Caselet 12.2
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Transcript of Caselet 12.2
Which Is Better? A Market Share-Based Incentive System or a Revenue-Based
Incentive System? Caselet 12.2. 7/20/2010
By: Marko Koterle, Slovenia
Lextron Corporation
selling medical equipment to hospitals
40% market share in U.S.
Phil Lehman is a successful salesperson at Lextron
Corporation
Sales territories: defined by metropolitan area
Commissions: based on sales volume
Before moving (working in Atlanta)
Phil was a selling leader in most product categories
Company products were present in 40% of hospitals in
the territorial area
Winning selling contests
After moving (working in Milwaukee area)
Phil results in the new area:
1st year: 6 major accounts
2nd year: 3 major accounts
Doubled market share
Products in 80% of hospitals
Problem: Share-Based System Vs. Revenue-Based System
Phil is paid less money in commissions now, despite
placing products in 80% oh hospitals
Not winning sales contests like he did when in Atlanta
Mark Green, regional sales manager, praised the
excellent work, however Phil is wondering why he is not
conpensated accordingly
Solution: Hybrid Incentive System
Step 1: Detailed market research
OBJECTIVES:
1. to determine metropilitan area value (H - hotel; PS –
potential sales; 1, 2..n – hotel in area)
MAV = H1 x PS1 + H2 x PS2 + … + Hn x PSn
2. determine each hospital life value (last year sales - s,
expected growth - g, expected economic timeframe - n)
Hosp.value = S + (1+g) x S + (1+g)^2 x S +.... + (1+g)^n x S
3. average hospital value (sales devided by number of
average hospitals serviced),
4. growth of population in the metropolitan areas,
5. predicted growth of number of hospitals in the areas,
6. sales growth per hospital
Step 2: Territory formation (territory map)
From the market research define territories based on similar
market value; either devide or merge metropolitan areas
based on MVP
(example: Milwaukee + Chicago could form one area to
compete with Atlanta
or Atlanta could be devided in two to be comparable to
Milwaukee)
Step 3: Yearly Ponder Calculus
PONDER = growth rate of hospitals x growth rate of sales in industry
Step 4: Hybrid System
Commission based on adjusted sales
Merging areas:
Territorial area Territory value 2011 Ponder Adjusted territory value
Sales in $ (%) Adjusted Sales
Milwaukee + Chicago
35 mio $ 0,9 31.5 mio $ 26 mio (74%) 23.4 mio $
Atlanta 23 mio $ 1,1 25.3 mio $ 9.2 mio (40%)
10.12 mio $
Splitting areas:
Territorial area Territory value 2011 Ponder Adjusted territory value
Sales in $ (%) Adjusted Sales
Milwaukee 11.5 mio $ 0,9 10.35 mio $ 9.2 mio (80%)
8.55 mio $
Atlanta 1 11.5 mio $ 1,1 12.65 mio $ 4.6 mio (40%)
5.06 mio $