LAHORE SCHOOL OF ECONOMICS

SALES FORCE MANAGEMENT

Supersonic Stereo, Inc.

Submitted to:

Prof. F. A. Fareedy

Haadiya Qaiser (TA)

Submitted by:

Sobia Sohail

Usman Bajwa

Zahrah Sodhi

MBA-II

Sec A
 Introduction

Supersonic Stereo Inc is a company that manufactures USA’s leading stereo equipment and since its
formation it has seen rapid expansion. However, the company is now facing a problem in the Atlanta
district and there is now a difference of opinion regarding the way that the company has been dealing with
the sales force. Now the issue arose within company when Charles Lyons, a sales representative asked to
raise his salary, and the executive of the company Stella Jordan said that the company is not expecting
much from its sales people, and proposed two solutions either to raise the quotas or to implement
management by objectives in the company. Basler on the other, is now going to take the decision based
on the profitability of each sales representative, and is only going to increase the salary if he thinks that
the sales rep is bringing in profits to the company.

To further analyze the case, let’s just look at the break down of the sales organization structure that is
based on the geographic basis:
Pete Lockhart

(National Sales Manager)

Bob Basler
Stella Jordan
District Sales Manager
(Executive)
(Atlanta region)

(A

Lyons Sand Gallo Parks

(Sales Rep) (Sales Rep) (Sales Rep) (Sales Rep)

The two options that were given by Jordan were a) to raise the quota of the sales representative
and b) to have management by objectives. MBO requires the managers to set specific measurable
goals with each employee and then periodically discuss the latter’s progress towards the goal.
You need to have comprehensive and formal organization wide goal-setting and appraisal
program. The six steps that you need to have in the MBO program are:

1) Set organizational goals

2) Set departmental goals
3) Discuss departmental goals
4) Define expected goals
5) Performance reviews
6) Provide feedback

The analysis of quotas however cannot be made over here because the data on the quotas is not
available, so a comprehensive analysis of both the options given to us cannot be made. The
problems however cannot be solved by MBO, because it needs to have a complete makeover of
the company, and that is not possible because the problems are only in the Atlanta region, and
MBA has to originate from inside the company which would ultimately not want to revamp the
whole company for one region.

Problems identification and justification

1) The sales and profits for the last five years did not meet the objectives that had been set.
The table below shows the sales growth from 1994-1998. We can see, at best Supersonic
(Atlanta district) has been able to achieve a sales growth of a meager 6.74% for the year
1995-1996, apart from that they have been struggling to achieve a high sales growth.
Coming to the profits, the figure turns out to be negative in the year 1998 signifying the
fact that Atlanta division is having problems for achieving a high sales growth and
profits.

Years Sales($) Growth (%)

1994 2,641081
1995 2,445120 - 7.14
1996 2,610029 6.74
1997 2,514113 -3.67
1998 2,638340 4.94

Years Net profit($) Growth (%)

1994 13,873
1995 14,050 1.27
1996 15,381 9.47
 1997 16,511 7.34
1998 14,383 -12.88

Core problem

2) Jordon and Basler had conflicting views. Jordon wanted to reduce salaries or cutback
commission, not only this but he also suggested raising quotas and using a management
by objective approach in order to increase the overall performance of the company.
Whereas Basler considered his sales rep as heart to selling efforts. So he basically wanted
to provide proper compensation to sales reps Salaries and commissions that accounted for
29.04% and 6.14% of total expenses respectively.
Basler needs to check out whether it would be right to increase the salaries of the sales
rep, and for that he needs to analyze the data.

Year(1998) Amount ($) Expenses ($) % of total expenses

Salaries 177000 $ 609,472 29.04
Commissions 37431 $ 609,472 6.14

Here is a summary of the profit and loss account that has been calculated and the details for the
calculations have been given in the additional insert of the case.

Profit and Loss Account (Summary)

Charlie($) Sand($) Gallo($) Parks($)
Sales 705,335 584,170 681,450 667,385
CGS (537,631) (444,802) (521,390) (510,662)
Gross Margin 167,704 139,368 160,060 156,723
Expenses:
Salaries (99,000) (24,500) (27,500) (26,000)
Commision (10062.24) (8362.08) (9603.6) (9403.38)
Advertising (35,266.75) (29,208.5) (34,072.5) (33,369.25)
Packaging (11,534) (9,708) (11,350) (11,050)
Warehousing (20,184.5) (16,989) (19,862.5) (19337.5)
Travel Expenses (21,463.40) (10,731.70) (13.256.80) (13,888.08)
Other Misc Exp
Net Profit (loss) (50,763.14) 18,953.72 23,430.85 22,759.79
Here the data shows that the company’s sales reps are incurring a lot of expenses and the only sales rep
whose net profit is going in negative is Charlie, this is because of the major chunk that he is devoting to
the advertising expenditure.

Problems with Charlie Lyons

Charlie is the only rep who is getting a lot of salary for the three accounts that he maintains, and on the
basis of his sales volume, he is demanding increase in the salary. What Baslar should do is that after the
calculation of net profit per person, he should show Charlie that even though he is getting sales volume,
but the expenses that he is incurring on advertising and other misc expenses need to be reduced in order
for Charlie to be profitable to the company and to be in position to demand more salary

Profitability Ratios

Profitability Ratios per Sales Rep

Total Charlie Sand Gallo Parks
GP Margin 0.2364 0.2364 0.2377 0.2385 0.2348
Operating Profit -0.00545 -0.0719 0.03244 0.0343 0.0341
Margin
NP Margin -0.00545 -0.0719 0.03244 0.0343 0.0341
Total Per year 1994 1995 1996 1997 1998
NP Margin -0.00525 -0.00574 -0.00589 -0.00654 -0.00545

Looking at the profitability ratios, we can see that the company has been facing net profit margins in
negative over the years because of the fact that their expenses have been high. And if you notice, in the
per sales rep NP margin, the total NP margin is negative, however the individual NP margin is positive
for all, except Charlie. The effect of Charlie’s NP margin is so much that it is pushing the positive NP
margins of Sand, Gallo and Parks into a negative figure.

Conclusion

Based on the ratios that have been calculated, Basler should not raise the salary for Charlie, rather he
should bring this fact into Charlie’s notice that his advertising and overall expenditure is causing net loss
for the company and all the effort and sales that he is bringing to the company are being nullified if
ultimately it is not proving to be profitable for the company.