to the process of breaking up the

Marketing Communications. Channel partners play a significant role

Market Feedback. Channel partners play a critical role in passing the

Financial Risk. Channel partners help in financing the company’s oper-

Guidance and technical support. Many customers need guidance on

DESIGNING MARKETING CHANNELS

Design of the marketing channel is critical for the success of a business.

levels of channel intermediaries like distributors, wholesalers, and retail-

Marketing Channels in the Consumer Markets