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W13473

ADVANTAGE FOOD & BEVERAGE SALES REPRESENTATIVE

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Michael A. Levin and Bruce C. Bailey wrote this case solely to provide material for class discussion. The authors do not intend to
illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other
identifying information to protect confidentiality.

This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights

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organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.

Copyright © 2013, Richard Ivey School of Business Foundation Version: 2013-11-01

DECISION DILEMMA

In the 12 months since purchasing an exclusive territorial license for a new retail format, Lawrence
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Binsky, president of Advantage Food & Beverage, had hired and fired three sales representatives for the
Columbus, Ohio, market. A management review uncovered possible problems with the selling process for
the new retail format. Compensation issues associated with the selling process were also discussed during
the review.
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COMPANY BACKGROUND

Advantage Food & Beverage (hereafter AF&B) was founded in 1995 by two brothers, Lawrence and
Daryl Binsky. The company offered traditional vending machine services to businesses in Columbus,
Ohio. Senior management was comprised of Lawrence, president; Daryl, chief financial officer; Bill
Climer, general manager; and Nyle Schweitzer, operations manager.

In 2010, AF&B entered into a contract with Avanti Market System (hereafter Avanti kiosk) for exclusive
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territorial rights that included Columbus. An Avanti kiosk was similar to an on-site convenience store,
where items different from traditional vending merchandise could be sold. Accordingly, AF&B
established two separate divisions, i.e., the Avanti kiosk division and the vending division.

In the next 12 months, for the Columbus market, AF&B acquired six new customers for the Avanti kiosk
and converted a vending customer to an Avanti kiosk for a seventh Avanti customer. AF&B’s decision to
enter into a contract with Avanti appeared to allow the company to achieve superior financial
performance (see Exhibit 1). However, members of AF&B’s senior management thought the revenue
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from the Avanti kiosk division could be better. Daryl observed, “We feel like we are doing well with
Avanti but we could, or should, be doing better.” A senior manager added, “We’re wondering if we are
leaving money on the table.” To improve the division’s financial fortunes, AF&B’s management decided
that it needed to establish more Avanti kiosk locations.

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AVANTI KIOSK SELLING PROCESS

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With the addition of the Avanti kiosk division, AF&B’s senior management decided to hire a sales
representative for the market of Columbus, Ohio, which, according to an Ohio business directory,
included 101 potential business targets.1 The sales representative would sell only the Avanti kiosk and
would refer any vending inquiries to Lawrence. Salary included a $35,000 base and an additional five per
cent commission earned on monthly sales revenue for an Avanti kiosk location opened, or established, by

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the representative. The sales representative earned the five per cent commission, provided the location
remained in operation and the sales representative remained with AF&B. If the sales representative left
AF&B’s employ, regardless of reason, the sales representative would no longer collect a commission.

At the time of signing the agreement with Avanti, AF&B’s senior management set a performance goal of
$150 in daily sales revenue for each Avanti kiosk location it established. A sales representative could
expect to earn a minimum annual commission of $1,800 from one kiosk based on a business opened 20

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days a month. However, Nyle stated that some businesses that hosted an Avanti kiosk were open more
than 20 days, as a business such as a call center could be open seven days a week. Provided the kiosk
location earned the $150/day sales target, the minimum commission would be exceeded.

AF&B’s supply truck drivers restocked merchandise for Avanti kiosk and vending machine customers,
and earned the same eight per cent commission on sales for both locations. Usually, a driver would
service both types of customer on a routine workday. A typical driver held a high school diploma or, in
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some instances, an associate arts degree, and earned $25,000 in base salary with total annual
compensation of about $35,000.

The sales representative was expected to follow a traditional selling process (see Exhibit 2). The Avanti
kiosk sales representative had to prospect. To prospect for Avanti kiosk customers, a sales representative
would call on businesses listed in a business directory. Prospecting also occurred when an AF&B kiosk
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sales representative attended monthly meetings of the Columbus chapter of the Society of Human
Resource Managers.

To qualify a prospect, the Avanti kiosk sales representative needed to ensure that the prospective
customer met the minimum requirements for supporting a kiosk, which included (a) at least 400 square
feet of space that was, or could be, enclosed, (b) Internet access and (c) corners for security cameras.
Further, the area needed to offer, or have the potential to offer, controlled access by way of a keycard or a
keypad so that only employees could enter the kiosk. Finally, the company would employ no more than
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30 per cent temporary or part-time workers and would be willing to fire an employee who was caught
stealing. Theft was usually determined through the security monitors, which were mounted in the corners.
When the sales representative had qualified the business, and identified the decision maker, a presentation
was scheduled.

The selling process for a kiosk was slowed as the sales representative attempted to locate the decision
maker for a qualified company. The decision maker could be the human resources director, the managing
partner, or an office manager.
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Further slowing the process was the fact that there were more people from the prospective customer
involved in the decision-making process for the Avanti kiosk as compared to a vending unit. As part of
the approach and the presentation, the sales representative needed to verify the percentage of temporary or
part-time employees that worked for the prospective customer. Also, the amount of work required to

1
“Ohio business directory,” American Business Directories, Omaha, Nebraska, 2008.

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create a suitable space for the Avanti kiosk slowed the process. Some customers would remodel an

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existing space, while other customers would build a space. The customer, though, was responsible for
providing a suitable space while AF&B provided the cases, shelving, point-of-sale technology and
security cameras.

To aid with the presentation scheduling, a sales representative usually left a gift basket for the decision

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maker. The gift basket included items that could be sold in the kiosk but not in a vending machine, along
with the sales representative’s card. Such items could include oversized candy bars, drinks in cans larger
than 20 ounces, and a toiletry item. AF&B spent about $20 for each gift basket.

For a new kiosk customer, the sales representative spent about four to six weeks from prospecting to
closing. Depending on the condition of the proposed space, an Avanti kiosk operation could be
established in as little as two weeks and as long as six weeks from close. At the end of the combined six-
to twelve-week period, the Avanti kiosk unit was fully functional. The sales representative earned the

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monthly five per cent commission beginning four weeks after the kiosk unit was fully functional.

Besides the sales representative and the decision maker, Lawrence also attended the presentation because
he would almost always close the sale at that time if the presentation was going well. If not, he would
wait a day to close. Lawrence handled all objections as well. “I like closing. I think I am good at it and I
can overcome a customer’s objections on the spot,” Lawrence discussed.
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Sales Training

Lawrence reviewed the current sales training program with the management team. Once hired, the sales
representative would shadow Lawrence for a week or two before making his or her own call list.
Lawrence looked for sales representatives who had experience with selling to businesses, such as copier
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or office supply representatives. A few members of the management team suggested that a longer training
period could allow the sales representative to gain confidence in the selling process and develop sufficient
knowledge about the Avanti kiosk unit.

After a brief period of brainstorming, senior management proposed a different approach where the sales
representative would spend two weeks following Lawrence and then another two weeks with Lawrence
following them. At that point, the sales representative would be prepared to work on their own cold-call
list. Cold calling represents an approach toward starting the selling process. Working from a list of
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possible customers, a sales representative either calls on or visits with possible customers. The call or
visit is not announced. Hence, the term cold calling is referred to this approach.

EVALUATION

As AF&B marked the kiosk division’s first year, senior management reviewed its performance. It had
little concern over the financial performance based on the first year’s financial results (see Exhibit 1).
However, it was deeply concerned about the number of sales representatives who had been hired and fired
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since the agreement was signed with Avanti. Lawrence blamed “company fit” for each termination. No
sales representative had lasted longer than five months. If AF&B’s kiosk division was to increase its
financial performance from the first year, then new Avanti kiosk customers would be required. However,
to find new customers meant hiring a sales representative who would last longer than the average four
months.

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At the review, two themes became apparent. One, the selling process seemed problematic, but no one was

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sure if there was an actual problem or simply the appearance of a problem. Two, the sales training
program needed improvement. As one member noted, “None of us had a formal background in sales so
we felt like we are groping in the dark. It seemed like there was a problem. If there was a problem, we did
not know what the definite solution was.”

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Selling Strategy

At the outset of the evaluation, senior management thought prospecting would be the issue, i.e., would the
sales representative be able to qualify a sufficient number of customers? Management had set a monthly
goal of six cold calls in order to schedule one presentation for the Avanti kiosk unit.

In the review, all members agreed that the approach stage was the issue. The 33 per cent closure rate was

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acceptable to the team, but more presentations were needed. To schedule more presentations, the sales
representative would need to prospect more if the current ratio of prospects to presentations was
maintained.

Lawrence mentioned the customer follow-up procedure. While no crises had developed since AF&B
started the kiosk unit, Lawrence had heard some customer concerns through indirect means. The issues
were small and manageable. For example, in one instance, an Avanti kiosk unit user wanted the kiosk unit
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to offer a microwave that included a turntable.

While compensation was not addressed formally, senior management knew that the compensation
package for the kiosk division’s sales representative was comparable to compensation levels for similar
sales representative positions in Columbus.
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As the meeting broke up, Lawrence understood the concerns about the Avanti kiosk division’s
performance. However, he was not convinced that the sales representative’s compensation or the selling
process needed to be adjusted. Lawrence was more convinced that he made poor hiring decisions. “If only
I keep looking, then I will find the perfect person for this job,” he thought. Lawrence understood that the
kiosk division was doing well now, but past success was not an indication of future performance.
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EXHIBIT 1: ADVANTAGE FOOD & BEVERAGE KIOSK DIVISION

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PROFIT & LOSS STATEMENT
JUNE 2010 TO MAY 2011

Net Sales Revenue $443,557

Cost of Goods Sold 198,297
Gross Profit $245,260

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Selling & General Administrative (SGA)
Expenses:
Salary $82,177
Transportation 18,523
Commission 6,725
Promotion 10,500
Other SGA 10,418
Total SGA Expenses $128,343

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Net Profit $116,917

Source: Advantage Food & Beverage.

EXHIBIT 2: PERSONAL SELLING PROCESS

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Stage Objective
Prospecting Find potential customers; ensure customers are motivated and
have the means to purchase

Pre-approach Learn as much as possible about the qualified, potential

customer; understand customer’s motivation
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Approach Meet personnel associated with decision; introduce your

company to customer
Presentation Provide and discuss how the benefits that your product offers
positively meet customer’s needs
Close Ask for the sale; overcome objections and restate the close, if
necessary
Follow-up Make sure everyone is happy and resolve any problems
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Source: R. A. Kerin, S. W. Hartley and W. Rudelius, Marketing: The Core (3rd ed.), McGraw-Hill, New York, New York,
2009.
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This document is authorized for educator review use only by Riddhiman Mukhopadhyay, HE OTHER until February 2016. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860