Table of Contents
What is Sales Territory?
A sales territory is an economic unit that is set with the objective of planning and controlling sales efforts. Setting up sales territories facilitates matching sales opportunities with the firm’s selling efforts. Establishing or modifying sales territories and managing their efficient and effective coverage is an important part of sales management’s strategic planning component.
Identifying and organizing sales territories helps management to bring other dimensions of planning such as sales budgeting and forecasting down to limited geographical areas.
Definition of Sales Territory
These are the simple definitions of sales territory by economists:
Operationally a sales territory is a particular grouping of customers and prospects assigned to an individual sales person.
Still, Cundiff and Govoni
Sales territory is a basic unit of sales planning and sales control.
Maynard and Davis
A sales territory is a geographical area containing present and potential customers who can be effectively and economically served by a single salesman, branch dealer or distributor.
B.R. Confield
The target market of a business enterprise is quite large and is generally divided into a number of segments so that the activities of distributors, dealers, retailers, salesmen, etc., may be clearly checked and controlled. Division of a market into various segments is referred to as the determination of sales territories.
Objectives of Sales Territories
Some of the important objectives of establishing sales territories include providing efficient services to the customers, preparing sound plans for different territories according to the needs and requirements of individual territories, planning and implementing separate marketing programs for different territories, enhancing the market share of the enterprise, monitoring repetition of marketing efforts in a particular territory, managing sales expenditure prudently and enhancing salespeople’s morale and effectiveness.
More specifically, there are following six factors contributing towards the establishment of sales territories:
- Provide Proper Market Coverage
- Control Selling Expenses
- Assist in Better Evaluation of Sales Personnel Performance
- Contribute to Sales Force Effectiveness
- Improve Coordination of Personal-selling and Advertising Efforts
- Improve Customer Relations
Provide Proper Market Coverage
Well-designed sales territory permits salespeople to spend sufficient time with present and prospective customers, which improves the coverage of the market economically and adequately. Proper market coverage is ensured if the company intelligently sets up the territories and carefully assigns its salespeople.
Control Selling Expenses
Lower selling expenses and higher sales volumes are ensured through well-designed territorial plans clubbed with prudent salesperson assignment. The careful establishment or revising of sales territories is one decision management takes to ensure that selling expense rupees are spent to the best advantage.
Good territorial design ensures sales personnel spend fewer nights away from home, eliminates lodging and food expenses, reduces transportation expenses, and results in increased productive selling time.
Assist in Better Evaluation of Sales Personnel Performance
The intensity of competition and sales problems varies geographically. By analyzing markets territory-wise and assigning sales and cost responsibility to individual salespersons, management seeks the information required to set quotas and to evaluate individual sales personnel’s performance against it.
Contribute to Sales Force Effectiveness
Properly designed sales territories result in reasonable workload allocation to salespersons with the reduction in conflicts as specific customers are assigned to them. Good territorial design combined with well-planned territorial assignments results in the sales force spending minimum time on the road which in turn enhances sales force morale.
Improve Coordination of Personal-selling and Advertising Efforts
By combining advertising and personal selling, management takes benefit of a synergistic effect and gets a positive outcome greater than the sum of its parts. Salesperson plays a significant role in capitalizing upon synergistic advantages.
For instance, before a new product launch sales force calls upon retailers to outline the launch plan’s objectives, provide them with tie-in display material, and make sure that sufficient supplies of the product are available in the retail outlets.
Under territorial arrangements, every retailer is assigned under some salesperson and proper routing and scheduling ensure that the salesperson is in touch with retailers at opportune times thus, the outcomes are more satisfactory when the work is allotted on a territory-by-territory basis.
Improve Customer Relations
Relationship between customers and salespeople is strengthened when salespeople spend adequate time with customers understanding and satisfying their needs effectively.
Factors Determining Sales Territories
The following factors affect the establishment of sales territories:
- Size of Business
- Methods of Distribution
- Ability of Salesmen
- Level of Competition
- Means of Advertisement and Sales Promotion
- Density of Population
- Market Potentialities
- Product Demand
- Company Policies
Size of Business
A major factor in establishing sales territories is the size of the business. A larger business size results in a bigger sales force and a higher number of sales territories.
Methods of Distribution
The distribution method also affects the setting of sales territories. The firm may sell its products directly, by establishing its own shops or through the chain of distributors and retailers.
Ability of Salesmen
If a firm has a team of efficient salespeople, then the size of the planned territory can be comparatively larger compared to a situation where a firm has an inexperienced sales team.
Level of Competition
Territory with more competitors will require more time and effort of the salesperson and in such cases, the size of the territory will be comparatively smaller allowing the salesperson to concentrate his efforts efficiently and fight the competition.
On the contrary, territory in which less or no competition exists the salesperson is in a position to cover a bigger area and thus the size of the sales territory will be larger.
Means of Advertisement and Sales Promotion
When the firms use diverse means of promotion on a wider scale, the size of the sales territory will be large.
Density of Population
Population density affects the setting up of sales territories. Thickly populated areas with greater buying potential of customers require smaller sales territories to cover them more effectively while for thinly populated areas with low buying potential firms opt for larger sales territories.
Market Potentialities
If the market has huge sales potentialities then it will have small sales territory compared to a situation in which the market possesses fewer sales possibilities then it will have larger sales territory.
Product Demand
In case of higher demand for the product, the size of the sales territory is smaller contrary to the situation in which demand for the product is low the territory size is larger.
Company Policies
The policy of the organization deeply affects sales territories. If the firm has a policy of mass production, low prices, and maximizing sales then smaller size sales territories are preferred. The size of the sales territory is large when the firm has an objective of low production and high prices with profit maximization.
Essential Requirements of a Good Sales Territory
In assigning territories following points need to be taken care of:
- An inexperienced salesperson should not be assigned an independent territory in the beginning. Initially, he is expected to assist the senior salesperson in the specific territory to comprehend the working procedure.
- To an extent transfers of salespersons from one territory to another should be avoided as it adversely affects the customer and dealer relations with them. However, sometimes because of a lack of performance or other attitude problems, this may become inevitable.
- For exclusive goods or heavy machines territories are created by classifying customers or class of business.
- Territories should be set in such a way that they can be effectively covered by a salesperson. Too big and too small territory size is undesirable.
- Territorial design as far as possible should equalize sales potential and the workload of salespersons.
- Territorial coverage plans should ensure control of expenses with coverage in a cost-effective manner.
- Territorial plans should be flexible.
FAQs About the Sales Territory
What is the meaning of sales territory?
A sales territory is a geographical area containing present and potential customers who can be effectively and economically served by a single salesman, branch dealer, or distributor.
What is the best definition of sales territory?
Sales territory is a basic unit of sales planning and sales control.
What are the objectives of sales territories?
The following are the objectives of sales territories:
1. Provide Proper Market Coverage
2. Control Selling Expenses
3. Assist in Better Evaluation of Sales Personnel Performance
4. Contribute to Sales Force Effectiveness
5. Improve Coordination of Personal-selling and Advertising Efforts
6. Improve Customer Relations.
What are the factors determining sales territories?
The factors determining sales territories are 1. Size of Business 2. Methods of Distribution 3. The ability of Salesmen 4. Level of Competition 5. Means of Advertisement and Sales Promotion 6. The density of Population 7. Market Potentialities 8. Product Demand 9. Company Policies.