Hops Distributors, Inc.

: Getting the Blend Right

James Williams is the sales manager for Hops Distributors, Inc. in Kansas City, Kansas. The company is
a local beer distributor, carries one of the top national brands as well as a number of imports, and
currently has about 500 accounts in each of its sales territories. Hops’ top management recently
evaluated its accounts and decided to change from geographic-only sales territories (where reps call on
all accounts in a geographic area) to a more customer-oriented strategy. The new strategy is based on
segmenting customers by the number of cases of beer ordered each week. Salespeople will call on fewer
accounts overall and be able to provide better service based on the number of cases each account
orders. For example, a high-volume account may be called on several times a week, while an ultra low
account may be called on once a week. The four categories are (1) high-volume accounts – over 200
cases per week; (2) moderate-volume accounts – 100 to 200 cases per week; (3) low-volume accounts –
over 10 but under 100 cases per week; (4) ultra-low-volume accounts – 10 or fewer cases per week.

In the past, salespeople were paid a basic salary and received most of their compensation through
commissions that gave them an incentive to grow individual accounts. James wants to make sure each
salesperson has an equal chance of receiving a competitive level of compensation. He has decided to
divide the first three categories of accounts evenly between four salespeople, thus giving them an equal
number of accounts and approximately equal sales potential. Category four accounts will be covered by a
single salesperson. Table below shows the projected case sales and commissions generated.

James has identified three major problems with this new strategy. First, Category accounts make up half
of all Hops accounts. The sales representative covering those accounts will have five times more
accounts than the other four salespeople do. Therefore, James has decided to give the Category 4
accounts to one of his best salespeople, who can properly manage complex tasks. The second major
problem is that the potential to earn commissions on Category 4 accounts is significantly lower than for
other category. That is, even though Category 4 represents half of all Hops accounts, the combined sales
potential is lower than for any other category. The third r. Conissue is that most of these accounts have
very little potential for growing into a Category 3 account or bettesequently, there is little hope for the
salesperson to grow commissions from these accounts.

QUESTIONS

1. Evaluate the pros and cons of the new strategy.

Pros:

- A more customer oriented approach or strategy is very much likeable because it is

where in the salespeople can grow their career and at the same time serve better the
customers of the company.

- If the strategy is fitting for the company, it can produce substantial increases in sales
and profits.

Cons:
 - The sales representative covering category 4 accounts will have five times more
accounts than the other four salespeople do in categories 1-3.

- The potential to earn commissions on Category 4 accounts is significantly lower than for
other category. That is, even though Category 4 represents half of all Hops accounts, the
combined sales potential is lower than for any other category. the potential to earn commissions
on Category 4 accounts is significantly lower than for other category. That is, even though
Category 4 represents half of all Hops accounts, the combined sales potential is lower than for
any other category.

- The third con is that most of the category four accounts have very little potential for
growing into a Category 3 account, there is little hope for the salesperson to grow commissions
from these accounts.

2. James properly divided the accounts? Why or why not?

• James changed his strategy from geographic-only sales territories (where reps call on all
accounts in a geographic area) to a more customer-oriented strategy because he wanted
to make sure that each salesperson has an equal chance of receiving a competitive level
of compensation. However, clearly, we can see from the problem itself and from the
given cons above that, James wasn’t able to live up his objective. The first three accounts
is to be administered by four salespeople each. On the other hand, the fourth account
which actually is ultra small but is representing half of all Hops accounts was given to be
administered by a single person. This is unfair to both parties. It is unfair to the
salespeople in the first three accounts because the salesman in the fourth account can
have abundant commission. This is unfair to the salesman on the fourth account,too
because the question is: “CAN HE ALL ADMINISTER AND MANAGE THESE ALL
SMALL ACCOUNTS?” Yes. Probably the accounts belonging to category four are small,
but remember, the smaller you are, the more sensitive you are compared to the tall
therefore, Hops should understand that a single salesman cannot do it alone.

3. What kind of training should Hops implement to facilitate implementation of the new territory
approach?

• Hops since wanted to a more customer-oriented strategy, it should be able to develop a

relationship with the different account groups through it salespeople. The strategy is to
shift from transaction relationship to a more collaborative relationship in which the
salespeople and the customers work closely together for the benefit of the company.
Hops should identify the types of its accounts and think of a structure that will best satisfy
these accounts. Sales organization should use the right strategy that will best fit the
organization.