Untitled Flashcards Set

Exam Structure

There will be 4 questions in all, of which you have to answer 3. Exam is worth 40 points (20% of overall course grade).

You will be required to answer Q1 and then choose any two from Q2, Q3 and Q4.

There are NO multiple-choice questions. Only short essay questions which may or may not involve some basic number work. Please bring a calculator. You are not allowed to use your cellphone or laptop during the exam.

Topics  to Review:

Carefully review all power point slides, especially:

Week 2: A Professional Perspective for Selling (PowerPoint)

Week 4: Motivation (PowerPoint)

Week 4: Myths about Money and Motivation (article)

Week 5: Sales Training (PowerPoint)

Week 5: Sales Lead Management (PowerPoint)

Week 7: Sales Force Comp (PowerPoint)

Week 7: A Guide to Sales Compensation (note)

Be familiar with the Outdoor Sporting Products case, specifically how the commissions and guarantees work.

Slide: The Role of Selling

• Selling activities generate revenue (impact on the top line)

• Selling is part of the communications mix:

  • Personal Selling

  • Advertising

  • Telemarketing

  • Publicity

  • Sales Promotion

  • Direct Mail

  • Digital/Social Media

  • Trade Shows

Slide: Selling and the Marketing Mix

• Communications are part of the Marketing Mix, along with Product, Price, and Place

• Product: attributes, packaging, service, etc.

• Price: discounts, terms, etc.

• Place: channels, locations, transport, etc.

Slide: Significance of the Sales Call

• Effective but expensive

  • Flexible

  • Can be directed

  • Can directly result in a sale

• Provides customer interface

• Employs universal principles

• Many corporations have in-house sales training

• More than 10% of the labor force is in personal selling

Slide: A Salesperson’s Job (1)

• Roughly a 48-hour work week

• Approximate time allocation:

  • 50% selling (30% face-to-face, 20% telephone)

  • 23% traveling and waiting

  • 14% administrative activities

  • 13% service calls

Slide: A Salesperson’s Job (2)

• Spokesperson for the company

• Very little direct supervision

• Tact, diplomacy, and social poise needed for customer interaction

• Considerable travel often required

• Mental toughness, stamina, and willingness to spend time away from home/family is necessary

Slide: Emerging Issues in Sales Management (1)

• Increased customer expectations

• Greater buyer expertise

• Strong global competition

• The electronic revolution

• Expanding responsibilities of the salesperson (cross-functional integration)

Slide: Emerging Issues in Sales Management (2)

• Proliferation of information

• Downsizing and reorganizing of firms

• Growth of social media

• Mobility of the workforce

• Ease of communication

• Explosion of other world economies

• Tighter government regulations

Motivation

• Managing self-motivated “superstars” is easy.

• Most sales teams also include non-superstars who need different motivational approaches, e.g.:

  • Grandstand George: Individualistic, seeks spotlight.

  • Slumped Sally: Burned out, needs positive attitude.

  • Worried Walter: Lacks self-confidence.

  • Disorganized Debbie: Needs a sense of accomplishment.

Definition of Motivation

• Three dimensions:

  1. Intensity: Amount of mental/physical effort.

  2. Persistence: Consistent effort over time.

  3. Direction: Where effort is spent.

• Motivation is unobservable and can only be inferred.

• Extrinsic vs. Intrinsic Motivation: External rewards vs. internal satisfaction.

Basic Model of the Motivation Process

1. Need Deficiency

2. Search for Ways to Satisfy Need

3. Goal-Directed Behavior

4. Performance

5. Rewards/Punishment

6. Needs Reassessed

Needs

• Economic: Pay, benefits, job security.

• Social: Relationships with manager, coworkers, customers.

• Self-actualization: Personal growth.

Theories of Motivation

Content Theories (WHAT factors influence behavior?)

• Identify the types of needs, rewards, and incentives.

Process Theories (HOW do these factors influence behavior?)

• Explain how different variables interact to influence effort and behavior.

Content Theories

1.     Maslow’s Need Hierarchy

1. Five sets of needs: physiological → safety → love/belonging → esteem → self-actualization.

2. Lower-order needs must be satisfied before focusing on higher-order needs.

2.     Alderfer’s ERG Theory

2. Existence, Relatedness, Growth.

3. People can move up and down the hierarchy; frustration can lead them to refocus on lower-order needs.

Process Theories

1.     Expectancy Theory

1. Expectancies: “If I put in effort, will it lead to good performance?”

2. Instrumentalities: “If I perform well, will I be rewarded?”

3. Reward Valences: “How much do I value that reward?”

4. Overall motivation depends on these three perceptions.

2.     Equity Theory

2. People compare their input/output ratios to a “relevant other.”

3. If they perceive inequity, they may:

   • Alter their inputs.

   • Try to change the other’s inputs.

   • Pick a new comparison.

   • Leave the situation/job.

Implications of Motivation Theories

·       Maslow:

• Different individuals are motivated by different needs at different times.

• Provide a variety of rewards if you can’t tailor them individually.

·       ERG:

• Frustration with higher-order needs can cause people to refocus on lower-order needs.

·       Expectancy Theory:

• Strengthen the link between effort → performance, and performance → reward.

• Provide rewards that people value.

·       Equity Theory:

• Fairness is critical.

• Offer rewards that the sales force perceives as fair and valuable.

Sales Contest Effects

• Conceptual Depiction: Sales contests can temporarily boost sales volume.

• Observed Pattern:

  • Baseline → Pre-Contest → Contest (sales spike) → Post-Contest (possible dip) → Return to baseline.

Sales Training Scenarios & Commentary

1.     Scenario: Sales manager praises salesperson for explaining product features; salesperson thanks them.

1. Key Point: They missed assessing customer needs and explaining how the product adds value.

2.     Scenario: Sales manager asks if the prospect will buy and what the next steps are; salesperson doesn’t know.

2. Key Point: Never end a conversation without at least scheduling a follow-up or clarifying next steps.

3.     Scenario: Sales manager notes the customer barely spoke; salesperson believes the customer was “very interested.”

3. Key Point: Empathy and listening are vital. Ask questions and ensure two-way dialogue.

4.     Scenario: Sales manager calls salesperson a “hard negotiator”; salesperson is proud to have “won” the deal.

4. Key Point: Pursue a win-win approach. You risk losing future business if the customer feels taken advantage of.

5.     Scenario: Sales manager wonders if there was a better answer to the customer’s question on future industry trends; salesperson dismisses it as speculation.

5. Key Point: Provide expertise. Being informed adds value for the customer.

6.     Scenario: Sales manager notices 20% of sales calls are on “D” accounts; salesperson says “I was in the neighborhood, so I stopped by.”

6. Key Point: Invest time wisely. Low-priority accounts often don’t justify extensive visit time.

Need for Sales Training

• Current Inadequacies:

  • Talking too much / poor listening

  • Overpromising

  • Poor follow-up

• New Salespeople: Need formal onboarding.

• Formal Sales Training Programs: More common in larger firms, complex products/services, competitive industries.

Sales Training Process

1. Assess Sales Training Needs

2. Set Training Objectives

3. Evaluate Training Alternatives

4. Design Sales Training Program

5. Perform Training

6. Follow-Up and Evaluation

Assess Training Needs

• Symptoms of training needs:

  • Decreasing sales volume

  • Rising expenses

  • Low morale

• Sales training: Should be proactive, not just reactive.

• Not just for entry-level salespeople — experienced reps also need updates.

Training Experienced Sales Personnel

• Knowledge of competitors/market can become outdated over time.

• Selling styles might become less effective.

• Refresher/advanced training needed with policy/product changes.

• Salespeople are potential managers; training prepares them.

• Protects a company’s major asset (the sales force).

Typical Sales Training Needs

• Orientation and socialization

• Sales techniques

• Product knowledge

• Customer knowledge

• Competitive knowledge

• Time and territory management

• Ethical and legal issues

• Technology

Set Training Objectives

• Prevents “training for training’s sake.”

• Helps define realistic expectations.

• Training is not a quick fix for all problems.

Example Training Objectives

• Foster positive attitudes and improve morale

• Prepare salespeople for new territories

• Reduce turnover

• Improve customer relations

• Enhance selling skills

Follow-Up and Evaluation

• Difficult to measure due to confounding factors (motivation, role perceptions, competition).

• Evaluate before, during, and after training.

• Possible indicators:

  • Trainee reaction

  • Knowledge (testing)

  • Behavior changes

  • Results in the field (performance)

Sales Funnel & Pipeline

• A structured process to track prospects as they move from initial interest to closed sale.

• Helps organize and prioritize leads to improve conversion and manage resources effectively.

Lead Scoring

• Definition: Focuses on behaviors and engagement level of a prospective lead.

• Goal: Quantify how much interest a prospect has in the firm’s offering.

• Method:

  • Prospects earn or lose points based on interaction with website and marketing materials.

  • High engagement (e.g., multiple website visits, content downloads) → higher scores.

Lead Grading

• Definition: Focuses on a lead’s characteristics and potential value to the firm.

• Goal: Assign a letter grade based on how closely a lead matches the ideal customer profile.

• Method:

  • Uses explicit data provided via forms or similar touchpoints.

  • Attributes include industry, location, company size, job function, seniority, etc.

Combining Lead Scoring & Grading

• Overall:

  • Lead Scoring = measures interest (behavior).

  • Lead Grading = measures value (fit).

• Purpose: Identify high-value leads who are also highly engaged, and prioritize them.

Best Practice Tips

1. Keep it simple: Start with a few scoring rules; add sophistication later if needed.

2. Define the target audience: Know your ideal prospect for accurate grading.

3. Use only the data you have: Don’t base grading on info (like job title) if you never collect it.

4. Improve data over time: Missing data now can be gathered through future interactions.

5. Recognize lead scoring is long-term: Scores evolve as prospects continue to engage with your content; grading can be quicker to set up.

6. Threshold email notifications: Alert reps when a prospect hits a certain score or grade.

Reward System Management

• Purpose: Select and utilize organizational rewards to direct salespeople’s behavior.

• Types of rewards:

  1. Direct Financial: Salary, commission, bonus.

  2. Non-financial: Recognition, trophies, gifts, memberships.

  3. Career Advancement: Larger accounts, territories, specialized training.

Compensation Objectives

• Agency Theory: Align individual interests with organizational goals.

• Influence Behavior: Connect performance with rewards.

• Equity & Fairness: Ensure internal/external fairness.

• Recruitment & Retention: Competitive pay is essential for hiring/keeping talent.

• Increase Sales & Desired Outcomes: E.g. contract length, deal size, new vs. repeat business.

• Feedback/Reinforcement: Communicates valued behaviors.

Compensation Plans

• Effectiveness: Motivates the right kind and amount of effort.

• ~50% of sales executives say their comp plan is “about right.”

• Plans can lose effectiveness over time; must be monitored for fairness and performance.

Types of Compensation Plans

1. Straight Salary

• Positives:

  • Simple to administer.

  • Eases budgeting, good for recruitment.

  • Builds customer loyalty (less pressure).

  • Greater control over non-selling activities.

• Negatives:

  • No direct incentive to exceed basic performance.

  • Rewards seniority over merit.

• Common Uses:

  • Sales trainees, team selling, sales support, seasonal sales, long selling cycles.

2. Straight Commission

• Variations: Constant, progressive, regressive rates.

• Positives:

  • Income linked to results.

  • Lower costs during slow sales periods.

  • Less operating capital required.

• Negatives:

  • Hard to build customer loyalty.

  • Limited control over non-selling activities.

  • May need an upper limit to avoid overemphasis on closing.

• Common Uses: Real estate, insurance, securities, automobiles.

3. Combination Plans

• Salary + Incentive: Often a 60/40 split salary-to-incentive.

• Salary Component Higher If:

  • Competitive advantage in price/quality rather than the rep’s efforts alone.

  • Customer service or technical/team selling is critical.

  • Sales outcomes less controllable by the individual rep.

Assess Marketing & Sales Objectives

1. What activities do you want your sales force to perform?

2. How do salespeople currently spend their time?

3. Current outcomes: total sales volume, sales to new accounts, product mix, etc.

4. Compare current effort allocation to desired outcomes; identify over- or under-emphasis on certain tasks.

Aspects of Job Performance to Reward

• Increase sales of more profitable products.

• Push new products.

• Secure new customers.

• Reduce customer turnover.

• Achieve balanced selling.

• Reduce selling costs.

Keep it Simple: Link compensation to only two or three primary measures.

The Simplicity Principle

• Elevator Ride Test: Can you explain the plan in under a minute?

• Four-Measures Test: If more than four metrics, it’s too complex.

• Business Card Test: Could you fit the plan on a business card?

Performance-Payout Relationship

• Bonus or commission plan?

• Progressive or regressive rates?

• Caps or no caps?

• Pay from first dollar or after reaching a fraction of goal?

• Single measure vs. multiple measures?

Valences for Alternative Rewards

• No single reward motivates everyone.

• Over time, a given reward mix can lose appeal.

• Survey your salespeople: Don’t assume you know their preferences.

The “Right” Incentive Compensation (IC) Plan

• Good plan: Motivates reps to achieve challenging goals; provides positive reinforcement.

• Poor design:

  • Wrong focus (wrong products, customers, or activities).

  • Risk of manipulative behavior (chasing money above all else).

Engagement & Excitement

• Engagement Rate: % of sales force that receives incentive pay.

• Excitement Index: How fast do reps earn their last incremental dollar (incentive)?

  • High excitement = big rewards if they surpass targets.

  • High engagement = more people earning something.

Example: Plan A vs. Plan B

• Plan A:

  • Payout from 60% of goal onward; lower threshold, broader coverage.

• Plan B:

  • Payout from 80% of goal onward; higher threshold, more lucrative for high performers.

• Distribution:

  • <60% of goal: 9% of reps

  • 60–80%: 24%

  • 80–100%: 37%

o   100%: 30%

• Plan A → 91% engagement, ~$605 excitement.

• Plan B → 67% engagement, ~$850 excitement.

• Trade-off: High engagement vs. high excitement.

A Guide to Sales Compensation – Notes Format

Below is a concise, bullet-point-style summary of the key points from “A Guide to Sales Compensation.” Feel free to copy and paste into Quizlet or any other study platform.

Overview & Importance

• Definition: Sales compensation is the amount of money a salesperson is paid per year (includes base salary, commission, and additional incentives).

• Purpose:

  • Attract and retain top sales talent.

  • Encourage salespeople to meet or exceed quotas.

  • Provide clear earning potential (driving the right selling behaviors).

  • Create structure and growth paths within the sales team (junior, mid-level, senior roles).

  • Help management better budget for sales expenses.

Why You Need a Sales Compensation Plan

1. Motivate individual reps: Higher performance can lead to higher pay.

2. Reduce turnover: Clear advancement opportunities and well-structured earnings keep reps on board.

3. Establish fairness and expectations: A formal plan outlines how reps are paid and rewarded.

4. Aid in budgeting: Predictable compensation structures help manage company finances.

Factors Influencing a Sales Comp Plan

• Company Budget

• Company Culture

• Competition’s Pay Structure

• Local Cost of Living

• Team and Organizational Goals

• Type of Sales Cycle (length, complexity, deal size, etc.)

Common Sales Compensation Terms

• Sales Quota: Time-bound revenue/activity target set by managers (monthly, quarterly, annually).

• Sales Accelerators: Extra incentives when reps exceed quota (e.g., a higher commission rate above 100% attainment).

• Sales Decelerators: Reduced commission rates for underperformance (e.g., below 60% of quota).

• Clawbacks: Commission is taken back if a customer churns too soon.

• On-Target Earnings (OTE): Estimated total compensation (base + realistic commission) when a rep meets expected quota.

• SPIFs/Sales Contests: Short-term incentives (monetary or non-monetary) to boost specific behaviors or metrics over a limited period.

• Base Salary: Fixed pay before any variable commissions.

• Projected Sales: Estimated revenue or deals closed by a rep in a certain period.

• Commission Rate: Percentage of revenue or profit the rep earns per sale.

• Bonus Amount: Additional pay on top of base salary for achieving certain milestones/targets.

• Commission per Sale: Flat payout for each unit or deal sold.

Common Sales Compensation Plan Examples

1.     Base Salary + Commission

1. Most common structure.

2. Offers a fixed salary plus variable pay.

3. Typical ratio is 60:40 (fixed:variable), though it can vary (e.g., 70:30) depending on complexity of the product and required autonomy.

2.     Base Salary + Bonus

2. Reps receive a set base salary plus a bonus if they meet targets.

3. Good for predictable earnings if most reps consistently hit quota.

4. May reduce motivation to exceed target significantly (since earnings cap out at bonus level).

3.     Commission-Only

3. Reps earn strictly based on performance (no base pay).

4. High upside potential but high risk for both the rep and the company’s budgeting.

5. Better suited for simpler sales cycles; challenging for complex, consultative sales.

4.     Gross Margin Commission

4. Pays reps based on profit (margin) rather than total revenue.

5. Discourages discounting and encourages selling higher-margin products.

6. Requires reps to have pricing flexibility and the company to accurately track margins.

5.     Multiplier Commission Plan

5. Standard commission rate increases (multiplies) once reps exceed a certain percentage of their quota.

6. Encourages high performers to push well beyond their targets (e.g., 10% commission becomes 15% if 150% quota is hit).

6.     Milestone-Based Commission Plan

6. Rewards reps for specific deal stages or actions (e.g., setting up demos, securing contracts, final close).

7. Particularly useful for complex sales cycles with multiple touchpoints.

Steps to Create a Sales Compensation Plan

1.     Determine Plan Goals

1. Primary goals (e.g., grow revenue, increase deal size, boost retention).

2. Secondary goals (e.g., drive sales for a specific product, reduce discounting).

2.     Choose the Plan Type

2. Consider budget, team size, competitive landscape, and what salespeople expect.

3.     Decide Payment Timing

3. When Customer Signs

4. When Customer Makes First Payment

5. Every Time Customer Pays

6. When Deal Goals/Milestones are Reached

7. Factor in clawbacks and potential cash flow constraints.

4.     Rely on Research & Data

4. Gather feedback from past plans or other teams.

5. Analyze reps’ performance data, competition, and potential “what-if” scenarios.

5.     Keep It Simple

5. Avoid overly complex or contradictory incentives.

6. Ensure reps can quickly understand how they earn money.

6.     Choose Payroll Software

6. Options include Gusto, QuickBooks Payroll, Patriot, etc.

7.     Set Quotas & Expectations

7. Bottoms-Up Approach: Look at average contract value, typical close rates, number of salespeople, etc.

8. Top-Down Approach: Start from revenue targets + market data to set overall quota.

8.     Maintain & Review the Plan

8. Goals, products, markets, and competition change — adjust comp plan accordingly.

9. Avoid overly frequent changes that erode trust.

Sales Bonus Structures

• Variable Bonus: Tied to revenue or other quantifiable goals (e.g., $10,000 bonus per $100K revenue).

• Above-Plan Incentives (SPIFs): Short-term bonus for promoting a specific product or hitting a specific milestone.

Bonus Examples

1. Bonus off Commission

   • Extra payout for deals closed (e.g., $1,000 bonus per 10 deals).

2. Bonus off Customer Lifetime Retention

   • Encourage reps to sell longer-term contracts (e.g., bonus for 3- or 5-year deals).

3. Bonus off Annual Performance

   • Rewards reps who significantly exceed annual quota (e.g., 120%+).

4. Bonus off Specific Products/Services

   • SPIFs when launching a new product.

Final Note

• No plan is perfect: Market conditions, company priorities, and customer needs constantly evolve.

• Balance & Clarity are key: Avoid frequent changes, and address rep feedback to keep them motivated and engaged.

Myths About Money and Motivation – Notes Format
Adapted from “Challenging Behaviorist Dogma: Myths About Money and Motivation” by Alfie Kohn (originally published in Compensation & Benefits Review, March/April 1998).

1. Does Money Matter?

• Context-Dependent

  • The importance of money varies across societies and historical periods.

  • Even within a society like the U.S., not everyone is equally motivated by money.

• Proverbs & Contrasts

  • Cultural adages often remind us that money doesn’t buy happiness and can be the root of all evil.

  • Some people, especially those in deprivation, may focus on acquiring money out of necessity.

  • Others pour time into uncompensated activities (hobbies, volunteering, parenting), indicating that money isn’t always the prime motivator.

2. The Limits of Behaviorism

• Behaviorist Model: Rooted in Skinnerian theory, it assumes that external rewards (like money) “motivate” people.

• Kohn’s Critique:

  • Over-reliance on extrinsic rewards can undermine intrinsic motivation.

  • Monetary incentives can produce short-term compliance but do little for genuine, sustained engagement.

3. Pitfalls of “Dangling Money” as Motivation

• Short-Term Effects

  • External rewards may lead to temporary effort but often fail to inspire long-term passion or commitment.

• Decreased Interest

  • Studies suggest that when people are paid to do something they already enjoy, they may lose intrinsic interest in it.

• Undesirable Consequences

  • Focus on money can increase risk-taking or unethical behavior just to secure rewards.

  • Quality of work can suffer if employees concentrate on the “prize” rather than the task itself.

4. The Role of Social Science & Real-World Experience

• Behaviorism vs. Broader Research

  • Kohn argues that proponents of monetary incentives cherry-pick studies to support their stance.

  • A thorough look at social science suggests that motivation is more nuanced than simple cause-and-effect from financial reward.

• Personal Fulfillment & Values

  • Many people value autonomy, purpose, mastery, and relationships as much or more than financial gain.

5. Rethinking Motivation

• Beyond “Human Nature” Assumptions

  • We should avoid sweeping statements like “people work only for money.”

  • Historical and cultural variation shows motivation can stem from multiple sources (self-determination, social connection, creativity, etc.).

• Constructive Organizational Practices

  • Focus on improving the work environment, fostering intrinsic motivation, and recognizing broader employee needs.

  • Compensation matters (particularly for basic financial security), but money alone is not a reliable strategy for peak performance or genuine engagement.

Key Takeaways

1. Context Matters: Not all individuals or cultures prioritize money as a top motivator.

2. Intrinsic vs. Extrinsic: External rewards can undermine internal motivation over time.

3. Quality Over Quantity: Dangling money can yield quick results but may erode long-term commitment and creativity.

4. Holistic Approach: Effective motivation strategies often include autonomy, meaning, and supportive relationships—money is only one piece of the puzzle.