The following means of persuasion are available to channel members to influence the decision-making or behavior of others.
- Rewards: If A possesses some resource which B wishes to obtain and B believes this can be obtained through confirming to A’s wishes, this amounts to reward power. Specific rewards to channel members could include wider margins, granting of exclusive territories and various promotional allowances.
- Coercion: This exists if B believes that A will punish anyone who does not conform to A’s wishes. Coercion amounts to negative sanctions or punishment including reductions in margins, withdrawals of rewards granted earlier and slowing down of shipments. This brings less result over the long term than other tools and should therefore be considered as a last resort.
- Expertise: This occurs when B perceives A to possess some special knowledge which would help B. Small retailers often rely heavily on their wholesalers for expert advice. However, once transferred, expertise is considerably reduced in power. If a business wishes to retain expertise over a long term, the following options are open to it:
- It can ration its advice to small portions and keep back sufficient vital knowledge so that the others remain dependent upon it. This could be detrimental to efficient working of the channel as every member should work up to its capacity for the channel to function successfully. A member starved of vital information cannot do so.
- A better though somewhat expensive option is to collect accurate information regarding market trends, threats and opportunities, and other ongoing matters which individual channel members would find difficult to obtain themselves. The benefits of this option can be high in terms of channel goal achievements.
- Another way is for channel members to invest in specialized transaction expertise which is difficult to transfer to other products or services and so hinders the members from leaving the channel.
- The ability of a channel member to acquire information which is necessary for another channel member to function efficiently confers power on the acquirer. For example, retailers hold a privileged position with respect to manufacturers because of their close customer contacts.
- Identification: This occurs when B identifies with A or desires to do so. For example, given equal returns from two different dealerships, one may well choose that which one would like to identify with, perhaps the marc prestigious one. Here the company reputation or image confers an advantage on the business.
- Legitimacy: Results from B feeling that A has the right to exercise power over them. This would be the case between workers and their supervisor, for example. In a channel relationship, such a power may be assigned to the largest firm. Or the retailers and industrial suppliers may believe that they have the power since they are in contract with the end-users and the others are not. However, the amount of power thus exerted is usually small.
In real life situations, all these powers are used simultaneously in most situations. Sometimes, the use of one power may enhance another power base; or the opposite may happen. Environmental conditions and the effect of such a use of power on them must also be considered in this situation. The norms of the channel systems also prohibit the use of some of these powers.
The degree of success that a channel member will have in influencing the behaviour of other channel members will depend on its leadership behaviour. When the channel members have common goals, the use of information exchange and/or recommendations will probably produce positive results. In other situations, promises, threats, legalistic strategies and requests are used with varying success.
An international business manufacturing paints, which is based in Italy, has the policy of treating its agents like its own employees. They are required to submit progress reports every month just like the company sales force. All these reports are fed into a computer and analyzed. The company management keeps an eye on the stocks bought by key customers and the price they paid. Any falling off in an agent’s performance results in rapid identification of the problem and support provided by a senior staff member on the spot
Focusing channels onto specific products and target markets – motivation of channel principals and sales force
Ensure that the traditional distributor attitude and priorities are recognized by you and dealt with. Distributors:
- Always feel that a high price is charged by the manufacturer
- Think that manufacturer’s mark-up is high
- think that the manufacturer does not invest in the market
Avoid the traditional manufacturer attitude. The manufacturer:
- Is interested in volume sales
- Is interested in profits
- Wants distributors to make stock investment
How to ensure that a manufacturer’s product is measured
Check that the points in below Table.
For mutual benefits the relationship should produce:
- Acceptable profit margins to the distributor
- Acceptable volume and rate of growth to the manufacturer, at optimum profit margins
| Distributor principal has: | Distributor sales executive has: |
| ü Quality product ü Reliable delivery dates ü Fair profit margins ü Good communication, physical and written ü Reasonable advertising and sales promotion support ü Willingness by manufacturer to assist with distributor’s general problems | ü Quality product ü Reliable delivery dates ü Technical information as and when required ü Ad hoc bonuses, e.g. money, travel, trip to manufacturer’s head office, etc. ü Good communications with manufacturers ‘field’ representative. ü Fair evaluation of performance |
Table: Factors affecting the majoring of a manufacturer’s product
The manufacturer’s ‘link person’ must try and assist the distributor in upgrading their entire operation. Allow the distributors to consult your financial director; let individual interested distributors have the use of the director’s time for a day or two. Run seminars on relevant subjects, e.g. ‘modern warehousing’. A distributor should be able to call on the manufacturer’s experience when trying to solve any problem relative to their business.
Control systems
First and foremost, a system to establish an annual campaign plan must be introduced. This campaign plan should cover, as a minimum,
- The common goals to be achieved in the first year at least;
- What this would mean realistically in terms of the quarterly volumes of
- Sales to the channel’s customers and shipments from the manufacturer;
- The recommended price at which the product would be marketed;
- The price/discounts/terms of trading at which the manufacturer will supply
- The product;
- What this would mean in terms of market share;
- Levels of sales and supporting staff resources to be deployed;
- A schedule of training to be provided by the manufacturer;
- Promotional materials, campaigns, etc., to be undertaken by the manufacturer and the channel;
- Specific actions to be taken concerning inventory/logistics, etc.;
- Key event/action review calendar.
Secondly, regular monitoring and review sessions must be held to ensure that the performance is on course and that if needed, corrective actions are taken on time.
Motivation of the distributor
The link person or manager can do the following to motivate a distributor:
- Attempt to categories and understand the distributors’ motives in terms of Maslow’s hierarchy of needs: security, social needs, esteem, self-fulfillment.
- Discover their wants as well as their needs; this will help your dealings with them.
- Remember that monetary rewards serve many needs and are therefore the best rewards.
- Bear in mind, however, that recognition, praise, promotion and successful achievement of a task can also be effective motivations and are sometimes more needed than money.
- If people know that good work will earn a reward, this makes the reward more effective. The expectation should be clearly set out on a payment by-results basis, with an appropriate bonus or commission scheme. Achievable targets and standards should be set. Praise should be bestowed when deserved at not too frequent intervals. The rewards and efforts required should be clarified. The penalties also should be stated, if targets are underachieved or if substandard results are recorded.
- Paraphrasing what Douglas McGregor said in another context, conditions should be such that the members of the channel system should best achieve their own expectations by working for the success of the channel system as a whole. It is necessary to identify the needs of the members so that appropriate rewards can be devised and to agree targets and standards with all the members.
- People can be motivated by the work itself if their needs for achievement and responsibility are thereby satisfied. This can result from:
- giving ,people more responsibility where called for and more scope for variations in methods and speed of work;
- giving groups a unit of work to perform, thus reducing
- specialization and increasing the sense of achievement and responsibility and the expertise;
- relaxing overhead controls while setting targets and/or standards to make members accountable;
- making available the necessary information so that members can monitor their own performance;
- Encouraging the channel members to join in planning and innovation.
- Try to make sure that the group pressure is working for you by involving the members of the channel in decisions which affect them.
The link person’s role can be likened to that of a master of ceremonies, who initiates the use of the available motivational tools, the link persons have to be self-motivated and display enthusiasm for their company, its products and its distributors. It is important that they appear self-confident. Their leadership, management skills and bond-building activities will then be able to play the necessary part in motivating the distributor principal and the sales force.
Managing and Motivating Your Agents and Distributors
This process calls for an understanding of the relationship, mutual SWOTs, mutuality of benefits and a commitment to working together for common goals.
- A creation of the right environment – nature, scope and style of operation
- Realistic objective setting, review & control
- Joint development of campaigns
Remuneration of the salesperson: Industrial selling is distinguished from other kinds of selling by ‘customer penetration’. As a rule, when distributing a product for resale, the sale is made by a salesperson to the buyer or the merchant acting as their own buyer. Rarely does the sales executive have to ‘sell’ both the buyer and the owner of the shop, though a smart person makes sure that anyone who sells their product understands its sales points. In industrial selling, however, it may be necessary for the sales executive to persuade several people before walking out with an order. First, the user of the product has to be sufficiently interested to suggest to their immediate supervisor that this particular product be specified when a requisition is next placed; since few workers are capable of effectively relaying a sales presentation, the sales executive must also ‘sell’ the supervisor. After the supervisor requisitions the product, the matter may go to the works manager or the engineering department for approval, if it is sufficiently important. Again, the salesperson has to make sure that these executives understand the engineering advantages of the product. After being approved by the engineering or operating department, the requisition may travel to the financial controller, who approves the budgetary expenditure and passes it along to the purchasing department.
The buyer or the assistant mayor may not issue a purchase order at this point. After checking the price against competition, some similar product may be found which seems ‘just as good’ and may be cheaper. So, unless the sales executive is on the job, the requisition may travel back to its point of issue to ascertain whether the cheaper product may not be acceptable. This process is quite usual in industrial selling. In the case of equipment involving a considerable outlay of money, it may be necessary to ‘sell’ several executives and the board of directors. There are usually ‘no people’ in every organization, who may not actually have much buying authority, but who can, if not otherwise persuaded, wreck the sale.
Remunerating the sales effort Remuneration of sales executives always provokes a great deal of lively discussion whenever the topic is raised. So it should – it is an important motivational factor as far as the sales force is concerned. Companies use various methods to calculate the amounts paid to their sales force, depending on their number or the products they sell or other factors. However, any method of remuneration must be of mutual benefit to both the sales executives and the company employing them; if either party feels that it is 110t getting a fair deal, then the association will eventually, if not immediately, break down. A sales executive, who is dissatisfied with the remuneration, will leave the company. While a company that is unhappy with the salesperson’s performance, in view of their total costs, it may discharge him. We will briefly examine the methods of remuneration in current use.
Salary Only
A salary, however high, does not provide the incentive needed for extra effort when it is necessary. This arrangement is preferred by the sales force when the salary is high, but the cost may be too high for the management to accept. It may be a good idea when large capital plant is being sold, but in that case the selling may well be handled by a senior employee, whose incentive would perhaps be an equity holding in the company.
High Basic Salary Plus Bonus on Trading Profit This method is a little better than the previous one from the incentive point of view. But sales executives tend to be impatient people, and they are not usually prepared to wait for a year or so before knowing whether they are going to get a bonus. Therefore the advantage is slight. Also, too many intangible factors affect the bonus payments and many of them are not controlled by the salespeople. While the sales force in the field may have done extremely well, the orders may be fouled up by a strike in the factory or an extra large payment may be made to a departing chairman, depleting profits; such happenings could cause justifiable dissatisfaction among the sales force.
Commission Only
This can create insecurity, especially with new recruits. If they have family responsibilities, and cannot obtain orders quickly enough, it can create dishonesty, which does not do either party any good in the end. If a company with a wide range of products pays its sales force on a commission only basis, the sales executive will only sell what they wish to sell and are good at selling. Those products may not be the ones the company wants pushed. A salesperson doing well on a commission only basis can still feel insecure. If the performance is too good, the company may decide to take on someone else, thus effectively reducing their territory and their earnings. This naturally has a dampening effect on their selling capacity. A company cannot effectively control and direct the effort of a sales force paid on a commission-only basis except by harsh measures, which may be undesirable.
Low Rate of Commission Plus A ‘Livable’ Basic Salary: This method is the most widely used in industrial selling. This is quite satisfactory for a one product or one product range company, but problems appear when the company expands or increases the sales force. The sales executives are not interested in establishing new lines or in the expansion of the company’s activities.
Continuous Incentive Bonus Scheme
The total remuneration should be made up of a livable salary and a bonus, in a predetermined ratio, say 80:20. The company must have a master plan with its aims and expectations clearly defined. At the beginning of every financial year, the company should set out, in the form of an overall company sales target:
- The total sales target for the next twelve months;
- The target for each salesperson in that achievement;
- The share of the total sales target to be borne by each product range, particularly if a multiplicity of products is to be sold.
It is one of the functions of senior management to determine the target proportions carried by each product range and it is one of the sales executive’s major functions to attain those objectives. It is vital that the sales force sell the product range that makes the highest gross contribution to the company profit. Others may be easier to sell, so incentives should be tied to selling those lines which enhance the bottom line of the business and maximize the return on capital employed, which is the true measure of the company’s success. The continuous incentive bonus scheme is designed to inform the salesperson exactly what is required of them in the year ahead and what their rewards will be if the objectives set are attained. This ensures that the goods are sold according to the overall company targets and in the right product range proportions.
Setting Sales Targets by product Range: In this example, nine points are allocated to general work this covers punctuality, grooming, accuracy of records, etc. The percentage of target achieved, up to a maximum of 100 per cent, but not beyond, will qualify for that percentage of points allocated to the product group target; i.e. 75 per cent achievement of product range A target above qualifies for 75 per cent of twenty points, equal to fifteen points. In the case of general work, points received will be based on the recommendation of senior management.
At the end of the period, the points achieved per product range are added up and a total arrived at. A bonus is then paid according to a previous scale laid down, e.g. (for twelve months) it may be as given in Table
| $ | |
| 95 points and above earns 85 – 94 points earns 75 – 84 points earns 74 and below earns | 1500 750 375 nil |
It should not be necessary to point out that a sales executive does not qualify for a bonus unless all the product ranges are sold, not just a few. The executive should be kept informed of progress by the regular issue of progress information. This scheme combines flexibility with a fixed basic method and level of bonus payment. It can cope with changes in territory or in targets. Product range F may be more important than product range B, even though the target is lower; the profitability may be higher or it may be a new product. Therefore, the former may carry more points than the latter.
Note that
- Sales should be equal to invoice sales less credits.
- All sales targets must be achievable, for the system to work, so management must plan ahead with due care.
- The scheme can be operated by the company over any time period, viz., twelve, six, three or even one month.
- The scheme is not difficult to operate and makes use of paperwork, such as invoices, which should already be produced by the company.
- Sales costs could be significant (total costs against net sales turnover). The cost depends on marketing objectives and other factors which should be considered before costing.
Finally, while remuneration is the most important motivational factor for sales executives, job satisfaction, security, etc., also count. Remember your salesperson’s role: To maintain personal contact with customers and buyers for the purpose of obtaining sales.
