Monitoring Sales Performance

Monitoring Sales Performance HERBERT DEMMEL and J A M E S E. SAYRE

Downloaded by UNIV OF CALIFORNIA SANTA BARBARA on April 1, 2018 | https://pubs.acs.org Publication Date: June 17, 1959 | doi: 10.1021/ba-1959-0024.ch012

Plastics & Coal Chemicals Division, Allied Chemical Corp., New York, Ν. Y.

The role of the market research department in en hancing sales efforts is discussed. One method of achieving greater sales productivity is by use of control devices to check movements and selling ex penses. Such controls are necessary, but by them selves do not give the salesman means of effecting deeper market penetration. A well-prepared sales budget also provides a yardstick for measuring per formance. Perhaps the commonest method of moni toring sales is with market share or participation in formation. The sales budget lends itself readily to this type of analysis. In addition to market share analysis, correlation techniques can be helpful. A number of hurdles must be met in establishing a monitoring program, which is costly to set up, and adequate industry statistics may be hard to obtain.

U u r i n g t h e c o m p e t i t i v e sixties t h e c h e m i c a l i n d u s t r y w i l l be c h a r a c t e r i z e d b y m o u n t i n g costs, r e c u r r i n g periods of excess c a p a c i t y , a n d a great c o m p u l s i o n t o sacrifice p r i c e for v o l u m e . S u c h pressures, c o u p l e d w i t h h i g h taxes a n d i n f l a t i o n , w i l l i n h i b i t the f o r m a t i o n of v e n t u r e c a p i t a l a n d e x p a n s i o n i n t o n e w p r o d u c t areas. T h e y w i l l also b l i g h t o p p o r t u n i t i e s f o r producers of c h e m i c a l s to more aggressively develop a n d r e t a i n a l l i e d projects w h i c h cross i n d u s t r y lines. T h e n , t o o , as c h e m i c a l i n d u s t r i e s develop i n o u r present foreign m a r k e t s , exports w i l l s h r i n k , w h i l e i m p o r t s w i l l rise. A s a r e s u l t , domestic m a r k e t s w i l l be spaded m o r e i n t e n s e l y a n d t h e r e d u c t i o n of excess c a p a c i t y c a n be expected t o become s t i l l m o r e difficult. F u r t h e r m o r e , w i t h accelerated t e c h n o l o g i c a l progress, the r a t e of obsolescence of present f a c i l i t i e s w i l l q u i c k e n . A d d i t i o n a l t r o u b l e is foreseen, d u e t o o u r c o m i n g o u t - o f - p h a s e m a n p o w e r p o o l . T h e y o u n g e r sales personnel d u r i n g the c o m p e t i t i v e sixties w i l l h a v e been b o r n d u r i n g the t h i r t i e s a n d e a r l y forties w h e n t h e b i r t h r a t e w a s l o w . F e w e r w i l l be a v a i l a b l e , t h u s c r e a t i n g a shortage of s k i l l e d people a t a t i m e w h e n o v e r - a l l p o p u l a t i o n a n d m a r k e t s w i l l be e x p a n d i n g . S a l a r i e s c a n be expected t o rise. S u c h p a t t e r n s a r e b e l i e v e d t o be t r u l y representative of t h e i n d u s t r y , c e r t a i n l y t h e y are a great c o n t r i b u t i o n t o low-cost, m a s s - p r o d u c e d goods f o r t h e u l t i m a t e consumer. S u c h f o u n d a t i o n s u n d e r p i n n i n g t h e c o m p e t i t i v e sixties w i l l d e m a n d greater efficiency i n a l l areas. T h e r e f o r e , i t becomes m a n d a t o r y f o r each i n d i v i d u a l firm t o i m p r o v e i t s m a r k e t i n g effort so t h a t sales c a n be m a d e 83

CHEMICAL MARKETING IN THE COMPETITIVE SIXTIES Advances in Chemistry; American Chemical Society: Washington, DC, 1959.

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m o r e efficiently i n order to m a x i m i z e e a r n i n g power a n d u t i l i z e m o r e f u l l y t h e company's investment i n manufacturing facilities. S u c h a d r i v e c a l l s for m o r e s e l l i n g effort. T h e p r o b l e m is c o m p l i c a t e d b y the v e n d i n g of p r o d u c t s r a n g i n g f r o m test t u b e to t a n k c a r , compounds whose m a r k e t s are either m a t u r e o r i n the e a r l y stages of g r o w t h , a n d lines d i s t r i b u t e d b y m a r k e t i n g groups of a l l t y p e s . S e v e r a l m e t h o d s , u s u a l l y i n c o m b i n a t i o n , c a n be e m p l o y e d to increase s e l l i n g a c t i v i t y . T h e s e i n c l u d e t h e a d d i t i o n of m o r e personnel to the sales force, i n c r e a s i n g a d v e r t i s i n g a n d p r o m o t i o n a l exp e n d i t u r e s , a n d l i b e r a l i z i n g d i s c o u n t s a n d c r e d i t . S u c h devices are c o s t l y , so t h a t each i n c r e m e n t i n effort requires a c o r r e s p o n d i n g , i f n o t greater, r i s e i n profits f r o m a d d i t i o n a l sales v o l u m e . O t h e r w i s e , m o r e effort is n o t j u s t i f i e d . F u r t h e r m o r e , m a n a g e m e n t is r e l u c t a n t to increase i t s sales costs a t a t i m e w h e n p r o f i t s , e i t h e r present or p r o s p e c t i v e , are a t low levels. I n f a c t , the opposite is l i k e l y to occur as m a n a g e m e n t slashes costs i n a n effort to i m p r o v e c u r r e n t p e r f o r m a n c e a t the expense of t h e f u t u r e . H o w t h e n c a n the m a r k e t i n g effort be enhanced? O n e of the m o r e p r o s a i c methods of a c h i e v i n g greater sales p r o d u c t i v i t y is b y the use of v a r i o u s c o n trols as a check on s e l l i n g expenses. S u c h m e a s u r i n g devices as n u m b e r of c a l l s per d a y , cost per c a l l , t i m e spent per c a l l , a n d r a t i o of sales t o s a l a r y a n d expenses, h a v e been d e v e l o p e d t o u t i l i z e t h e salemen's t i m e m o r e effectively. S u c h measures are i m p l e m e n t e d b y a Sales C o n t r o l group w h i c h h a n d l e s a l l of the r e l a t e d d e t a i l for the Sales D e p a r t m e n t . A l t h o u g h the cost of t h e group is u s u a l l y c h a r g e d t o the Sales D e p a r t m e n t , i t s s u p e r v i s i o n , choice of p e r s o n n e l , a n d design of f o r m s s h o u l d be t h e f u n c t i o n of M a r k e t R e s e a r c h . Sales Control T h e P l a s t i c s a n d C o a l C h e m i c a l s D i v i s i o n of t h e A l l i e d C h e m i c a l C o r p . uses a b r e a d a n d b u t t e r m e t h o d for sales c o n t r o l . G e n e r a l l y s p e a k i n g , i t has t w o f a c e t s : t h e s y s t e m for m o n i t o r i n g the c a l l s of t h e salesmen a n d a c a r d s y s t e m for r e a d y reference of sales as m a d e t o customers. I n t h e f o r m e r t h e c o m p a n y ' s customers a r e r a t e d a c c o r d i n g t o m a g n i t u d e a n d other c h a r a c t e r i s t i c s — A , B , C , a n d D . E a c h t y p e of a c c o u n t is t h e n a s signed a c e r t a i n n u m b e r of c a l l s b y a s a l e s m a n w i t h i n a g i v e n p e r i o d . G o o d i n d u s t r y procedures often designate a n A a c c o u n t as one whose sales t o p $20,000 per y e a r a n d i n s t r u c t the s a l e s m a n t o m a k e one c a l l per m o n t h . Sales g o v e r n i n g B , C , a n d D accounts c o u l d range f r o m $5000 t o 20,000; $1000 t o 5000 a n d u n d e r $1000 p e r a n n u m w i t h c a l l s assigned b i m o n t h l y , q u a r t e r l y , a n d once y e a r l y . Sales C o n t r o l receives the field reports a n d enters on each

Figure I CHEMICAL MARKETING IN THE COMPETITIVE SIXTIES Advances in Chemistry; American Chemical Society: Washington, DC, 1959.

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account r e c o r d the frequency of calls m a d e . P e r i o d i c reviews show w h e t h e r each t y p e of a c c o u n t is g e t t i n g i t s p r o p e r field coverage. Sales C o n t r o l also analyses the r a w data according to pertinent requirements. I n i t s other m a j o r a c t i v i t y t h e Sales C o n t r o l group transfers sales records f r o m I B M t a b u l a t i o n s or invoices t o a c a r d f o r each customer b y m a j o r p r o d u c t , b y m o n t h , a n d holds such c a r d records i n t u b desks f o r r e a d y reference b y d e p a r t m e n t a l a n d M a r k e t R e s e a r c h personnel. Sales a n d M a r k e t R e s e a r c h also c o m p i l e v a r i o u s a n a l y s e s f r o m such figures. M a i n f o r m s u t i l i z e d a r e D a i l y S u m m a r y R e p o r t of C a l l s ; T e r r i t o r y P o t e n t i a l R e c o r d ; P u r c h a s e s b y P l a n t s , R e q u i r e m e n t s b y P r o d u c t a n d S a l e s m a n ' s C o v e r a g e ; A n a l y s i s of S a l e s -

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Figure 7 man's Performance; Territorial Account R e c o r d ; Trade Report; and Analysis of S a l e s m a n ' s A c t i v i t i e s ( F i g u r e s 1 t o 7, r e s p e c t i v e l y ) . I B M cards m a y be used t o a u t o m a t e t h e chore of r e c o r d i n g t h e p h y s i c a l m o v e m e n t s or c a l l p a t t e r n s of salesmen. U n d e r t h e s y s t e m used b y o u r G e n e r a l C h e m i c a l D i v i s i o n , salesmen a r e r e q u i r e d t o fill o u t a m a r k - s e n s e d I B M c a r d for each sales c a l l . I n a d d i t i o n t o the c a r d t h a t t h e s a l e s m a n fills o u t c o v e r i n g his m o v e m e n t s , he also m a r k s a different c a r d t o account f o r h i s n o n s e l l i n g a c t i v i t i e s , i n c l u d i n g i n t h i s category t i m e spent i n t h e office f o r v a r i o u s reasons, attendance a t conventions, etc. ( F i g u r e s 8 a n d 9 ) . CHEMICAL MARKETING IN THE COMPETITIVE SIXTIES Advances in Chemistry; American Chemical Society: Washington, DC, 1959.

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m a s t e r w h i c h has a l r e a d y been p r e p a r e d . T h e r e a f t e r the cards, c o m p l e t e l y p u n c h e d , m a y be used t o p r e p a r e a v a r i e t y of reports a n d s u m m a t i o n s ( F i g u r e s 10 to 12).

A t present t h e G e n e r a l C h e m i c a l D i v i s i o n m a k e s t w o separate reports on a r o u t i n e basis. F i r s t is a m o n t h l y r e p o r t w h i c h is sent t o b r a n c h m a n agers s h o r t l y after the e n d of each m o n t h . T h i s enumerates the t o t a l n u m b e r of each t y p e of sales c a l l m a d e b y each s a l e s m a n a n d t h e d i s t r i b u t i o n of the salesman's n o n s e l l i n g a c t i v i t y for the m o n t h , a c c o r d i n g t o t h e classifications o u t l i n e d o n the cards. W i t h t h i s r e p o r t the b r a n c h m a n a g e r is a b l e t o keep a f a i r l y close w a t c h o n each salesman's effort, a l t h o u g h f r o m t h i s alone he m a y not deduce the d i r e c t i o n of the salesman's efforts. T h e second r e p o r t is issued e v e r y six m o n t h s . I t , too, is p r e p a r e d f r o m t h e p u n c h e d cards o n I B M e q u i p m e n t . T h i s r e p o r t t a b u l a t e s for each salesm a n a l l the k n o w n accounts i n his t e r r i t o r y , together w i t h a n o p t i m u m n u m ber of c a l l s per y e a r w h i c h s h o u l d be m a d e on each account. T h i s o p t i m u m n u m b e r of c a l l s has been p r e v i o u s l y d e t e r m i n e d b y a conference between the b r a n o h m a n a g e r a n d the s a l e s m a n . A c t u a l calls are t h e n i n d i c a t e d b y m o n t h a n d c o m p a r i s o n s m a y be m a d e w i t h the g o a l p r e v i o u s l y set. I n t h i s w a y the m a n a g e r c a n e v a l u a t e the salesman's efforts a g a i n s t his p e r f o r m a n c e quotas. T h e s y s t e m is flexible a n d a u t o m a t e d . I t has been w o r k i n g s a t i s f a c t o r i l y for several years. A l t h o u g h s u c h controls are necessary, the i n f o r m a t i o n developed does n o t





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g e n e r a l l y p r o v i d e t h e s a l e s m a n w i t h the means of effecting a deeper m a r k e t p e n e t r a t i o n of a p a r t i c u l a r p r o d u c t t h a n h a d been p r e v i o u s l y o b t a i n e d . I n a more s o p h i s t i c a t e d r o l e , M a r k e t R e s e a r c h c a n a i d i n m o n i t o r i n g sales p e r f o r m a n c e a n d i n m a x i m i z i n g sales a n d profits. A s a convenient f o r m of r e f e r ence, p e r f o r m a n c e m u s t first be m e a s u r e d a n d t h e n a p p r a i s e d t h r o u g h t h e use of b o t h i n t e r n a l a n d e x t e r n a l c r i t e r i a . F r o m a n i n t e r n a l s t a n d p o i n t , p e r f o r m ance m a y be d e t e r m i n e d b y t h e use of the sales budget a n d p r o f i t a b i l i t y analyses. T h e emphasis of the f o r m e r lies i n the c o m p a r i s o n of a c t u a l w i t h budgeted s a l e s ; the l a t t e r a l l o w s t h e v a l u e of a p a r t i c u l a r p r o d u c t of t h e firm t o be j u d g e d r e l a t i v e t o a l l p r o d u c t s m a n u f a c t u r e d . E x t e r n a l c r i t e r i a are d e v e l o p e d t h r o u g h the use of either m a r k e t share a n a l y s i s w h e r e b y one's o w n p e n e t r a t i o n of the m a r k e t is c o m p a r e d w i t h t h a t of c o m p e t i t o r s , or c o r r e l a t i o n techniques t o c o m p a r e sales w i t h trends of a m a j o r segment of the e c o n o m y . T h e s e techniques are n o t m u t u a l l y e x c l u s i v e of each o t h e r n o r is each t e c h n i q u e , or c o m b i n a t i o n , a p a n a c e a t h a t guarantees higher sales. T h e i r u s e f u l ness lies i n s p o t l i g h t i n g d e v i a t i o n s f r o m expected p e r f o r m a n c e a n d i n g i v i n g m a n a g e m e n t t h e necessary i n f o r m a t i o n t o c a r r y out either r e m e d i a l or i m provement programs. Sales Budget T h e sales budget is g e n e r a l l y p r e p a r e d b y the Sales D e p a r t m e n t . I t is d e v e l o p e d b y e s t i m a t i n g t h e purchases of customers f o r a y e a r a h e a d a n d is t h e n b r o k e n d o w n i n t o q u a r t e r s . O f t e n projections for each a c c o u n t are m e r e l y based u p o n p a s t sales, i n f o r m e d guesses s u p p l i e d b y the c u s t o m e r , or i n t u i t i v e reasoning. T h e p r o j e c t i o n m a y or m a y not i n c l u d e a q u o t a for t h e s a l e s m a n as a n i n c e n t i v e t o surpass his past l e v e l of sales. A budget of t h i s t y p e u s u a l l y ignores t h e general economic e n v i r o n m e n t i n w h i c h t h e p r o d u c t m u s t compete. C o n s e q u e n t l y , w h e n budgeted sales meet a c t u a l sales i t is t h e exception r a t h e r t h a n t h e r u l e . T h e s a l e s m a n has l o n g recognized t h a t s u c h c a s u a l budgets s u f fer f r o m " 1 0 % - i t i s " a n d he soon treats t h e m w i t h c o n t e m p t or ignores t h e m completely. B e c a u s e t h e sales forecast is t h e f o u n d a t i o n of other budgets w i t h i n t h e o r g a n i z a t i o n , a poor e s t i m a t e w i l l of course erode sales, i m p a i r p r o d u c t i o n schedules, cause i n v e n t o r y p r o b l e m s , a n d h a m p e r c a p i t a l p l a n n i n g . A budget w i t h o u t i n t e g r i t y is useless; i t m u s t be buttressed w i t h enough s k i l l a n d care t o l i f t i t b e y o n d s u s p i c i o n . M a r k e t R e s e a r c h c a n assist the Sales D e p a r t m e n t i n d e v e l o p i n g a m o r e r e a l i s t i c budget for m o n i t o r i n g t h e p e r f o r m a n c e of p r o d u c t s a n d i n d i v i d u a l s i n three w a y s . I t c a n p r o v i d e the budget a s s u m p t i o n , a p p r a i s e a n d assist i n the r e v i s i o n of i n i t i a l a n d i n t e r i m budget estimates, a n d r e v i e w a c t u a l p e r formance i n t h e l i g h t of economic forces t h a t h a v e p r e v a i l e d . I n the " g r a s s r o o t s " a p p r o a c h t o d e v e l o p i n g the sales budget, each salesm a n s h o u l d be a d v i s e d of t h e prospective o u t l o o k f o r his customer i n d u s t r i e s . I t is superfluous t o present salesmen w i t h d a t a of f u t u r e economic c o n d i t i o n s couched i n b r o a d general t e r m s , such as t h a t the gross n a t i o n a l p r o d u c t w i l l i n crease b y 2 % , consumer i n c o m e w i l l rise b y 1 % , etc. S u c h i n f o r m a t i o n is diffic u l t for t h e s a l e s m a n t o relate t o h i s sales. F o r i n s t a n c e , the m a n w h o is s e l l i n g a l k y d resins is interested i n t h e o u t l o o k of t h e p a i n t i n d u s t r y , so t h a t révélant i n f o r m a t i o n s h o u l d be s u p p l i e d as f o l l o w s : I n d u s t r i a l p a i n t sales are expected t o rise b y 1 0 % , t r a d e p a i n t s b y 2 % , etc. W i t h such d a t a s u p p l i e d b y M a r k e t R e s e a r c h , for each i m p o r t a n t customer i n d u s t r y , the s a l e s m a n is able t o i n CHEMICAL MARKETING IN THE COMPETITIVE SIXTIES Advances in Chemistry; American Chemical Society: Washington, DC, 1959.


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corporate the a s s u m p t i o n of f u t u r e economic c o n d i t i o n s i n t o h i s estimate for each account where necessary. T h e s e economic d a t a become the basis for the budget a s s u m p t i o n . A s the i n i t i a l estimates come i n f r o m the field, t h e y are c a r e f u l l y r e v i e w e d i n terras of aggregates b y b r e a k i n g t h e m d o w n i n t o a n end-use or i n d u s t r y p a t t e r n . F r o m these are d e t e r m i n e d the percentage increases a n d decreases f r o m the p r e v i o u s y e a r ' s sales. T h e s e percentage increases a n d decreases are t h e n c o m p a r e d w i t h the a n t i c i p a t e d levels of the budget a s s u m p t i o n . W i d e d e v i a t i o n s become r e a d i l y a p p a r e n t a n d need to be resolved b y M a r k e t R e search a n d the Sales D e p a r t m e n t before the final a n n u a l budget is p r e p a r e d i n c o r r e s p o n d i n g t i m e elements. T h e sales budjget s h o u l d be i n l i n e w i t h i n d u s t r y end-use projections of the budget a s s u m p t i o n . S u c h p r o j e c t i o n s m a y be developed t h r o u g h t h e use of c o r r e l a t i o n techniques w i t h projections of b r o a d b u t r e l a t e d economic i n d i c a t o r s . A s a r e s u l t , the projections of basic economic i n d i c a t o r s become the basis for the budget a s s u m p t i o n . A s the y e a r u n f o l d s , c h a n g i n g economic c o n d i t i o n s m a y w e l l render the budget a s s u m p t i o n obsolete. T h e r e f o r e , M a r k e t R e s e a r c h needs to a d v i s e t h e Sales D e p a r t m e n t of changes i n the a s s u m p t i o n so t h a t the budget c a n be r e v i s e d . I t m a y also be necessary to c o n t a c t k e y accounts d u r i n g t h e course of the y e a r . A q u a r t e r l y r e v i e w is g e n e r a l l y the m o s t a p p r o p r i a t e . W i t h a l l these d a t a a v a i l a b l e M a r k e t R e s e a r c h is n o w i n a p o s i t i o n t o measure p e r f o r m a n c e . A c t u a l sales c a n be c o m p a r e d w i t h t h e flow of events t h a t h a v e o c c u r r e d i n the p a s s i n g economic scene a n d t h e budget a s s u m p t i o n r e v i s e d w i t h the a c t u a l d a t a . P e r f o r m a n c e c a n be m e a s u r e d b y r e l a t i n g t h e sales of the p r o d u c t to the results a c h i e v e d b y c o n s u m i n g i n d u s t r i e s . T h e p e r f o r m a n c e of t e r r i t o r i e s a n d i n d i v i d u a l s c a n also be d e t e r m i n e d . T h e v a l u e of such a c o m p a r i s o n lies i n s h o w i n g where t h e strengths a n d weaknesses of t h e o r g a n i z a t i o n l i e . I t p r o v i d e s the d a t a necessary t o d e t e r m i n e i f M a r k e t R e s e a r c h s u r v e y s s h o u l d be i n i t i a t e d for either c o r r e c t i n g or i m p r o v i n g t h e p e r f o r m a n c e of a p r o d u c t or t e r r i t o r y . Cash Flow T h e sales budget, t o be of v a l u e t o the o r g a n i z a t i o n as a w h o l e , m u s t be r e l a t e d t o f u t u r e profits or r a t h e r t o a n t i c i p a t e d cash flow d i s c o u n t e d t o t h e present. T h e concept of cash flow c a n be described b r i e f l y as the difference between revenues a n d d i r e c t costs, not to i n c l u d e d e p r e c i a t i o n . I t represents t h e a m o u n t of cash t h r o w n off f r o m the sales a n d p r o d u c t i o n of a p r o d u c t regardless of the i n v e s t m e n t . C o n s e q u e n t l y , for each p r o d u c t i n the sales budget, the a n t i c i p a t e d cash flow for the c o m i n g y e a r c a n be d e t e r m i n e d . T h e p r o b l e m n o w becomes one of s h i f t i n g sales effort, as described i n t h e sales budget, to those p r o d u c t s w h i c h w i l l c o n t r i b u t e most t o i n c r e a s i n g the f u t u r e cash flow w i t h the least e x p e n d i t u r e of the o r g a n i z a t i o n ' s resources. T o r e d i r e c t e m p h a s i s , t h e sales budget so l a b o r i o u s l y developed w i l l be changed t h r o u g h m a n a g e m e n t a c t i o n t o achieve a better r e s u l t . C o n s e q u e n t l y , the sales budget m u s t n o t o n l y be p e r i o d i c a l l y r e v i s e d because of d e v i a t i o n s f r o m the budget a s s u m p t i o n , d u e to c h a n g i n g economic c o n d i t i o n s , b u t also because of m a n a g e m e n t decisions to s h i f t resources i n t o areas of the greatest c o n t r i b u t i o n s to increased cash flow. A d m i t t e d l y , d e t e r m i n a t i o n of the cash flow is a financial f u n c t i o n , y e t i t is a n e x t r e m e l y v a l u a b l e t o o l for M a r k e t R e s e a r c h . C a s h flow i n large





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measure is d e t e r m i n e d b y t h e d e m a n d for t h e c o m p a n y ' s p r o d u c t s . Conseq u e n t l y , for M a r k e t R e s e a r c h t o m o n i t o r p e r f o r m a n c e t h r o u g h cash flow a n a l y s i s i n d e t e r m i n i n g w h e t h e r o r n o t sales e m p h a s i s has been p l a c e d o n the proper p r o d u c t s , i t m u s t be a c c o m p l i s h e d w i t h i n the f r a m e w o r k of t o t a l profitability. F u r t h e r m o r e , M a r k e t R e s e a r c h requires t h i s c r i t e r i o n as a check o n t h e f u t u r e cash flow consequences i n f o r m u l a t i n g a l t e r n a t i v e courses of a c t i o n i n t h e m a r k e t i n g a r e a . I t is also i m p o r t a n t for t h e d e v e l o p m e n t of hypotheses t h a t w i l l be tested d u r i n g the course of a M a r k e t R e s e a r c h s u r v e y , p a r t i c u l a r l y those concerned w i t h p r i c i n g . I n m e a s u r i n g p e r f o r m a n c e t h r o u g h p r o f i t a b i l i t y c o m p a r i s o n s , M a r k e t R e s e a r c h bridges t h e gap between a Sales D e p a r t m e n t t h a t is w o r k i n g for v o l u m e a n d a financial group whose f u n c t i o n is t o m a i n t a i n a f a v o r a b l e s h o r t - a n d l o n g - t e r m c a p i t a l p o s i t i o n a n d c o n t r o l f u n d s t o m a x i m i z e net p r o f i t for the c o r p o r a t i o n . Market Share Analysis P e r h a p s t h e c o m m o n e s t m e t h o d of m o n i t o r i n g sales is t h r o u g h the use of m a r k e t share or p a r t i c i p a t i o n . S i m p l y s t a t e d , the firm's sales of a p a r t i c u l a r p r o d u c t are c o m p a r e d w i t h i n d u s t r y p r o d u c t i o n or sales as o b t a i n e d either f r o m t h e T a r i f f C o m m i s s i o n o r t h r o u g h p e r i o d i c reports c o m p i l e d b y a c o m m o n s t a t i s t i c s g a t h e r i n g group as w e l l as f r o m o t h e r r e l i a b l e sources. A percentage share of t h e m a r k e t c a n be d e t e r m i n e d w h i c h m a y offer a v e r y precise m e a s u r e m e n t of the p e r f o r m a n c e t r e n d . S u c h a s i m p l i f i e d t y p e of m a r k e t share a n a l y s i s has l i m i t e d v a l u e , because t h e sales executives w h o are b e i n g m o n i t o r e d b y t h i s t e c h n i q u e m a y n o t h a v e a clear p i c t u r e of w h y t h e m a r k e t share for t h e i r p r o d u c t is c h a n g i n g . A b l u r r e d p i c t u r e m a y not be adequate for d e c i s i o n m a k i n g . B y e m p l o y i n g M a r k e t R e s e a r c h T e c h n i q u e s , m a r k e t share a n a l y s i s c a n be a v a l u a b l e t o o l f o r m o n i t o r i n g p e r f o r m a n c e . T h e d a t a developed i n a r e a l i s t i c sales budget c a n be r e a d i l y used for m a r k e t s h a r e a n a l y s i s b y m e a s u r i n g the p r o d u c t ' s sales as a per cent of the i n d u s t r y . A n i n d i c a t i o n of m a r k e t p e n e t r a t i o n b y customer i n d u s t r i e s a n d t e r r i t o r i e s becomes possible. Strengths a n d weaknesses r e l a t i v e to the i n d u s t r y become r e a d i l y a p p a r e n t a n d m a y l e a d t o a n i n v e s t i g a t i o n of the causes. M a r k e t share a n a l y s i s , w h e r e v e r possible, s h o u l d be c a r r i e d t o the p o i n t of e s t i m a t i n g t h e c o m p e t i t o r ' s shares b y end uses a n d s m a l l i n t e g r a l t e r r i t o r i e s . T h e sales p e r f o r m a n c e of competitors c a n t h e n be e v a l u a t e d . T o do t h i s r e q u i r e s the c o o p e r a t i o n of the sales force. A f o r m s i m i l a r t o t h a t used b y the P l a s t i c s a n d C o a l C h e m i c a l s D i v i s i o n is sometimes used b y salesmen. I n t h i s " A n n u a l C u s t o m e r R e p o r t " each i n d i v i d u a l s a l e s m a n m u s t be able to a s c e r t a i n t h e t o t a l c o n s u m p t i o n of a p r o d u c t b y each account a n d the m a n n e r i n w h i c h purchases are a p p o r t i o n e d a m o n g the v a r i o u s s u p p l i e r s . A t t i m e s , a s a l e s m a n w i l l not be able to o b t a i n precise i n f o r m a t i o n c o n c e r n i n g the account i n question. H o w e v e r , i f he is experienced, he w i l l k n o w a p p r o x i m a t e l y how m u c h the a c c o u n t uses a n d s h o u l d be a b l e to m a k e a n estimate. S u c h i n f o r m a t i o n c a n be p l a c e d on I B M cards a n d c o m p i l e d i n t o aggregates b y end uses a n d t e r r i t o r i e s . H o w e v e r , the field force c a n n o t be expected t o s u p p l y t h i s i n f o r m a t i o n on a c o n t i n u i n g basis unless t h e y f u l l y realize t h a t i t is b e i n g p u t to use. T h e s a l e s m a n is w i t h o u t peer i n d i s r e g a r d i n g a n y t h i n g he considers not h e l p i n g h i m to m a k e a sale. H i s interest c a n be aroused i n such a p r o g r a m b y h a v i n g M a r k e t R e s e a r c h present the a n a l y s i s of c o m p i l e d d a t a a t a n n u a l meetings. P e r h a p s the o n l y w a y of CHEMICAL MARKETING IN THE COMPETITIVE SIXTIES Advances in Chemistry; American Chemical Society: Washington, DC, 1959.


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d e m o n s t r a t i n g t o the s a l e s m a n the v a l u e of t h i s i n f o r m a t i o n i n g u i d i n g t o p m a n a g e m e n t decisions is b y a l l o w i n g h i m to spend some t i m e i n t h e M a r k e t R e s e a r c h D e p a r t m e n t . T h e most p r o p i t i o u s t i m e for t h i s w o u l d a p p e a r t o be d u r i n g the sales t r a i n i n g p e r i o d w h e n he first comes w i t h t h e c o m p a n y . O n c e the sales force c a n report the c o n s u m p t i o n of a p r o d u c t b y account, p e r f o r m a n c e m a y be m o n i t o r e d on the basis of k n o w i n g the extent of the m a r k e t . T h e r e p o r t e d c o n s u m p t i o n of a l l accounts, as o b t a i n e d f r o m the field, is t o t a l e d b y end use a n d is c o m p a r e d w i t h i n d u s t r y s t a t i s t i c s . I t m a y be f o u n d t h a t the sales force does n o t k n o w where a n i m p o r t a n t p r o p o r t i o n of the p r o d u c t is b e i n g consumed. T h i s i n d i c a t e s t h a t t h e sales force is n o t f a m i l i a r w i t h the t o t a l m a r k e t . T h e a n a l y s i s c a n even be c a r r i e d d o w n t o t h e t e r r i t o r y a n d i n d i v i d u a l l e v e l . I f the uses of t h e p r o d u c t h a v e been categorized b y " S t a n d a r d I n d u s t r y C l a s s i f i c a t i o n , " i t m a y be possible t o b r e a k d o w n i n d u s t r y s t a t i s t i c s on the basis of the n u m b e r of p r o d u c t i v e employees b y regions or states as r e p o r t e d i n the C e n s u s of M a n u f a c t u r e r s . F r o m t h i s m a y be d e t e r m i n e d the l e v e l of m a r k e t p e n e t r a t i o n i n a p a r t i c u l a r t e r r i t o r y . Correlation Techniques B e s i d e s the a p p l i c a t i o n of m a r k e t share a n a l y s i s t o m o n i t o r sales r e l a t i v e t o e x t e r n a l c r i t e r i a , c o r r e l a t i o n techniques c a n also be h e l p f u l t o M a r k e t R e s e a r c h . T o develop s u i t a b l e factors of c o r r e l a t i o n , the basic d e m a n d for a p r o d u c t m u s t be i n v e s t i g a t e d . T h e d e m a n d for a c h e m i c a l firm's p r o d u c t m a y be t h o u g h t of as b e i n g due t o f o u r elements: the state of t h e general economy, competitive a c t i v i t y , the price and p h y s i c a l property relationships of s u b s t i t u t e m a t e r i a l s p r o d u c e d either b y the c h e m i c a l or other i n d u s t r i e s , a n d consumer income a n d tastes. T h e first three elements are g e n e r a l l y of i m m e d i a t e concern t o the t y p i c a l C h e m i c a l M a r k e t R e s e a r c h D e p a r t m e n t . T h e i m p o r t a n c e of t h e l a s t element, consumer i n c o m e a n d tastes i n o u r i n d u s t r y , is g e n e r a l l y of secondary i m p o r t a n c e , because c h e m i c a l firms a r e u s u a l l y r e m o v e d b y s e v e r a l stages of p r o d u c t i o n f r o m the e c o n o m y . T h e first element of d e m a n d , sales as r e l a t e d t o the general e c o n o m y , is s u i t a b l e for c o r r e l a t i o n a n a l y s i s . E s s e n t i a l l y , i t is a t e c h n i q u e of t r y i n g t o e s t a b l i s h a r e l a t i o n s h i p between t h e sales of one's p r o d u c t w i t h a b r o a d economic i n d i c a t o r . T h e r e l a t i o n s h i p s h o u l d s p a n several y e a r s of sales t o be m e a n i n g f u l . O n c e a good c o r r e l a t i o n has been established on s u c h a b a s i s , i t c a n be used t o m o n i t o r sales b y f o l l o w i n g y e a r l y corrections i n t h e r e l a t i o n s h i p . M o r e o v e r , future forecasts for such series often represent t h e w o r k of either a large group of personnel or of extended field s u r v e y s , e s p e c i a l l y b y v a r i o u s g o v e r n m e n t agencies. I n t h i s w a y , s o p h i s t i c a t e d d a t a for c o m i n g periods m a y be u t i l i z e d to foretell d e m a n d for one's o w n c o r r e l a t e d p r o d u c t . T h e second element of d e m a n d , c o m p e t i t o r ' s a c t i v i t i e s , has a l r e a d y been t o u c h e d u p o n i n m a r k e t share a n a l y s i s ; here t h e usefulness of c o r r e l a t i o n techniques has l i m i t e d a p p l i c a t i o n . T h e t h i r d element of d e m a n d , the e v a l u a t i o n of s u b s t i t u t e s , c a n be a n a l y z e d c o m p a r a t i v e l y b y d e v e l o p i n g i n f o r m a t i o n as t o use cost a n d p h y s i c a l p r o p e r t y i n t e r c h a n g e a b i l i t y . D e v e l o p m e n t of s u i t a b l e schedules c a n a i d M a r k e t R e search i n m o n i t o r i n g a p r o d u c t ' s p r i c e a n d i t s c h a n g i n g r e l a t i o n s h i p t o the prices of s u b s t i t u t e m a t e r i a l s . T h e f o u r t h element of d e m a n d , consumer i n c o m e a n d tastes, does n o t l e n d itself t o m a t h e m a t i c a l c o r r e l a t i o n w i t h the sales of a c h e m i c a l p r o d u c t . CHEMICAL MARKETING IN THE COMPETITIVE SIXTIES Advances in Chemistry; American Chemical Society: Washington, DC, 1959.




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Y e t , the r e l a t i o n s h i p t h a t c o u l d exist m i g h t be the c r i t i c a l f a c t o r i n d e t e r m i n i n g m a r k e t a b i l i t y . A s t h e g r o w t h of the c h e m i c a l i n d u s t r y depends m o r e a n d more u p o n consumer acceptance of the p r o d u c t s of p o l y m e r c h e m i s t r y , s u c h as p l a s t i c s a n d s y n t h e t i c fibers, i t becomes i n c r e a s i n g l y necessary t o a n a l y z e consumer m a r k e t s i n d e t a i l . M a n y c h e m i c a l M a r k e t R e s e a r c h D e p a r t m e n t s m i g h t h a v e some difficulty i n m a k i n g a consumer s u r v e y because the t e c h niques e m p l o y e d are different f r o m those of the more f a m i l i a r i n d u s t r i a l m a r k e t research. Furthermore, a chemical M a r k e t Research Department w o u l d n o t be c a l l e d u p o n v e r y f r e q u e n t l y t o m a k e a consumer s u r v e y . F o r a c h e m i c a l c o m p a n y w i t h a large p o r t i o n of its sales dependent u p o n p l a s t i c s c o n s u m p t i o n , the use of a n outside agency's experience i n s a m p l i n g a n d a t r a i n e d staff of i n t e r v i e w e r s is v i t a l to conduct a consumer s u r v e y p r o p e r l y , w h i c h measures preferences a n d a t t i t u d e s . T h e C h e m i c a l M a r k e t R e s e a r c h D e p a r t m e n t ' s role is to m a k e sure such s u r v e y s are conducted t o p r o v i d e s u i t able a n d usable i n f o r m a t i o n t h a t w i l l i n d i c a t e the p e r f o r m a n c e of t h e firm's product to its management. S u c h results m i g h t i n d i c a t e the d e s i r a b i l i t y of i m p r o v i n g a c h e m i c a l or p l a s t i c r e s i n either to increase sales or t o p r e v e n t c o m p e t i t i v e encroachment. T h e s e s u r v e y s are also h e l p f u l to customers, w h o o f t t i m e s cannot afford consumer s u r v e y s . S u c h results m a y i n d i c a t e w h e t h e r or n o t a n i m p r o v e m e n t s h o u l d be m a d e i n the customer's p r o d u c t r a t h e r t h a n i n the b a s i c r e s i n . Difficulty of Monitoring T h e a p p l i c a t i o n of these techniques to m o n i t o r i n g sales p e r f o r m a n c e s h o u l d increase t h e p r o d u c t i v i t y of sales b y p r o d u c i n g m o r e sales p e r d o l l a r spent. O b v i o u s l y , i f the use of these techniques is o n l y a n a c a d e m i c exercise for M a r k e t R e s e a r c h , i t is v e r y expensive. C o n s e q u e n t l y , i t is necessary not o n l y t h a t top m a n a g e m e n t s u p p o r t these p r o g r a m s , b u t t h a t i t also act u p o n t h e i n f o r m a t i o n received. T h e i n i t i a l cost of s e t t i n g u p a m o n i t o r i n g p r o g r a m is h i g h a n d several y e a r s of o p e r a t i o n are necessary before s a t i s f a c t o r y i n f o r m a t i o n c a n be developed. H o w e v e r , once e s t a b l i s h e d , the c o m p i l a t i o n , c o r r e l a t i o n , a n d a n a l y s i s of d a t a become r o u t i n e . I n fact, m u c h of the w o r k m a y be done w i t h the a i d of d a t a processing e q u i p m e n t . I n o r d e r t o a v o i d the costs t h a t are associated w i t h the use of these techniques b y a m u l t i p r o d u c t firm, m o n i t o r i n g s h o u l d be l i m i t e d t o o n l y those p r o d u c t s w h i c h m a k e the m a j o r c o n t r i b u t i o n s t o p r o f i t . I n the chemical i n d u s t r y , a h a n d f u l of p r o d u c t s m a y often c o n t r i b u t e 7 5 % of the profits. T h e sales of these p r o d u c t s are c a n d i d a t e s for m o n i t o r i n g b y M a r k e t R e s e a r c h . T h e other p r o d u c t s , of w h i c h there m i g h t be m a n y , are sold either for the sake of customer convenience, b y - p r o d u c t u t i l i z a t i o n , o r new p r o d u c t development. O n l y i n s p e c i a l cases w o u l d M a r k e t R e s e a r c h m o n i t o r the sales of such p r o d u c t s . U s e of these techniques for a n y p r o d u c t m u s t be guided b y the results one is t r y i n g t o achieve i n t e r m s of t h e a d d e d expense. C o s t is o n l y one of several r e s t r i c t i o n s on the use of these techniques. T h e p r o b l e m of o b t a i n i n g s a t i s f a c t o r y i n d u s t r y s t a t i s t i c s c a n be a m a j o r h u r d l e i n m o n i t o r i n g sales t h r o u g h m a r k e t share a n a l y s i s o r the sales budget. A r e s i n m a n u f a c t u r e r w h o sells m o s t of his p r o d u c t t o c u s t o m m o l d e r s m a y find a n end-use p a t t e r n t h a t shifts m a r k e d l y f r o m y e a r t o y e a r . I n s u c h a case, projections based on end use p a t t e r n s c a n become meaningless. E v e n o b t a i n i n g usable d a t a f r o m w i t h i n the o r g a n i z a t i o n is beset w i t h difficulties. CHEMICAL MARKETING IN THE COMPETITIVE SIXTIES Advances in Chemistry; American Chemical Society: Washington, DC, 1959.


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I n d e v e l o p i n g p r o f i t a b i l i t y comparisons, the m e t h o d of a l l o c a t i n g costs t o p r o d u c t s t h a t are m a d e i n the same e q u i p m e n t o r l o c a t i o n poses p r o b l e m s . A n o t h e r s t u m b l i n g b l o c k encountered i n m o n i t o r i n g p e r f o r m a n c e , p a r t i c u l a r l y i n the c h e m i c a l i n d u s t r y , is the d i s t r i b u t i o n of a p r o d u c t ' s sales. O f t e n o n l y a few customers account for a m a j o r p o r t i o n of a c h e m i c a l ' s sales, w h i c h m a y become k n o w n as house accounts a n d are g e n e r a l l y h a n d l e d on the executive l e v e l . C o n s e q u e n t l y , the average s a l e s m a n is left w i t h a large n u m b e r of accounts whose c o m b i n e d a n n u a l purchases m a y represent o n l y a s m a l l p o r t i o n of t h a t p r o d u c t ' s s a l e s — t h e " c r u m b s " so t o speak. However, i t is these sales w h i c h m a y w e l l determine w h e t h e r or n o t the p l a n t operates a b o v e the " b r e a k e v e n " p o i n t . L o s s of a house account m a y w e l l cause u n p r o f i t a b l e operations, b u t i t is the a c c u r a c y w i t h w h i c h the sales t o s m a l l accounts c a n be m e a s u r e d t h a t w i l l i n d i c a t e the l e v e l of p r o f i t a b i l i t y o r u n p r o f i t a b i l i t y . I t is i n t h e sales t o s m a l l accounts t h a t t h e p r o d u c t is tested b y c o m p e t i t i o n i n the m a r k e t place. H o u s e accounts m a y be r e l a t i v e l y i n v u l n e r a b l e to c o m p e t i t i o n over l o n g periods of t i m e . I t is t h i s f a c t o r of house a c c o u n t s — d e t e r m i n i n g s u c h a large share of a p r o d u c t ' s s a l e s — t h a t w i l l be used, most often, as the chief a r g u m e n t a d v a n c e d b y the Sales D e p a r t m e n t t h a t i t c a n h a n d l e the sales budget w i t h o u t the a i d of M a r k e t R e s e a r c h . Hence, the house a c c o u n t i n c r e m e n t m a y cause a n a t t i t u d e t h a t w i l l d e p r i v e a concern of the v i t a l i t y of a progressive m o n i t o r i n g p r o g r a m . D u r i n g the c o m p e t i t i v e sixties, m a n y of the p r o d u c t s w h i c h are now b e g i n n i n g t o come out of the l a b o r a t o r i e s w i l l m a k e t o d a y ' s p r o d u c t s obsolete. W h i l e m u c h c h e m i c a l M a r k e t R e s e a r c h a c t i v i t y appears t o be devoted t o the a n a l y s i s of p o t e n t i a l m a r k e t s for new p r o d u c t s , l i t t l e effort seems d i r e c t e d t o w a r d s the s t u d y of the obsolescence of one's o w n p r o d u c t s . M u c h is h e a r d of the m a n y w o n d e r f u l p r o d u c t s t h a t w i l l become p a r t of the A m e r i c a n w a y of l i f e i n the sixties, b u t l i t t l e is h e a r d of the p r o d u c t s w h i c h w i l l be relegated to t h e j u n k heap as a consequence a n d whose present p r o f i t a b i l i t y is c o n t r i b u t i n g to t h e i r o w n obsolescence b y u n d e r w r i t i n g research. T h i s is a sort of success s t o r y suicide s i t u a t i o n for the s o a r i n g sixties. A s the c h e m i c a l i n d u s t r y races a h e a d , i t becomes i n c r e a s i n g l y i m p o r t a n t t o c o n t i n u e the a s s a u l t on h i g h d i s t r i b u t i o n expenses w h i c h are so c h a r a c t e r i s t i c of a l l i n d u s t r i a l fields. I n v i e w of the f a c t t h a t each customer c a l l r u n s f r o m $10 t o $20, t h i s a r e a is of p a r a m o u n t i m p o r t a n c e . T h e more t h a n one h a l f b i l l i o n d o l l a r s per y e a r , as n o w expended for sales costs b y t h e c h e m i c a l i n d u s t r y , represents a n enormous g o a l for the a p p l i c a t i o n of more precise sales monitoring.


Monitoring Sales Performance

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