CLOGGING THE CHANNELS

Does hardsell to distributors work in the new competitive scenario? Is there a

point beyond which you cannot 'push' any more?

ARJUN Kapoor was worried. Terrest India Ltd's (TIL's) revised sales targets for
April seemed unrealistic to him. Against the actual sales recorded for February
and March, the increase of 8% for April seemed particularly impossible as much
of this was expected from the new brand of tea Til had launched. Despite its
attractive packaging. Valley's Pride, as the leaf tea was called, had not begun to pick
up volumes.

As the company's sales representative, Kapoor's aggression on the field did not
seem to have helped much in the past few months. And he wondered how April
was going to be any different. If anything, pushing Valley was going to be even
tougher since his distributors in Gujarat and Maharashtra had reduced their orders
for the month. And to make matters worse, the area sales manager, Vipul Desai,
had been on the phone this morning, screaming over Valley's abysmal
performance. "Push the brand, Kapoor, we need to act fast"

This was a bad time for Til, especially since its nearest competitor. Tea Estates
India (TEI), had announced that its new brand Green Darjeeling was to be launched
next month. Desai wanted Til to capitalize on Valley's entry.

But things were not going according to plan. When Kapoor met his distributor,
Damodar Girjee, that day to finalise his orders for the next month, he was shocked
to find that Girjee had put down his offtake of Valley to a meager 1 tonne. Said
Girjee: "In four months, there has been no encouraging growth in demand. I have
other products to stock too and going by last month's sales, I am wary of blocking
my funds."

And Girjee was also facing resistance from the retailers. As they said, there were
already four other brands of tea where customer brand preferences were
established and Valley was not even getting trials.

"How do you mean there is no demand?" asked Kapoor." It is still too early and
demand will soon start picking up. As you know; Valley is already a hit in the
northern parts of the country; it is only a matter of time before it becomes popular
in this region too," reasoned Kapoor. "You must take at least 3 tonnes. I will
come with you to the market and help you push it to the retailers."

Girjee thought over Kapoor's suggestion. If the retailers could be convinced, his
problems would be over. For, once they picked up the stocks, his sale was
complete. But 3 tonnes? That was too large a quantity for a new brand. His
territory was largely the dust tea consumers and the few Darjeeling tea drinkers
could not absorb 3 tonnes. Besides, the advertising too had not commenced.

But Kapoor was persuasive. He said: "That is a minor issue, Girjee. The
advertising is about to begin. But first we need to fill the retail outlets;
otherwise how will my advertising work? If we announce a product, then even you
will agree that it must be available in the retail outlets!"

1
The distributor laughed. He said; "Saab, you company guys are difficult to
understand. When the advertising has not even commenced, you say, 'go and fill
the shop shelves, otherwise how will advertising work.' But when there is a shortage
after a launch and advertising has commenced full swing, you say, 'no, wait, let us
create some demand.' "Either way I get hit."

But regardless of Girjee's doubts, Kapoor put 2.5 tonnes against Girjee's order
saying: "I know you can do it, Girjee. You have done it for me in the past. I am
sure that you will be able to sell the quantity I am giving you. In fact, soon you are
going to ask me for more."

The next day Desai met Kapoor and ran his eyes over the off-takes of Valley by
the various distributors. Needless to add, he was disappointed over Girjee's
orders. "He is our key man in west Maharashtra, Kapoor. I thought you would
have unloaded at least 4 tonnes. But 2.5 tonnes is nothing; I am sure he can sell
much more than that. Please put him down for 3 tonnes at least."

And in the same breath, Desai expressed his shock over Girjee's sales performance
in the tetra-packed fruit drink 'Healthy.' He exclaimed: "He is carrying unsold
stocks of 2 tonnes — what happened?"

Kapoor explained that these stocks represented flavours which Girjee did not want
but which the foods division had insisted on pushing. And that was another area
where Til was having to cope. Of the four flavours of Healthy it sold - orange,
mango lemon and pineapple — while mango was selling well, pineapple was not
picking up volumes.

Nevertheless, the company was keen to push this flavour and often forced its
distributors to accept to pineapple as a precondition for ensuring sufficient stocks
of the much-preferred mango.

Meanwhile, on Valley, what started with 1 tonne at the distributor level, rose to 2.5
tonnes under Kapoor, and now 3 tonnes with Desai's target drive. Kapoor knew
Girjee would complain, but that could be handled. After all, the distributors did
build in margins in their negotiations and Kapoor knew this ploy all too well

But when the carrying & forwarding (C&FA) agent, Yogendra Jadhav, totalled
Girjee's consignment, it was short by a tonne of the full truckload. Jadhav did some
quick calculation. Part-truck loads were cost ineffective and moreover, Til was
always asking him to keep distribution costs low. "Put something more," he said
to his helpers. "If he is taking so much, another tonne won't hurt. We will adjust in
the next month." Half a tonne each of jams and fruit drinks was small game for
Girjee, Jadhav thought.

When Girjee received his consignment, he was upset over the extras. Against his
original stock order of 9 tonnes, he had been sent to 10 tonnes. The very next
minute he was on the line to Jadhav. " What is this?" he asked. "Didn't you see my
orders?" but Jadhav cajoled him. He said: "Don't worry Girjee, these are Desai's
orders. We will adjust in the next lot."

Girjee was not convinced. He knew this trick all too well. The next
consignment invariably started at zero base. How could he carry such high stocks?
2
His carrying costs were already very high. Moreover, he wondered how he was to
recover his money. The retailers were asking for more credit and his working
capital was going through the roof. He was already under pressure from Gerrico
India to stock 10 tonnes of their soaps and detergents. Gerrico nudged and pushed its
six brands on him so fiercely.

Competition was fierce, advertising frenzied and retailers resistant. But Girjee was
convinced that advertising hardly played any role. As the distributor, selling was
really upto him; and these companies preened themselves over their effective
advertising. What advertising? wondered Girjee. Even if soap 'A' was lauded on
television. Girjee pushed soap 'B' only because he could not carry unsold stocks.
He was convinced it was his advertising pitch — and not the company's — that really
sold the soaps.

The distributor's ire was not restricted to the extra 1 tonne he had received unasked.
Til had bungled even in the stocks. Girjee had asked for 10 boxes of dust tea, five
each of Garden and Highway brands; instead he had been set 3 boxes if Garden and 7
of Highway. Even the pack sizes were all wrong: nearly 60% of the tea was of the 1
kg pack size against this required 35%. How was he to sell the 1 kg packs of Valley
when the demand was so clearly skewed to the 0.5 kg ones?

In the case of the fruit drinks too, he had once again received less of the mango
flavour and more of the orange and lemon, apart from the three boxes of pineapple
which he had not asked for. Girjee's working capital was in a mess. No doubt he
'managed' to sell, but it took much longer to turn over the stocks and he was also
having to extend longer credits to the retailers.

"What will I do with the pineapple flavour?' he asked Kapoor." It just does not sell; I
already have unsold stocks from last month's lot. "I need mango, Kapoor, and
less orange and lemon." But said and unfazed Kapoor. "Girjee, I have given you just
five extra boxes. Everything you complain it does not sell, but you always end up
selling, don't you? And it is summer time now. The demand for fruit drinks is sure to
pick up."

Kapoor explained that the programmes sponsored by 'Healthy' had very high
television rating points (TRPs). Which would help the company reach a larger
audience. "Look at the advertising look at the reach. Do you know the TRPs on the
programmes sponsored by Til's 'Healthy'? When so many people are watching, so
many people are also impacted by the drink's image."

But Girjee did not understand what TRP or reach had to do with his profit line. He
understood only one equation: if his stocks did not rotate, he did not make money.
Hardsell worked once in a while; but it was now becoming a habit and straining his
time and working capital. Why didn't Kapoor understand this? He did not mind
receiving less mango, but how was he to push four boxes of pineapple?

It was following this fracas that Girjee met Kapoor again and asked for a
"scheme." Essentially, the distributor was asking for an incentive; decoded, it also
meant some price off to the retailer. As he reasoned: "The retailer too has a
constraint. I stock 10 different products of four companies, but the retailer is
stocking close to 100 products of some 50 companies. I have to keep him
enthused. So you work out a scheme."
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Clearly this was intended to increase the retailer margins at no cost to the
distributor. For Girjee felt that if Til was going to push stocks onto him, then he
would have to push the costs back on to the company. Normally, the retailer
margins came out of the distributor's kitty. But if Girjee had to put up within
unwarranted product mixes, he would likewise have to somehow convince the
retailers to pick up slow moving stocks. And that needed an incentive.

Kapoor however did not have the authority to dole out schemes; he needed to check
with Desai, who was not in town. A week later, a frantic Girjee was back on the
line. "What is happening? My money is stuck and I can't clear the stocks. I have a
consignment on its way, and I have no space in my godown."

Kapoor felt Girjee wasn't being proactive. He said: "Valley is a new brand and it is
doing well. Just extend some more credit to the retailers. I will help you recover."
The sales representative knew that what he was offering was not enough. But he
had no choice. Desai's targets had to be met. But Kapoor agreed that a scheme
would be more useful; after all, everyone used promotions for new launches.

Desai wouldn't hear of it. He said: "What do we need a scheme for? We are not
entering a new product area. The retailers are already selling two of our tea brands
and both are doing well. We have fixed retailer incentive budgets which we cannot
waste away just to maintain their spirit. If you too believe that only a scheme will
work, what will happen to my targets? Just talk positive and motivate them. This
will also pass. Another month will come, another target will be met and more
stocks would have been sold."

That need not always be the case, felt Kapoor. No doubt there were targets. But the
distributor, too, had a point. He was the real pulse of the market and he was putting
his own money upfront. Kapoor wondered how long this 'push' theory would work.
With the marketplace inviting more and more new products everyday. Til
needed to sustain its clout through effective handling of the distributor's needs. "We
must always carry him along with us, if he must influence the retailer, if our
product must sell," thought Kapoor.

He then decided to make the rounds of the retail outlets. Khimji Tanna, a large
retailer, complained about the 1 kg pack sizes of the Valley that had been dumped
on him. "This product is still in the trial stage, therefore it is easier to push the 0.5
kg packs. And the 1 kg packs end up occupying my shelf space," he said. "I stock six
other brands of tea, four of which move very fast. Your brand will just occupy
space and give me no returns."

And Tanna gave the example of a rival brand, Sunrise whose stocks he turned
over three times in six weeks. "If I had the shelf space your brand occupies for the
other faster moving brands, my returns will be much higher and faster. My capital
is the 1,200 sq ft. shelf space I have. The way I stock is the way I earn,"said Tanna.

And that went for Healthy too. With the limited shelf life of these fruit drinks,
Tanna was further constrained. Til's distribution system was excellent and this
enabled Tanna to have continuous stocks for Healthy. But, for every six boxes of
mango and orange he ordered, the distributor forced two boxes each of the
pineapple and lemon flavoured drinks saying: "I too have been forced with these

4
flavours; you have to share the burden with me," And Tanna was left with no
choice.

Likewise with tea, Girjee forced him to take large stocks of the 1 kg packs of
Valley, despite his protests that he was unable to push the more expensive
Darjeeling brand. The low volume of sales was also explained by the fact that
consumers preferred other varieties of tea, especially dust tea.

Kapoor would not accept that pushing Til's products was difficult for Tanna. He
argued: "You have the credit accounts of so many customers. On the first of every
month you send them their monthly provisions. Along with their rice, soap and oil,
can't you throw in a packet of my tea? Your selling lies in positioning my brand
effectively in their budget. How else will the trail take place?"

But Tanna argued that pushing was not easy anymore. Advertising had become
so much more visible and consumers were ordering brands, not generic products
even in the rural areas.

As if to substantiate his view point, a customer walked in asking for Silky, a toilet
soap. Tanna brought out Maxi and said: "Silky has become old. Try this, even
Shahrukh Khan uses it." But the customer said: "Just last month you said, Silky is
new and Maxi was old." But Tanna who was an astute salesman said: "Naye ka nau
din hota hain (A product is new for just nine days). Old is gold, am I not right
Kapoor?" The sales representative smiled. Retailers were a clever lot. If Tanna
could sell as the hour dictated, why could he not sell Valley?

Tanna said soaps were a product category where selling could be by the hour.
"But drinks are different. If the customer ask for mango and I offer him pineapple,
he won't take it. It is an impulse purchase and demands specific satisfaction. If you
make it worth my while, I can put my men on the job. Otherwise I am sorry. I
cannot stock what does not sell. And the competition is a ready giving me schemes.

That was too much for Kapoor. He said: "You are forgetting what we have done
for you. Three years ago, we provided you with the display windows. Haven't we
rented the entire window for a full year, every year and also, paid you in advance?
And we are already giving you good schemes." On drinks for instance, Til gave the
retailer one box of drinks free for every 10 he sold. And every retailer who sold over
500 boxes in the season was given an ice box.

But Tanna brought in a fresh line of argument. He said: "That was three years ago.
The market has changed since then. Today anybody with a reasonably good product
is offering a similar scheme."

The retailer then broached the topic of displays windows. Explaining that he could
no longer give. Til the full window for display, Tanna said: "There is a lot of
competition in the market. After all I have only 50 sq ft of display window and
there are six other companies who want a share of it."

So that was it. The retailer, too, had begun to twist his arm. Not only was he saying
Til could not have exclusive hiring of his display windows, he was also resisting
renewal of shelf space on the old terms. Til had hired 40 sq. ft. of shelf space
periodically for its products at a stipulated rate. But Tanna now wanted Kapoor to
5
increase the rates. "The others are giving me better rates and it's high time Til also
relooked at the rentals.

Talking of Healthy, Tanna said: "I don't take your fruit drinks because you insist
that if I want 10 boxes of mango, I must also take four boxes of pineapple. If I
can't have mango unconditionally, then I must rethink about stocking your brand."

The matter was clearly getting out of hand. Kapoor met Girjee and said: "What is
this? How can people like Tanna throw competition and commissions at us, when
we are the people who, in fact, set him up? These new players are trying to cream
the market by offering higher commissions and schemes, but can they match us in
volumes and image?"

The marketplace was changing, explained Girjee. Now choices had increased,
"But the retailer's shelf space has not experienced a similar increase. He still has
the same 1,200 sq. ft." said Girjee. "Therefore your pushing low demand products
won't work for long. The retailers have started gearing their product mix."

And this meant that hey had subtly begun to dictate what products and brands they
would stock. In turn, the distributors were having to gear their product mix
planning too. While the distributor was ready to take small departures in his stride,
it could soon become a demotivator, felt Kapoor. And he tried explaining this to
Desai.

But the regional sales manage would not agree. He said: "Don't start thinking like
them, Kapoor. Empathise by all means, but at the end of the day I want targets to
be met. How you do that is up to you." Giving schemes and product mixes was all
very well for Desai, but if one were to go by the distributor's estimate of market
demand, how would the company make its launch a success?

Desai was not ready to go by the distributor's gut feel. He felt that some push was
also necessary. And his sales targets were not decided arbitrarily, but were based
on demand estimation which, in turn, was based on a very scientific study of
what the market could take. Therefore, he felt, if the distributor was cribbing, it
pointed to the fact that he was not taking interest. "Tell him he should take interest
in the brand launch. If he does not show interest, how will the product succeed?"
Desai does not show interest, how will the product succeed?" Desai asked Kapoor.

But Kapoor could see that the distribution channel was getting restive. Today Til
still had market presence and could even choose its distributors. But to sustain that
Til need to empathise with its distributors on a different level; the thrust on targets
was no longer viable. At every level there were targets; the division had targets, the
product managers and sales manager had targets but all targets led to the hapless
sales representatives, who perforce piled it on the distributor. But how could the
distributor he held responsible to deliver it? This was not how Kapoor defined
'partners in progress.' Til's attitude to pushing slower moving brands was not
carrying much favour with the distributors. The retailers were certainly not
happy with the company's policies. There were many choices today for the
intermediaries and while they valued the Til business, they were not willing to let
the manufacturer decide their product mix. But how was Kapoor to get his sales
management to appreciate that?

6
 XYZ CONSUMER DURABLES LIMITED1

—Evaluation of Dealers —

The company manufactured and marketed low as well as high value consumer durable
products like steel furniture, refrigerators, and some other products sold only to
organizational buyers. It is a large company with about a dozen branches as well as
service center's in the major metropolitan cities. There has been a substantial
expansion in the company's business, especially, in the last decade and hence it had
expanded considerably its dealer network.

The company has two kinds of dealers. In the major metropolitan city markets where
the company had branch as well as service operations, it appointed local dealers who
were supposed to perform only limited function of merely selling, at least one of the
major product lines of the company. The branch took care of the inventory
maintenance and after-sales service requirement, etc. In other large and medium sized
cities and towns the company appointed wholesale dealers who were supposed to act
as major retailers, service providers as well as suppliers to sub-dealers and other
retailers in the various towns allotted to them.

Each dealer was assigned responsibility of servicing a specific area. In 1976, the
company had a network of about 300 dealers both wholesale dealers and sub-dealers.
The local dealers in the major metropolitan towns ranged from 50 to 50 depending
upon the needs of the particular metropolitan city market.

The company had at the head office a manager with a small supporting staff whose
major function was to develop and maintain dealer network. As formal agreements
were entered into between the company and the dealers, this manager arranged for
drawing up of satisfactory dealer agreements. In addition, his cell was a central
point for monitoring and controlling dealer network development. In recent years
the activities for planning expansion and coverage through selection of new dealers as
well as strengthening the capabilities of existing dealers had received substantial
impetus.

The company branches were not providing a major input in the process of selection as
well as in the development of capabilities of wholesale dealers in their respective
areas.

The company took recently a basic decision of carrying out a systematic evaluation of
their wholesale dealers. This included identifying areas where dealers need
strengthening, and creating a programme of steps to strengthen their dealers. It was
recognized that there was a need of much more aggressive selling and servicing to be
performed by company's dealers. The company management felt that they had
allowed the dealers to operate in traditional, probably flex manner, which in the new
marketing circumstances would not allow the growth and profitability objectives.

1
This illustration is prepared by Prof. M N Vora. Case material of the Indian Institute of Management,
Ahmedabad, is prepared as a basis for class discussion. Cases are not designed to present illustrations
of either correct or incorrect handling of administrative problems. Copy right © 1988 by the Indian
Institute of Management, Ahmedabad
7
For this systematic evaluation of dealers as well as identifying areas in which dealers
need to be strengthened, the company had assigned this task as fulltime job to selected
Junior Executives (with management training). One or two such executives would
work with each of the branch management's. Table 1 gives a detailed set of guidelines
for these evaluators.

In operational terms, each of the Junior Executives (alongwith branch managerial

personnel sometimes) was expected to spend about 3 days for large or medium size
dealer / town, about 2 days with lower medium size dealer and about a day with
smaller dealer. This effort involved in the first round few dealer meetings. It as
expected that such dealer would be met at least 3 times in a period of about six
months.

Junior Executive working with a branch went through the following steps:

(a) Study very carefully the file kept on the dealer at the branch. This included all
correspondence, etc. the branch or the headquarters had with that dealer.
(b) Initial few hours in the field visit to build rapport with the dealer in terms of
exchanging pleasantries, asking simple questions about the company
dealership work, experiences, etc.;
(c) Going around the town for registering market information needed;
(d) Start discussing the various operations of dealers, with dealers, his sales
personnel, his service personnel, observe the shop arrangement, display, etc.;
(e) Identifying the factors which influenced the dealer to operate in a certain style
- recognizing finance consciousness, inadequate market orientation ... etc.; and
(f) Report on his visit including specific suggestions for dealer and branch
actions, and later follow up on the same.

The Western branch junior executive had carried out evaluation work for 30
wholesale dealers in his area. Table 2 gives summary information about the dealer
improvement opportunities and the kinds of actions suggested by the junior executive.
It would be apparent that major areas where poor performance was reported on
facilities for service, the floor area of the show room, the inadequate record
maintenance and the skill level of mechanics. The caliber of the sales personnel, show
room location appears to be quite satisfactory.

The above evaluation effort was supposed to lead to organising company and or
branch effort to improve the dealer capabilities. Of course, suggestions are made to
the dealers to do certain things for more effective performance. In follow-up visits,
they would be persuaded and cajoled in carrying out the suggestions. Sometimes this
might lead to situation where the company might have to search for an alternative
party for dealership.

The company had agreed to a policy of calling a dealer conference (at branch level)
atleast once in every six months. Two separate conferences were to be called on for
local dealers and another for upcountry wholesale dealers. Their conferences would
provide a forum to exchange views with the dealers as a group. In these conferences
branch performance as well as plans etc. was discussed, problems of dealers were
discussed and resolved; common difficulties faced were brought to the notice of
dealers and what the company expected from dealers was highlighted.

8
The junior executive's training and orientation for this task included several sessions
on different aspects of evaluation of Dealers. Table 3 is a summary note with the
executive had prepared as a background brief at the end of orientation programme.

Table 1

INSTRUCTIONS TO COMPANY EVALUATORS

(With special reference to Refrigerators)

1) Prior Preparation: Before making the field visit, go through the file on each
dealer very carefully to familiaries yourself with specific dealer's operations,
strengths, etc.
2) Review of Sales Performance: Review performance these years' vis-a-vis desired
sales (revised) and competitors' performance. Obtain a fresh commitment from
dealer to indent and sell a certain quantity.
3) Stocks: Check stock position as per books. Positively visit all warehouse and
check physical stocks of saleable and damaged / defective refrigerators.
4) Price:
a) Obtain detailed price break-up for company refrigerators as per format.
b) Check exact incidence of CST; Octroi and Sales Tax from documents and
whether customer is charged correctly.
c) Ensure if special discount is allowed to customers as per share.
d) Incidentals for local delivery and installation, etc. should not exceed Rupees
X, warehousing charges should not be passed on to the customer.
e) If normal voltage range between 180 to 250 volts exists pursued dealers not to
sell voltage stabiliser at all and to confirm this in writing. If, however, voltage
stabiliser is required or if the customer insists for it, then atleast ensure that the
dealer charges minimum price and allows maximum discount on the stabiliser
(some dealers allow special discount on our refrigerators but charge more on
the stabiliser).
5) Showrooms and Display:
a) Visit all showrooms and check display of products. Replace immediately if
products displayed are soiled with new pieces in perfect condition. Rearrange
position of Refrigerator display if needed to ensure maximum visibility from
road and also within the shop. Check if refrigerators displayed on stand with
all accessories in position.
b) Devise system for automatic replacement of display refrigerators every month.
c) Suggest improvements if needed for interior decoration and improvement in
cleanliness. Obtain specific commitment from dealer.
d) If showroom is in wrong locality or is extremely small, discuss and obtain
commitment for better showroom within specific period, from the dealer.
Suggest alternatives if possible.
e) Check positioning of POP like posters, banners, etc. and check stocks of
catalogues/ handbills and whether these are used effectively for selling.
f) Signboard should be attractive and visible to traffic both ways. If needed
obtain commitment for repainting or for replacement by plastic glow signs.
g) If showrooms close early extend working hours to tap evening traffic of
customers.
6) Salesman:
9
 a) Test product knowledge, selling skills and ability to communicate in English
and local language of all sales staff-attending customers.
b) Train sales staff to make proper sales presentation and ensure that they are
aware of all plus points of the product vis-a-vis competitive brands. Brief them
on how to tackle likely objections from customers. Insist that they demonstrate
each feature of the product as they explain.
c) Is number of salesmen adequate to handle peak load especially if sales staff is
also performing other functions like maintaining records, submitting
quotations, attending complaints, making outdoor calls, etc. or handling other
suppliers' product lines. Recommend additional staff required and obtain
dealers' agreement.
d) If existing staff unsuitable for selling function, suggest replacement and types
of salesman required and minimum remuneration to attract right type of
candidates.
e) Introduce incentives schemes for sales staff atleast during off-season to
coincide with out promotional schemes. Incentive should be from Rupees 'P'
to Rupees 'Q' per refrigerator depending on monthly sales.
f) Manager in charge of our company products should be capable, effective and
very active.
7) Service:
a) Service Supervisor and Mechanics:
i) Check individually if each mechanic has basic knowledge and skill to
diagnose the faults in refrigerators. Can they test relays/ thermostats? Do
they know which relay fits different types of compressors?

If wrong procedures are followed, appraise mechanics of correct method.

ii) Recommend suitable mechanics who require training at headquarters or

branch towns.
iii) Advise dealer if additional mechanics needed or if some existing
mechanics are unsuitable and need replacement or if part-time mechanics
are to be converted to fulltime mechanics.
iv) Check if adequate supervision is available in large town.
b) Pending Service Calls and Claims:
i) Check pending calls for how long these have not been attended and why.
Take action to clear backlog of pending calls. Wire branch / hg. for units
against pending claims or advance supply giving necessary details.
ii) Arrange for immediate packing and despatch of all defective units. Ask
dealer to ensure minimum delay in despatch of defective units in future.
iii) Ensure if claims are booked correctly as required by service department as
per the reference circular.
c) Packing Of Units:
i) Inspect packing of defective units. If packing is inadequate advice dealer
on correct method of packing as followed by service department for
despatch of repaired units.
ii) Ensure that packing of repaired units is done carefully so as to preserve
carton and inner framework for replacing damaged/ defective unit.
iii) If carton cannot be used (received damaged or soaked) dealer must ensure
that defective units are crate packed securely. If units are received
damaged due to defective packing the dealer will be charged the cost of
repairing/ replacing damaged parts.

10
 iv) Tag indicating nature of defect must be attached to the units as specified in
the service circular.
d) Mode of Despatch:
i) Investigate if delays occur at the transporter's godown while despatching
defective units. Take action suitably to ensure quick despatches by truck
preferably for door delivery.
e) Information on Refrigerators under Guarantee required by Service:
i) All dealers must send details of cabinet number, sealed unit number,
model number, customer's name and address, and the date of sale of all
refrigerators which are under 5 years guarantee.
ii) Similar information (as in (I) above) is also required till new guarantee
cards are introduced in the refrigerators at the time of despatch from
headquarters.
f) Service Records and Procedure:

Check if dealer maintains history cards. Does he record each complaint on

service card similar to the one used at headquarters for systematic recording
and follow-up of service calls. Are stock records for spares maintained
systematically for proper indenting? Introduce these if records are not
maintained properly.

g) Spare Parts:
i) Check if spare parts indented correctly and if adequate stocks are
maintained. Place orders for spares required immediately.
ii) Check prices at which spare parts are sold.
h) Guarantee:

Confirm if 5 years service under guarantee is provided to customers as

specified by us. The dealer is not supposed to charge any labour charges or
any job during the first year. For replacement of unit, he is not to charge for
inspection or labour for 5 years. Only actual Octroi duty paid for replacement
units may be recovered. In case of default, confirm this in writing with dealer
to ensure correct procedure in future.

8) Follow-up on Enquires:

Introduce register for noting name, address and telephone numbers of all
customers who enquire for refrigerators at the show room or on phone.
Introduce a follow-up procedure to ensure that customers who have enquired
but who have not booked orders are contacted within 2 / 3 days either
personally or atleast on phone / by letters.

9) Marketing Information:
a) Comprehensive list of all refrigerator dealers and brands handled by each dealer.
b) Sales of each dealer brand-wise - last year and year before (if detail figures not
available, estimated total sale of each brand in the city last year and year before.
Crosscheck thoroughly to improve accuracy of your estimate).
c) Price charges for each brand - list price and normal price actually applicable after
allowing discounts to customers. Give break-up of list price of competitors as per
format.
d) Trade discounts and special incentives allowed by competitors. Verify this by
checking documents / circulars of competitors.
11
 Table 2

Findings of Dealer Evaluation Effort

Item of Evaluation Excellent Good Fair Poor Total

I. SHOWROOM
a) Location 04 12 10 04 30
b) Floor Area 06 08 04 12 30
c) Display 0 06 18 06 30
II. CALIBRE OF SALES PERSONNEL 0 12 12 06 30
III.SALES EFFORT OTHER THAN 02 08 14 06 30
THAT OF PERSONNEL
IV. SERVICE
a) Skill of Mechanics 0 6 16 0 30
b) Facilities 0 6 08 16 30
V. WAREHOUSING FACILITIES 04 08 14 04 30
VI. RECORD MAINTENANCE 04 02 12 12 30

RECOMMENDATIONS

1. In many cases the frontage of the shop was not utilised properly. Dealers were
advised accordingly.
2. Though in most cases the location of the shop was in fairly crowded area it was
unsuitable of the shop being in wrong kind of area.
3. Sales personnel were found to be not aggressive enough. Most sales personnel
were not aware of product features and were also involved in other routine work.
4. Dealers are not willing to spend on promotion, installment schemes, etc.
5. Mechanics were not well aware of the nature of repair problems and what to do
for specific problems. Most of them want to be trained at the company.
6. Records not adequately maintained probably because no guidelines were given by
the company.

PV/ka

12
 GREEN LAWN FERTILIZERS

For the past three years, John Moore was employed as an account manager by a major
oil company within the marketing division. Though this work encompassed almost
every phase of business, he was mainly concerned with three areas. First, he was
responsible for some 50 service stations and the dealers who operated them. Second,
he acted as facilitator between the oil company and his 10 wholesalers. Third, he was
responsible for real-estate development within his area. Geographically, the area of
responsibility was south-western Indiana and south-eastern Illinois. His headquarters
was located in a town some 70 miles from the company's district office. So he had
personal contact with the district manager about once a month, and sometimes less.

During his first years with the company he progressed as rapidly, or more rapidly,
than he had anticipated. Beginning with the company as a sales representative, he was
by all corporate measurements a successful salesperson and employee.

Every town in the sales area could be characterized as a "farm town". Each town's
major source of income was agriculture. Each town could boast of having one or
more feed and fertilizer stores, a grain elevator, a tractor supply company, and a Farm
Bureau cooperative organization. Every citizen was to some extent dependent on
agriculture for a livelihood. The largest town in the area contained large retail outlets,
which could be characterized as discount centres.

At about the time of John's promotion to account manager, the oil company
purchased a controlling interest in a fertilizer company. The logic in doing so was
basically sound. The lawn fertilizer industry was becoming one of the country's
leading growth industries (with the increase in leisure time). The extrapolated
economic potential was good, and the oil company already had under its trademark
some 40,000 retail outlets across the country. It seemed like a natural combination.
The philosophy of the gasoline industry was fast becoming "whatever can be put into
or on the car should be sold by the service station."

The oil company began producing a lawn fertilizer called "Green Lawn". There were
many meetings held to sell the salespeople on the product and to explain this new
marketing philosophy to them. They were told that a survey had revealed that the
40,000 service stations could "easily" sell 50 bags per month for the two-month lawn-
fertilizer-use period. It is important to remember that the salespeople were told that
this is what their stations would sell. This became then the sales quota because the
district managers had already committed themselves to the management team sent out
by the home office. During the meeting, the manager reiterated this commitment by
saying, "I am confident that all the people on my team would carry the ball". The
management team, of course, reported this to the regional manager, and so forth, up
the hierarchical corporate structure until the committed sales potential figure reached
someone's desk in the home office showing that the projected quote would certainly
be met. Quite naturally, this quote was the exact amount that had been projected by
the management during its analysis of the data on which their decision to purchase the
fertilizer company was predicated in the first place. This translated into John's being
responsible for selling 2500 bags of Green Lawn fertilizer. Since this was a new
product which each rung of the managerial ladder had committed itself to sell, the
success or lack of it was carefully monitored. John's success in selling this product to
his dealers was less than spectacular because the season for using lawn fertilizer is
13
very short. It lasts only about 60 to 90 days in the spring. John Moore didn't receive
his shipment of Green Lawn until the end of the first 30 days of the use period. As
time went on, the pressure from management grew. After 30 days, he had to send the
district manager a weekly report of the number of bags sold. After 40 days, a
biweekly report; 60 days, a tri-weekly report; 70 days, a report each day; after 90
days, he had to phone the district manager at the end of each day to tell him what had
been sold that day and what plans were being formulated for selling the remaining
bags. At the end of 90 days, his warehouse still had 2300 bags of Green Lawn and the
phone reports became routine in content, John had expended every effort to sell the
fertilizer. Every sales technique (legal and moral) had been utilized. He had literally
run out of ideas. Not only that, but the sales area was suffering from lack of attention
to other matters. Then it came! A phone call from the district manager. During the
conversation the district manager mentioned, "John's not being on the team". "Other
salespeople had already sold their quota". (At this point John suggested that these
other salespeople might be able to sell his.) "John's salesmanship was not up to his
usual standards... Lack of team spirit... Perhaps there was need to re-evaluate John's
work record ... possible need to replace with someone more actively involved and
committed to corporate expectations."

John was then faced with a dilemma not of his own making. It was obviously
impossible to sell the rest of the fertilizer to the service-station dealers. The district
manager implied that, if Moore wanted to retain his job, he had to sell the 2300 bags
left in the warehouse. The use season was over; therefore, demand for this product
was over. Given these factors, there were several alternatives available.

1. John could resign from the company.

2. He could wait and see what steps, if any, management would take.
3. He could do what is called "wheeling and dealing". This is the salespersons'
survival device.

John chose the third alternative. He was all too familiar with this device, and reluctant
to use it. It involved an approach to the problem that was ethically questionable. Most
salespeople know that no matter how much rationalization is used, this device is often
unsound. The method John chose was quite simple. The 10 wholesalers that he called
on were equally divided between consignees and distributors. The oil company
provided consignees with certain farm equipment which they in turn loaned to farm
accounts. This equipment included above-ground gasoline tanks. When a consignee
informed John that he had a farm tank that needed replacing, John simply charged it
off and ordered a replacement. There was no check on the disposition of the old tank.
Nor was there an inspection of the old tank; it was only necessary to take the
consignee's word.

John would go to each of his distributors and ask them to buy the fertilizer from him;
then he would given them an equal value of overhead farm tanks. This would be done
by charging off nonexistent farm gasoline tanks in consignee areas and ordering new
ones. That is, the one charged off were only charged off on paper. The consignees did
not actually lose any farm tanks. When the tanks arrived at the consignee's place of
business John would inform the respective distributors who would then pick them up.
This would satisfy management because the Green Lawn fertilizer would shown up
on the records as having been sold. John had used this device several times before.
Like all rationalizations, the more it is done, the easier it becomes to do it. The district
manager complemented Moore on the sale of the fertiliser, saying, "I knew you could
14
do it, you're a real team member."

PV/ka

15
 BRIGHT ENGINEERING COMPANY (J)2

In July, Mr Khanna, the Sales Manager of Bright Engineering Company, proposed

to the proprietor, Mr Xavier, that Bright Engineering should distribute its products
through its own salesmen instead of through stockists. Khanna believed that the
present system of distribution through stockists had failed to bring about any
substantial increase in the company's sales volume; consequently, he thought the
best course of action for the company would be scrap this system.

Bright Engineering Company, located in a large city of Western India, had been
started by Mr Xavier for manufacturing textile machinery parts--primarily lappets.
These were used to guide the thread on to the spindle in the spinning frames of textile
mills. For the first 3 years, Bright Engineering had concentrated its attention on
lappets only. After 2 years of hard work it achieved technical perfection in producing
lappets of good quality. But, when Xavier started marketing lappets, he found that
another large, well-known and long-established concern too had undertaken
production of lappets. Competition between the 2 companies became· so keen that
Bright Engineering was forced to reduce its prices for lappets by 50%.

Even after this substantial reduction in prices, Bright Engineering could manufacture
lappets at only 30% to 40% of the original planned production capacity.
Consequently, Xavier entered into the production of a number of other textile
machinery parts which could be sold to textile mills in the local market and
elsewhere. Exhibit 1 lists the various items produced by Bright Engineering
Company.

As a general rule Bright Engineering sold products which had a large replacement
demand through stockists, and products having a one-time demand directly to the
machinery manufacturers. Out of the items listed in Exhibit 1 the first 15 were sold
through stockists. They accounted for one-third of the total sales of the company.

Competition

There were 5 other medium-sized firms selling loom and ring frame parts, but none of
them carried the full line of products which Bright Engineering was selling. Each one
of them competed with Bright Engineering only with respect to 3 or 4 items. Khanna
stated that as the production of these items did not involve special processes or
expensive equipment, he suspected that there were a large number of small firms
(catering to local markets only) in his industry. He added that he did not have any
authoritative information on this subject, but he was told that these firms were
concentrated in a few North Indian towns. He knew that Ludhiana was considered a
very good centre for this kind of small engineering firms.

Khanna stated that the products of these firms varied substantially in terms of quality,
though they looked similar to those of Bright Engineering. Because of these wide

2
Prepared by Professor M. N. Vora
Case material of the Indian Institute of Management, Ahmedabad, is prepared as a
basis for class discussion. Cases are not designed to present illustrations of either
correct or incorrect handling of administrative problems.
16
variations in quality, the prices of the products of these firms differed substantially.

Khanna stated that Bright Engineering had been very meticulous in keeping very high
quality standards. He described differences in production of various items produced
by Bright Engineering and the other firms. He stated that in case of spindles (one of
their items), a perfectly smooth surface was essential for reducing the amount of
friction. He added that the Company took special care and put the spindles through
special operations for achieving this perfectly smooth surface. He mentioned,
however, that other firms did not bother to use these special processes nor did they
keep such standards and therefore could produce the same product at a comparatively
low cost. He described another instance of the "springs" wherein the company used
very high quality steel as raw materials and put the finished products through all types
of tests (especially the elongation test). Inspection standards were very high and
therefore the company had to incur high cost of inspection and redoing. The other
companies used cheaper varieties of raw material and did not put the finished
products through such tests.

Khanna said that the performance of his products was much better and their lives
much longer than those of his competitors'. But it would be very difficult for a
layman to notice these differences. He therefore emphasized that it was the job of
their selling organization to convince customers that the high prices charged by
Bright Engineering was due to differences in quality and that in the ultimate analysis
their products would turn out to be much cheaper than those of others.

Potential

Khanna added that after careful investigation he found that a textile mill would
consume Rs 15 worth of his products per loom per year. He talked to the executives
of a few mills to find out their consumption rates of these components and applied
his prices to them for arriving at the cost per loom per year. He stated that he had a
pretty good idea of the total potential demand for these products in the country.
Exhibit 3 gives information about the number of cotton textile mills and their loom
capacity in different states of the country. .

The total loom capacity in the country was 2,08,117 and, applying the consumption
rate of Rs 15 per loom per year, the total sales potential expected per year should be
around 3.122 million rupees. His sales volume was around 4.02 lakh rupees, which
amounted to nearly 13% of the total market potential.

Customers

Bright Engineering sold its goods to stockists, who in turn sold to the cotton textile
mills--the ultimate consumers. The purchasing practices of different mills differed
substantially. The cotton textile mills in Bombay generally invited tenders from
suppliers. The Ahmedabad mills, on the other hand, transacted most of their business
orally--oral enquiry, oral quotation and oral order. Even after receiving the
quotations, these mills tried to bargain in order to bring down the supply price. In
South Indian written enquiries were received by the suppliers.

The Stockists

For appointing a party as a stockist, a formal agreement was entered into. Exhibit 2
17
describes the terms of this agreement. It was generally for one year, renewable the
next year. The agreement included the terms and conditions for the stockistship.

It also fixed prices at which the stockists would be supplied various products during
the year. The deliveries were made in installments but the prices were fixed in
advance. Each stockist was allotted an exclusive area to cater to. A minimum sales
volume of Rs 50,000 was expected of each stockist. However, in actual practice,
Bright Engineering found it very difficult to observe this rule.

Bright Engineering had 7 stockists located in different textile centres. The company’s
average gross margin of sales to the stockists was 15%. The stockists sold the goods
to the textile mills.

Each stockist kept a contactman for going around the textile mills and getting
business for him. Generally the purchasing officer of the textile mill asked for
samples and quotations for the products. The enquiries were received either from the
potential customers who were in need of these products or due to the efforts put in by
the contactman in persuading the purchaser to try Bright Engineering's products. The
stockist would send in his quotation whenever he got an enquiry from a customer. If
the purchaser decided to place an order with the stockist then the stockist generally
would supply the goods from his stock. In case he did not have ready stock of the
material required he would ask Bright Engineering to supply these to the textile mills
on his behalf. The stockists, while quoting for the products, marked their prices up.
The percentage ranged from 20% to 300%. The popular markup ranged from 20% to
50%.

Bright Engineering had a policy of supplying material FOR the local railway station.
The stockist had to meet freight and handling costs. On an average, these costs
amounted to 3% of the value of these products. In addition, the purchaser was
expected to bear the 3% local sales tax. In case of interstate transactions the purchaser
would have to pay 2% interstate sales tax in addition to the local sales tax.

Bright Engineering granted 45 to 90 days' credit to these stockists. However, the

stockists generally had to extend longerterm credit to their clients (mills)--sometimes
as long as 6 to 8 months. The stockists, therefore, had to find finance to take care of
this problem. The stockists also locked up substantial amounts of cash in inventories.

The stockists considered this a business of contact. They generally tried to maintain
very cordial relations with the purchase officials of the textile mills. They incurred
substantial expenditure in entertaining these purchase executives with a view to
getting business from these cotton textile mills. Of course, the amount of expenditure
incurred would be different for different textile mills.

The agreement with the stockists did not preclude them from dealing in other non-
competitive items. In fact, most of these stockists dealt in many other items in
addition to those of Bright Engineering. Many of the products they carried were also
sold to textile mills.

Dissatisfaction with the Present Distribution System

Khanna was very dissatisfied with the present system of distribution through
stockists. He stated that these stockists, did not show any significant progress in their
18
sales volume. On the other hand, the company was losing ground in some of the
textile centres. He felt that the system had failed in reality, and that if the company
continued with it, it might lead itself into serious trouble. In his proposal to Mr
Xavier, Khanna enumerated the following defects which he had observed in the
present system.

1. Khanna explained that Bright Engineerings' products required a different

type of push with the textile mills. He added that his products were generally
sold at a price 25 to 50% higher than those of his competitors. And when
there was such a big difference in prices, the purchaser needed to be
convinced that he paid higher prices for better quality.

The stockists were unable to do this. They did not have technically qualified
people to handle this work. Convincing the purchasers might involve various
types of testing, including testing tensile strength. Such a job, therefore,
could be handled more effectively by those who knew these things and who
spoke that language.

2. As Bright Engineering made outright sale of the goods to the stockists, they
(the stockists) were free to charge the customers whatever prices they
thought fit. Khanna was very unhappy about the pricing system followed by
these stockists. He felt that the stockists had a very shortsighted policy of
pricing. They wanted very high margin, even at the risk of foregoing some
sales volume. The stockists believed that they obtained business because of
their relations and good contacts; therefore, they did not like to quote low
prices for getting the business. This attitude of the stockist was pricing
Bright Engineering out of the market because its prices after the stockists'
markup became 50% costlier than the products of the competitors.

Khanna gave an illustration of this attitude. Suppose there was a demand by tenders
(quotations) for supplying 500 gross of X item. Suppose the item was sold to a
stockist at Rs 108 per gross. A stockist would then quote Rs 130 per gross. Even if he
knew that competitors were quoting lower prices, he would not reduce his prices. The
order would be lost. The stockist would lose the profit he would have made out of this
order, i.e., Rs 11,000, minus expenses, but the company would lose a sale of Rs
54,000. Assuming that Bright Engineering made 15% profit on its sales it lost Rs
8,100. In addition the company lost a substantial amount which would otherwise have
been a contribution towards overhead. Khanna said that in his business, except for the
cost of raw material, every other expenditure could be considered a fixed cost. The
raw material cost formed 25% of the total cost of the company's product.

Khanna, therefore, was dissatisfied with the attitudes of these stockists. Most of these
stockists were in their forties and had been in this business for more than 10 years. He
felt that it would be nearly impossible to change their attitudes.

He thought that if he sent a price-list of his products to the textile mills it would act as
a sort of a check against stockists charging unreasonably high prices to the mills. But
he could not do so because the stockists objected to this very strongly. The arguments
they used were: (1) to get business the stockist incurred different expenditures in
different textile mills, and hence would like to recover the additional expenditure
through higher prices; (2) as the payment practices of different mills differed
substantially (one month to eight months) the stockist would like to get compensation
19
for this by charging a different price to each customer; and (3) he got the business
because of his good contacts and relations, and that Bright Engineering should not
become an obstacle in earning a little more from such a customer.

Khanna believed that the stockists should be a very good source of market
information for a manufacturer. However, he felt that his stockists had no idea
whatsoever about the total potential for their products or the market competition. He
stated that he would not mind if a stockist was not able to sell certain items in
sufficiently large quantities, but he would be upset if the stockist could not explain
why he could not sell those items. In addition, he expected suggestions from the
stockists for alternative items. Khanna said that he did not get such heip from his
stockists.

In view of these circumstances, Khanna proposed to Mr Xavier that Bright

Engineering should have its own selling organization. He said he was aware of the
problems of switching over to the company's own sales organization but that he
thought that was the best thing for the company. Exhibit 3 gives his estimate of the
costs of running the company's own selling organization.

Khanna knew that an overnight change of system would create a number of problems
for him. The agreement with the stockists included a condition that in case of
termination of the stockistship. Bright Engineering would take back the unsold stocks.
Khanna realized that the stockist had a substantial inventory of goods on hand. Every
time the stockist sold some of his stock he replenished it by requesting Bright
Engineering to supply.

In addition to the risks involved in taking back the inventories from the stockists, he
was well aware of the fact that Bright Engineering had granted 90 days' credit for
most of its sales. The outstandings were estimated at around Rs 1,50,000. In case he
changed the system suddenly it was highly probable that a portion of this amount
would be frozen up. This would put Bright Engineering into a difficult financial
situation. Khanna, therefore, thought that it would be better to phase this change over
2 years. As an immediate step, he proposed to reduce the production of the items he
was supplying to the stockists. He felt that the company should concentrate more on
products which were sold directly to customers. He added that from now onwards
Bright Engineering should distribute all new products it entered into directly to
customers rather than through stockists, even if such products had high replacement
demand. He advised Mr Xavier to increase the attempts at getting job orders wherein
Bright Engineering would produce items on an order basis.

Exhibit 1

List of Items Produced by Bright Engineering Company

1. Weft Fork 18. Flipper Catch

2. Box End Spring 19. Automatic Bobbin Ring
3. Wire Spring 5" x1" 1"x 1/16"
4. Wire Spring 6" x 1" 20. Automatic Bobbin Ring
5. Wire Spring 12" x 3/4" 1" x 3/16"
6. Weft Grate Jones Type 21. NMM Lappets

20
 7. Weft Grate Broadbend Type 22. DSDH Lappets
8. 9" Back Spring 23. SSDH Lappets
9. 12" Back Spring 24. SSSH Lappets
10. Medium Bow Spring 25. Underclearer Springs
Broadbend Type 26. 4/2 Type BackSpring
11. Medium Bow Spring Jones Type 27. Tap Spring
12. Superquality Loom Spindles 28. Swell Spring
13. Superfine Quality Loom Spindles 29. Drop Box Spring
14. Drop Box Card 30. Back Spring
15. Perforated Steel Strip: 31. 3/16" Washers
11 x 12 holes 32. Auto Weft Grate
15 x 16 holes 33. Pneumatic Springs
8 x 9 holes 34. 2/2 Springs
9 x 9 holes 35. Weft Grate "B"
9 x 10 holes 36. Machine Spring
37. Collars
16. Thread Guide
17. 9" Ribballon Springs

Exhibit 2 Terms and Conditions for Stockists

1. Goods will be supplied to the stockist in 12 equal monthly installments, the

supplier reserving the right to effect the supplies to a minimum of 6
installments, if circumstances compel to do so. Deliveries of the items in the
required quantity according to the contract will be made subject to availability
of raw material and uninterrupted production in the factory.

Payment will be made for each consignment of goods against 40 days sight
draft.

2. The contract is subject to ……….. (city) jurisdiction.

3. Reduction in Prices: In case of reduction in prices in the year by the factory,
the stockist will be given rebate for the stocks that they are holding against
the supply of the contracted year on the particular date on which the prices
are reduced by the factory.
4. Packing and Delivery: All goods are well packed in wooden cases. All prices
are FOR local railway station. Sales tax and other taxes applicable will be
charged extra.

The prices quoted are based on prevalent rates of custom duty, freight,
foreign exchange, and other government taxes. Any increase in any of the
above rates during the duration of the contract will entitle the supplier to
enhance the quoted prices accordingly.

5. This contract will be valid from January 1, ---------- to December 31, --------.
This can be renewed for a further term if both parties agree to do so, and any
such contract should be made not later than October 31,…….

21
6. This contract is subject to the condition that the suppliers will not be under
any liability to supply or ship goods, if and whenever prevented from doing
so by an act of God, state of war, riot, embargo, civil commotion, strike,
lockout, operation of law, difficulties of transport, failure of manufacturer's
raw material suppliers' supply, or any circumstances beyond the control of the
sellers.
7. All supplies by the factory will be free from defect. Any articles found
defective either in material or workmanship will either be rectified or replaced
at our cost.
8. Any enquiry received by the factory from dealers or consumers will be
forwarded to the stockist.
9. It is binding on the stockists to purchase the entire lot of all the items allotted.
If the stockist requires any additional quantity of allotted items, the same will
be supplied by the factory against specific orders. These additional orders will
not entail reduction in the allotted quota of any other item.
10. The stockist will bind himself to refrain from dealing in any of the items
mentioned (allotted) of any indigenous manufacturer other than that
manufactured by the contracting factory.
11. The stockist cannot at any time in the contracted year directly or indirectly
deal with textile machinery manufacturers with regard to our products, unless
expressly permitted by us to do so. Any and all enquires received in this
connection should be referred to us.

Exhibit 3

1. Each of the 7· present stock points should have at least one salesman posted
there. Mr Khanna felt that if the company sold thought its own selling
organization its sales volume would double if not more. He estimated that, for
an effective job, 10 persons would be necessary, including 2 to 3 service
engineers.

He expected to get reasonably good people for Rs 350 per month salary.
Therefore the estimated annual salary bill was: 10 x 350 x 12 = Rs 42,000.

3. Mr Khanna also proposed to offer a sales commission of 0.5% to 2% to these

salesmen.
4. Each salesman would be operating from the main centre (his location) of his
territory and would be travelling to places where customers were located.
There were 2 types of travel costs involved: (1) local transportation in the main
city--especially because the mills were generally located in suburban areas
quite far from the centre of the city, and (2) transportation to other towns and
cities in the territory. Mr Khanna estimated that it would cost the company Rs
500 per month per person. This would include travel costs, daily allowances,
telegrams, trunk calls and miscellaneous ·other expenditures. The total annual
allowance bill would be: 10 x 500 x 12 = Rs 60,000.

5. For coordinating activities of these salesmen, two assistants would be hired at

the head office at the rate of Rs 150 per month. This cost would be 2 x 150 x
12 = Rs 3,600.
6. Mr Khanna did not expect any substantial increase in freight cost as he used to
despatch them in terms of standard packings (boxes). The railway freight was
according to the number and weight of these boxes. He argued that in case of
22
 selling directly to customers, even though the shipment size would be smaller,
there would not be any significant increase in his costs.
7. Mr Khanna felt that Bright Engineering would have to keep 2 months' turnover
as inventory.

23
 INCOMPLETE SOLUTIONS3

Belfry thought it was buying a total package when it placed an order for Daffodil
computers. But instead it was saddled with a host of incomplete solutions

MATHEW Cherian was distracted. He was to shift into his new office in Worli in two
weeks and his computer system was not yet operational. Cherian had defined his
computing needs carefully so that his new office as well as the new division that he
was to head were totally self-sufficient. As vice-president (exports) at Belfry
Industries, he was constantly working towards cost efficiency. Shifting from the head
office to an independent location was a good move, but it also meant a loss of
computing support. Cherian preferred to invest in automation rather than expand the
workforce. "We will automate wherever possible. Machines can do a lot more than we
realize," he told his commercial manager, Suresh Nair.

The two pondered over a number of computer journals and finally identified four
computers which seemed to suit their needs. One of them was the Daffodil-Province.
His counterpart in Brazil, Tim McNamara, had suggested he also invest in a Daffodil-
Matrix, a lightweight laptop, which Cherian agreed would be very useful, given his
hectic travel schedule.

The Daffodil range was a good choice. Not only was it considered top-of-the-line in
the US, but, more importantly, Daffodil computers were now also available in India.
Earlier, Cherian would have had to buy the computers through the Brazil office, and
then gone through the grueling process of getting them into the country. Apart from
that, he would also have had to suffer the import duty capitalization cost and an
increased payback period. But today, he just had to call Oregano Systems, Daffodil's
agents in India, and (as their advertisement promised) before he could say 'Yellow
Daffodil,' the system would be delivered to him. An excited Cherian told Nair: "It's
great to be alive in global India. It feels very good!"

Yet Cherian was careful not to get carried away. He wanted to check out the various
configurations available so that the machine he finally got suited the requirements of
his office. He said to Nair: "The Daffodil looks appealing and sleek, but it is better
that we define our specification first and establish a best fit, before mentally
committing to Oregano."

Oregano responded to Cherian's query with alacrity. Its systems manager, Duleep
Pardi, promptly visited Belfry, where Cherian defined his needs and specifications
over a detailed three-hour meeting. "At present, we have a Torro 486 and we want the
new system configuration to integrate with it," he explained. “Tell us what the
Daffodil computers can do."

Pardi said that the Daffodil-Province was the ideal choice for Belfry's export division,
also confirming its capability to interface with the Torro. "It's a simple operation and
we will take care of that," he said. "We are only the distributors. Our reseller,
Maxware Machines, will deliver the system." He added.

3
Business World 29 November – 12 December 1995

24
Belfry placed an order that same afternoon. Apart from the Province and the Matrix,
Cherian also ordered a printer and a scanner which Pardi said would be necessary to
operate the fax card. Cherian felt that it was a worthwhile investment even though it
meant an additional Rs.57,000. "Give us 10 days, and the entire lot will be with you,"
promised Pardi.

But the Province was delivered only after three weeks. "What about the rest?" asked
Cherian, when he called Pardi. Pardi assured him that they would be there "in a day or
two."

A "day or two" stretched into weeks. The scanner arrived two weeks later. Worse, it
was a hand-held machine and tedious to operate: text was scanned in two parts and
then 'stitched' together for transmission. Cherian was beginning to lose his patience.
"This won't do," he told Nair. Incidentally, Oregano did not have the A4 page
scanner.

Meanwhile, Shyam Naik, the engineer from Maxware, fumbled with cables and
buttons and switches as he installed the system at Belfry. It was his first installation,
he confided. The Belfry staff, on the other hand, was very excited at the prospect of
using Daffodil's sophisticated hardware. So, while Naik fumbled, they pitched in by
reading the manual and connecting the cables and ports themselves. After about 90
minutes of trial and error the information technology head at Belfry, Vasudev Karnik,
managed to find the right ports to hook the cables and when for the fifth time the
power switch was put on, the machines came alive.

The Belfry team heaved a sigh of relief. Naik then began loading the software. Only
he just could not get the stubborn system to accept it. Cherian watched with a sinking
feeling as Naik fumbled around while the Daffodil blinked innocently, unable to
digest the software it was being fed. Finally, unable to bear it anymore, he told the
embarrassed engineer: "Leave it, we will figure it out."

That wasn't the end of Cherian's nightmare. Seven days later, the printer arrived -
minus the cable, of course. An exasperated Cherian found it impossible to be polite
anymore. "Surely, if you are selling me a printer, you will need to supply me the
accessories that are crucial to making it work," he said frostily. The engineer
promised that the cable would be delivered the next day.

But when a week later, nothing had happened, Cherian decided that he was not going
to deal with agents and resellers anymore. He called up Daffodil's coordination office
in Bangalore and explained the situation. Ravi Pai, the chief officer, heard him out
and said: "I will speak to Genesis India and make sure you're called before the day is
over."

Cherian was thoroughly confused by now. "Who is Genesis?" he asked. That was
when he discovered the convoluted chain that Daffodil Inc had laid out in India.
Genesis was an Indian company, the retailer for Daffodil in Hongkong. Daffodil also
had a oneman office in Bangalore, but it largely dealt with the Indian market through
Genesis.

He wondered what Genesis's track record in India was like. Nair's research confirmed
that the company had good credentials, Genesis was supposed to be one of the largest
private organizations in India and was an agent for many hardware manufacturers.
25
But Cherian was still unsure. "Then who is Oregano?" he asked Nair. "They are the
agents for Genesis and many other computer brands. Let me put it simply, they are
like a clearing and forwarding agent or a distributor in India for a brand called
Daffodil," Nair told him.

Meanwhile, Pai, at Daffodil's coordination office in Bangalore, kept his word. An

engineer from Genesis arrived the next week to solve the software crisis. However,
that was not the end of Cherian's problems. They now discovered that the Torro 486,
which Oregano had confirmed as capable of interfacing with the Daffodil with minor
changes, was actually incompatible with the new system. "Various boards and
components will have to be changed. I will give you a list but you will have to get
these done yourself. Once you have done that we should be able to help," said the
Genesis engineer.

By now, Cherian was at his wits' end. He pointed out that when he had asked for an
evaluation of his existing hardware, Oregano had confirmed that the two systems
were compatible. "What you are now suggesting will increase my cost. I may not
have gone in for the Daffodil had I been told about this incompatibility at the very
outset, " he said angrily. Even so, Nair contacted Dennet Computers, manufacturers
of the Torro, and asked for an estimate of how much it would cost to incorporate the
changes. Their estimate: Rs.28,000.

"This cost overrun is absurd," a furious Cherian told Nair. ''They said it was possible
to connect the Torro. They also promised that the changes would be minimal and they
would do it for us at no extra cost. How are we going to justify this delay now?" The
ninth week of inactivity and inflated costs were weighting heavily on his mind.

Maxware couldn't keep any of its deadlines. Cherian had also ordered a Matrix, the
laptop. But eight weeks after the first batch of equipment was delivered, there was
still no sign of the laptop. Each time Cherian reminded Maxware about the laptop, the
company promised to despatch it within three-four days - only to renege on its
promise a few days later.

Eventually, the much awaited printer cable arrived with yet another engineer, Raghu
Iyer. The engineer ran a few checks and commands, checked his manual one last time
and finally declared: "I can load and install the printer devices but you are likely to be
faced with inadequate disk space very soon. "Cherian was aghast. The Province he
had ordered was to have a 200 MB disk, but the piece he got had only a 100 MB disk.
"I can't say how this happened," said Iyer. ''The Province is usually fitted with a 200
MB disk."

Cherian was now on the warpath. He expected a foreign player like Daffodil to be
more credible. But the situation was utterly ridiculous. These were firms who freely
and confidently touted quality management principles in their advertisements. Once
again he called up Genesis India, who again promised to upgrade the Province.

Then, the elusive laptop, the Matrix, arrived. The basic idea of investing in a laptop
was to give Cherian the flexibility of portable office since he was traveling nearly
four days a week. The fax facility that came with the Matrix, was a critical add on.
Yet, the Matrix delivered to Cherian did not have a fax card.

The situation was totally chaotic by now. Belfry was dealing with everyone:
26
Maxware, Oregano, Genesis and Daffodil. The complexity of the relationships and
their individual boundaries of operations irked Cherian no end. He was confused by
the multitude of promises and counter assurances made by the various agencies. He
had talked to Daffodil who directed him to Oregano, who in turn directed him to
Genesis. He was going round in circles, speaking to every link in the chain without
any tangible result.

When the fax card finally came, it did not have the required software. Meanwhile,
Pardi at Oregano suddenly became incommunicado. There was no response to the
innumerable phone calls and fax messages sent to him. Numb with impatience,
Cherian called Daffodil again. Pai was apologetic: "I'm sorry that Oregano has been
unable to meet your needs. I will ask Pentax Systems to service you."

Pentax was another Daffodil agent and the newest link in the chain of confusion. The
company's people came, saw, made notes and left with a promise to solve the
problem. But they never returned. "I was expecting that," said Nair. "No service firm
would want to pick up another's bad job. There is too much at stake." He said.
Cherian now realized that not one of them - Oregano, Maxware or Pentax - was
equipped to handle serious computing requirements.

"What do they have in terms of expertise?" he asked Nair. “They probably are used to
a set of users who use a PC for word processing or spreadsheet applications. I had
detailed my specifications, shown them the location and networks expected. But what
did I get?" Nair, however, felt the problem lay in Daffodil's halfhearted entry into
India. "Daffodil has not studied the Indian computing environment adequately. The
company does not realize that in India we use a PC as a peripheral in a larger
computer environment, whereas in the US it is used to marketing PCs for home use."

In sheer frustration, Cherian called up Daffodil's CEO Tim Ki at the company's head
office in Hongkong. "This is all I can take," he said towards the end. "How long am I
to hang on to a white elephant?" Ki was brief, but polite: "We will try and help you."
When there was no response from Ki for the next four days, Cherian sent a fax: "This
is the story of a nightmare we have gone through for deciding to order a Daffodil
machine in India. We have lost two months and patience. Yet, we are not anywhere
near a complete installation. None of the people in the entire chain are equipped to
handle serious computing requirements. Is this fair? The only course of action
available to us is to press charges for loss of time and go to the business press so that
no other user is taken for a ride."

Four days later, Cherian received a call from Daffodil Hongkong's marketing
manager, Vijay Dani. "We have read your fax and sympathise with your predicament.
But you must appreciate we are only platform providers. We can't provide solutions,"
said Dani. Cherian wasn't sure whether he understood what he heard. He said:
"Correct me if I am wrong, but if I buy a product from you on the basis of a set of
expectations and a confirmation that the product will and does meet those
expectations, can't I expect you to carry it through? Therefore, if I buy a computing
machine from you, where do I go for a computing solution? No one in your entire
network can help me with a complete and successful installation!" said Cherian.

"You must understand one thing, Mr. Cherian," said Dani. "The software you have
been given is not ours. It is a Windows software. You should, therefore, approach
their agent in India for software support." Cherian did not need that kind of help. "I
27
know how Windows works, but I need you to load the software and create the disk
capability necessary to make Windows work. That is a part of hardware engineering,
how does it become Microsoft's responsibility?"

Besides, both the hardware and the software had been supplied by Maxware who had
assured him that Daffodil adapts to Windows. "Windows is Windows, it will work if
the body is right. You've given me a body which isn't ready for Windows. If you are
supplying me Windows, you go to Microsoft and provide me the support too.
Otherwise you have no business supplying me Windows!" said Cherian angrily.

But Dani stood his ground: "Worldwide, this is our practice. Daffodil is only a
provider of computing platforms."

"In which case," said Cherian, "back it with high quality service to end users. India is
not the rest of the world. It is a new market for laptops and the market needs perfect
information on how the product marketing outfit works. Why didn't you tell me at the
time I placed my order that your sale and liability to the customer ends when you
delivered the goods? That installation to render the product usable to my needs was
not your concern? I did not say I want the Province. I merely said I wanted a machine
that can interface with my Torro and perform a specified set of functions. And your
agent prescribed the Province and the Matrix!"

Long after this conversation ended, Cherian thought about the issue. Daffodil was
bringing a highly mature product, which had been accepted in a mature market, into a
developing market (In computer usage) like India. In the US, a consumer is aware of
Daffodil's marketing methods which are defined by the maturity of the product
category, the markets and the way the channels are structured. Therefore, he reasoned,
it was possible that a user buys the platform from one, the software from another, the
accessories and peripherals from a third. But in India, where the market for computers
was very different, the user wanted a total package. "How can they replicate the
marketing strategy for the US in India? Can't they see that the markets, the users and
the users are still evolving?" he said to Nair.

Dani had himself stated that this was Daffodil's practice worldwide. "We just sell our
product, and our product is simply the hardware. We don't connect faxes and
scanners. It is for you to take the pieces and find the right software interface." Cherian
wouldn't agree. “That's because in those markets there is a menu of software readily
available and integrators who provide that kind of support. And the cost of these
specialized services is also low in the US. My friend in Canada has a Province and his
daughter drew my face on it. For that kind of use he doesn't need software support."
Cherian's argument was that it was one thing if the Daffodil was positioned as a toy;
but if it was aiming for serious computing, it required specialized software support.

After all, didn't Maxware sell him a scanner because it felt that Cherian needed one
given his office requirements? "Yet I was given a hand-held scanner," he told Dani.
"Worse, your engineer could not tell me how to use it. Next he said my 486 was
incompatible - after I had made it abundantly clear that the new product should
interface with the Torro."

An unmoved Dani exercised immense patience. "Mr Cherian, please understand that
we are not system integrators. In simple label language it means I bought you an
inkjet printer and gave it to you. But that does not mean we are responsible for it.
28
Therefore, may I request you to separate the issues pertaining to the Daffodil from the
ones not pertaining to it?"

At this point, Cherian was ready to snap. Was Daffodil redefining the rules in a
market where players like HCL took full responsibility for whatever configuration
and peripherals they sold? He called his manager (information technology) Karnik
and explained the Daffodil stance. Said Karnik: "In India, we are used to players like
Wipro and HCL who have the staff and the support to be system integrators. They
began as mini computers sellers and had the support which they extended to PCs. We
have got used to that kind of a market. But today, the likes of Daffodil are bringing in
a new concept in computer selling to India, for which we are not structurally ready."

This came as a surprise for Cherian. The product communication had not said
anything like that. So he said to Dani: "You recommended and sold me a package;
that you choose to source the parts from three or four different vendors/manufacturers
is your business decision. As a buyer of a package from one single source, I will seek
a solution for performance from that source. Either you sell me what you recommend
and take full responsibility for its performance, or simply reject my order. Your
agents, Maxware, are the sole agent for Daffodil. They have chosen to build a
hardware solution for my needs. Such a solution was based on their understanding of
Daffodil's capabilities. "

Unhappy with the impasse, Cherian sent off a fax to Daffodil in Hongkong. "Discover
what the customer wants - which means discover the customers' vision of what they
really want. Customers are not a generic mass. Their needs vary from market to
market and this depends on the maturity and structure of each market. Therefore you
cannot market to a customer in India the way you market to a customer in the US. In
each market you need to alter your vision which you have clearly not done for India."

Dani and Ki replied jointly: "Good customer service does not mean that we look after
every whim of the customer. If you want system integration you really have to go
elsewhere. System integration is not part of our vision."

Is Daffodil's vision deficient? Have they defined their vision too narrowly in India?
Have they failed to understand the Indian customer's vision?

Meera Seth

29
 ANUPAMA COSMETICS (P) LIMITED

During the last week of October 2007 the marketing manager of Anupama Cosmetics
[P] Ltd. [ACPL] was considering what steps to take to improve the performance of
the company's salesmen. He felt that in recent years because of the declining sales of
the company's products and intense competition in the market, the morale and
effectiveness of sales organization of the company had been greatly weakened. He
was anxious to introduce some incentive measures, which would induce the sales
force to give more of their skill and abilities to their work.

The Company

ACPL was one of the leading manufacturers of soaps, facial cream, shampoo, hair
cream, lipstick and toilet powder in India. These products were extensively advertised
in all the leading newspapers, journals, and magazines in the country.

The marketing organization of the company was headed by a marketing manager who
had under his control six regional sales offices situated in six principal cities of India.
Each regional office was in charge of a sales supervisor who was responsible for
executive direction of a number of salesmen. In 2007 more than 60 salesmen operated
out of six regional sales offices of the company. The sales supervisors submitted
monthly reports to the marketing manager on the progress of sales and performance of
salesmen in their respective regions.

Selection of Salesmen

The management of the company strongly believed that intelligent selection of sales
personnel was highly necessary for improving the efficiency of business. The
marketing manager was particularly anxious to see that the salesmen of the company
possessed the following:

 Good appearance: a general grooming of the individual — to make sure that he

would not develop a hurdle of sales resistance by his shabby appearance.
 Personality: he should have a well-developed physical as well as mental
personality.
 A good speaking voice and effective expression.
 Moderate habits good health and physical fitness.
 Alertness, friendliness and pleasing disposition.
 Integrity, honesty and perseverance.
 Ability to get along with other people and willingness to work hard for the
company.

The Marketing Manager said: "It is, of course, not always possible to find a man who
will possess all the above qualities at a time but these are certainly to be developed in
them if we want to succeed in our job. And our experience shows, a man who
possesses these qualities has everything: a good report, a satisfactory financial status,
a happy family and a good wife too!" Headed that in order to ensure that right type of
persons were selected for the job the company administered a battery of sales aptitude
tests and arranged for group discussions and interviews while making selection of
their salesmen.

30
After selection each salesman was given intensive training at the head office for a
period of three months. Thereafter he was posted in one of the company's regional
sales territories.

Duties of Salesmen

1. To visit all outlets stocking company products, check stock, book orders and study
changing activities of consumer and retailer. Report on competitive activities.
2. To ensure that all products are well displayed and rotated.
3. To ensure that new products selling features, new policies and campaigns of the
Company are properly understood by all prospects.
4. To co-operate with the stockiest in training of personnel, correcting ordering
systems and stocking of products and ensuring the proper execution of company
policy. Guide them in submitting regular reports and resulting in adequate stocks.
5. To make reports and carry on correspondence and submit expense accounts to the
company periodically accordingly to the instructions given.
6. To carry out miscellaneous activities as might be given to them from time to time
by their superior officers.
7. Submit a journey cycle plan and a daily sales report.

Compensation of Salesmen

The salesmen were placed in the salary grade of ` 3000 - ` 6,000 with an annual
increment of `150. They were also given a fixed monthly allowance of ` 4,500 per
month. Travel and entertainment was on actual. No other reimbursement was allowed
to compensate for travel expenses.

As an incentive the company also granted ad hoc increments to a few salesmen every
year on the basis of their sales performance. Such increments were usually given on
the advice of the regional sales supervisors. Supervisors were also given considerable
authority not only to direct and control, but also evaluate the performance of their
salesmen and recommend for their promotions and advancement in the company.

The marketing manager said that the company favored this system of compensation
for the following reasons:

1. It provided a fixed income to the salesmen. "In the context of increasing cost of
living, rising prices and inflationary pressures, the management felt that it was
necessary to ensure that each salesman got a certain income at the end of every
month with which he could take care of his family and improve his own well
being."
2. From the point of view of management, the system was easy to administer and
simple to operate.
3. The company sold soft selling as well as hard selling items. It was, therefore,
believed that mere sales volume would not indicate the real efficiency of the
salesmen.
4. In addition the market potentials for the company's products differed widely
from region to region. So it was not possible for the company to follow any
uniform scale to measure the performance of salesmen operating in widely
different regions of the country. Under the circumstances, they thought that the
supervisors were in a far better position to judge the efficiency of their
salesmen.
31
5. Finally, the management strongly believed in decentralized responsibility. Since
all the salesmen had to work under the direction and guidance of their respective
sales supervisors, it was felt that it would be better to give sufficient authority to
the regional sales supervisors to direct and evaluate the performance of their
salesmen.

In practice, however, the marketing manager was not satisfied with the method. Very
often he received complaints against the sales supervisors that "they were autocrats
and that they did not assess the performance of the salesmen properly." Some of the
salesmen complained that in order to earn their promotion or advance increments,
"they had to please their boss" and that " no account was taken of their abilities and
skills.”

Situation in 2006

ACPL, which enjoyed almost a monopoly position for a number of years, suddenly
faced competition in the market in 2006. The competition mainly came from three
newly established foreign companies. These companies emphasized quality and price
of their products. They spent a large amount on advertisements and sales promotion.
In addition, each of them had an effective sales organization.

During the period the company also faced certain labour problems in the factory. Due
to workers strike, the factory had to be closed for a few weeks in the beginning of the
years. In addition, some rise in the excise duty imposed by the government, the
company had to increase prices of some of its products. The marketing manager
realized that market conditions were constantly changing and that in order to improve
the company's sales. performance, some vigorous efforts were needed on the part of
the field sales force. So, during the last week of June, he addressed the following
letter to all his salesmen with copies to supervisors.

27 June 2006

"Dear ... [Salesman]:

As the first half of the year is coming to an end, the time is opportune to review our
sales performance during the half-year and also device adequate methods to ensure
that our sales target is not only reached but, with determination surpassed.

The sales performance so far can hardly be described as satisfactory, since it bears
no relation to the target fixed. We concede that this situation is partly due to the
almost complete stoppage of work in the factory for a few weeks in the beginning of
the year. This resulted in our inability to meet the demand of almost all our products.
But it should not be forgotten that our competitors also faced similar difficulties
during this period.

Helpless though we were this period we need no longer by disheartened, for

production is steadily improving month by month, particularly of our fast sellers. In
fact, we may well exploit the situation by capitalizing on the feeling of 'urgency of
need' by every scarcity. With adequate availability of all our products, you should
now go ahead in pushing their sales in the next six months so that the year ends on a
much happier note. Your success in this direction will no doubt depend on general
increase of sales of all our products: nevertheless since we have at least two specialty
32
 items with which our competitors could not easily compete and since these two
together contribute substantially to our total turnover, you should not have any
difficulty in increasing the sales of these specialties at least twofold.

To enlist your fullest support and wholehearted -cooperation, we also plan to offer
you certain incentives. At the end of the current year, we propose to distribute 1 % of
total sales value [all India] of the company as productivity bonus to all the salesmen.
Further, we also propose to give suitable awards to the first four salesmen who top the
list in booking largest number of orders in the wholesale area of the company.

In order to achieve this Object, you should participate with determination and
enthusiasm in the special sales drive on these products. Your supervisor will soon let
you know how many packs of each of these products you are expected to sell every
month. To make it easier, we suggest that you work out the daily average of the three
products to be sold by you so that you will be in a position to take stock of the
situation every day. We would also strongly recommend that you try to book as much
business as possible so that success is assured. Do not leave either a department store;
general cooperative or druggists shop unless and until you secure an order. Please
remember that it is on your personal efforts that the success not only of your own
region, but also of the all India performance will depend.

Substantial stocks of our products are available with all stockiest. They will also be
regularly and adequately replenished. This offers a challenge to your selling capacity
and we are sure that you will face it squarely and successfully.

We wish you every success.

MMarketing Manager/Sd

In December 2006 the marketing manager reviewed the performance of the salesmen of
all the regional territories of the company and wrote a letter congratulating those
salesmen who booked largest numbers of orders.

In his letter, he said:

"We enclose a statement showing the number of orders booked by our salesmen in the
last six months of the year and commend it for your introspective study.

First of all, let us congratulate the following four colleagues who have done their job
exceedingly well.

Name Region No of Orders

Booked
Mr Pal Region I 710
Mr Rajan Region III 600
Mr Satish Region V 520
Mr Kumar Region VI 480

A glance at the list of new salesmen would show that some of them have accounted
themselves quite creditably in comparison to a number of older salesmen.

Congratulations over, let each of our salesmen consider how satisfactory or otherwise
33
his performance is in this direction. Since it is now proved that far many more orders
could be booked by going about the business seriously, he should earnestly try to follow
the example set by these four colleagues.

Although it is readily conceded that the value of the individual order is a very
important factor, quite irrespective of it, the number of orders holds its own
significance. All things considered, this number is a direct index on one's active
enthusiasm in the work. Secondly, the greater the number of orders secured personally,
the better becomes the prospects of fulfilling and even surpassing the target.

To induce you to do your job better, we plan to introduce with effect from January
2007 a cash prize of ` 1,000/- to the best salesman in each region. In assessing the
performance of the salesman not only volume, but number of orders booked will also
be taken into account. In addition, we would continue to provide our prizes to the top
four salesmen in the whole country as usual. Your supervisor will let you know the
minimum target you should achieve in order to get entitled for these prizes.

It is hoped that each one of you would now evaluate your own performance and
improve your chances of success by booking the maximum number of orders in the
coming Year.

Wish you all success,

/SdMarketing Manager

Cc: to all regional sales supervisors

Subsequently, in June 2007 the marketing manager while reviewing the performance
of different regions, noticed that although the company's total sales had increased,
salesmen had concentrated mostly on company's two specialty items and had
neglected all other products. He was surprised to find that even some of the new
products which the company had recently introduced on the advice of sales
supervisors had been totally neglected in most of the regions. In order to review the
sales performance of the company, the manager called for a meeting of sales
supervisors on June 30, 2007.

At the meeting the marketing manager pointed out that many products of the
company had been neglected by them and added:

"I am extremely disappointed at the very poor off take of many of our products
including those which we have recently added to our range of products, I hope you
remember that when some of our competitors introduced similar products almost all
of you were very keen that we too market a similar product. In reference to your keen
enthusiasm, we placed our brand in the market as soon as it was practicable.
Moreover, in view of the later entry of our brand, we deliberately priced it in such a
manner that it was the most economical brand in the market.

It is now amply clear that none of you have paid any attention to this product. This
situation is very disheartening and I would consider that it is due to a lack of selling
efficiency of our field sales force. It is merely due to our lack of attention to the
product ... " .

34
The sales supervisors who attended the meeting complained that this was due to the
company's new incentive plan which placed premium on the number of orders
booked by salesmen irrespective of the number of products sold by them. Further,
they pointed out that the productivity bonus, which the company distributed to all its
salesmen on the basis of annual sales of the company, did not produce the expected
results in practice. All the supervisors agreed with the marketing manager that stock
should be taken to see that all the products of the company were sold with maximum
effort by the salesmen.

After the meeting was over, the marketing manager sent the following
communication to the salesmen working in different regional territories:

27, June 2007

"Dear. .. [Salesman]:,

The management has been very much concerned with the poor sales of many of its
products in the current year. It has been brought to our notice that the salesmen
concentrate more on specialty items to the complete neglect of other products. We
cannot allow this situation to continue.

While we are not in a position to supply our specialty items in larger quantities
hereafter, other products of our company have been in heavy stock and steps should
be taken to sell them. It is realised that achievement of this purpose will mean hard
and sustained work on the part of our salesmen. The management has, therefore,
decided that achievement in the face of these difficulties should be suitably rewarded.
The following steps are, therefore, proposed to be taken:

1) It has so far been the practice that distribution of productivity bonus based on
individual performance has been on a generous basis and, even salesmen who are
far short of their targets have been receiving this productivity bonus, even though
they have been meeting their target. This practice will stop forthwith, and only
salesmen who achieve their area targets will, henceforth, be awarded productivity
bonus under this head. The management will also view with grave concern failure
by salesmen to measure up to their targets.
2) The supervisors will inform each salesman his target to be attained in regard to
each product of the company. He has to fulfill his target in respect of every item.

3) These targets will be 25% more than the sales achieved last year in the respective
regional areas. A cash prize of ` 1000/- per product will be awarded to salesmen
who achieve the targets specified. To explain, if a salesman achieves the target
allotted to him for, say, five products, he will be awarded a cash prize of ` 4,000/-.
If he does so only in the case of four products, then this cash prize will be `
5,000/- and so on. This cash prize will be over and above the productivity bonus
based on individual performance which will be distributed as mentioned in
Number 1 above.
4) The targets given by the supervisors should, in each case, be achieved before the
end of the year. Failure to reach the targets will be considered seriously and
suitable action will be taken against those who do not come up to the standard.

Kindly acknowledge receipt of this letter and confirm that suitable action on all the
points mentioned above is being taken.
35
 Sd/ Marketing Manager"

Copies of the letter were sent to all regional sales supervisors. After a few months,
the marketing manager called another conference of his sales supervisors to review
the situation and consider what further steps to take to improve the company's sales
performance.

Questions

1) Critically, evaluate the sales incentive plan of the company. Suggest measures to
improve the present scheme of incentive offered to the sales personnel by the
company.
2) Discuss the role of financial and anon-financial incentives in motivating sales
force for higher performance in the light of the present case.

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 THE LIGHTENING ELECTRIC PRODUCTS COMPANY

The Lightening Electric Products Company manufacture and distributes low-voltage

electrical distribution equipment used to transmit electrical energy from the service
entrance to the utilization equipment in homes, shops, commercial buildings,
institutions and industrial plants. Annual sales of Rs. 30,000,000 are obtained through
the efforts of 25 salaried salesmen operating out of the 5 districts sales offices in
Bombay, Ahmedabad, Bangalore, Nagpur and Jaipur.

The company employs 500 people working in two plants in Bombay. The products of
the company are marketing through industrial distributors as well as direct to
residential builders, electrical contractors, industrial and institutional buyers.
Salesmen call regularly on distributors and direct buyers about every sixty days,
reporting to the 5 district sales managers, who devote 70 percent of their time to
supervising salesmen in the office and in the field.

One of the problems confronting the company is the loss of capable salesmen to
competitors or other companies in related lines. During the past year, five of the
company's salesmen with good sales records have resigned to take other positions.
The district managers responsible for these men interviewed them at the time they
terminated their services with the company to discover their reasons for quitting.

The termination interviews, with salesmen who left the company in the past year,
revealed the reasons given by the salesmen for resigning as both financial and non-
financial. The principle reason for leaving the company was lack of opportunity
which was expressed as follows: "I don't feel that I have any future. There is no
chance of advancement, there is no security. The company won't give me a better
territory." Other man lacked confidence in the product saving: "Customers are
dissatisfied, the product quality is low, and the market is limited." Three men
criticized the sales leadership of the company on the grounds that supervision was
poor, the supervisor's behaviour was eccentric the salesman's relationship with the
supervisor was too impersonal and not congenial. Several men said that working
conditions were unfavourable because territories were too large and required too
much travel, too much entertainment of customers was necessary, training was poor,
too much time was needed for office work, and reports, and there was too much
customer service work.

The financial reasons given by the salesmen for leaving the company were a desire
for more money; the straight salary paid to the salesmen provided no incentive, some
favoured salesmen were on a better salary basis than others; the best customers are
appropriated by the district manager as direct accounts, and management had made
vague promises of a future incentive that never materialized.

The General Sales Manager of the company was not impressed with the reasons
given by the salesmen for resigning. He denounced the men who resigned as trouble
makers and charged them with creating dissension in the sales organization. On other
hand, he recognized that the good salesmen now connected with the company were
more valuable than any men who could be employed because the risk of hiring the
present men was over. They were already trained in the company's sales methods,
and their sales performance was proved. For these reasons, the General Sales
Manager believed that some measures should be taken to reduce the turnover of good
salesmen and keep them from leaving the company.
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Unknown to the management, another good salesman, Jayant Shah, is considering
the desirability of continuing with the company or leaving to go with a competitor.
Shah has admitted to himself and his wife that he is unhappy in his job with
Lightening Electric Products Company. The causes of dissatisfaction are his District
Manager's indifference to his ability and ideas, and his inability to earn more money.

Jayant Shah is generally not an idle discontented individual. He has led all salesmen
of the Jaipur district office for the past four years. He took over a well-worked
territory from a salesman who retired. He worked hard and in a relatively short time
had doubled the previous sales of the territory. He is ambitious, adventuresome, and
capable, with no intention of letting any grass grow under his feet while waiting for
the district manager to recognize his talents. As he expressed his feelings to his wife,
"If, I can't get recognition and more money, I'll get out". Shah, however, is not one
to make such an important move without first considering all aspects of the situation.
He is 35 years of age. After graduation from Engineering College, he worked for a
few months with a large electric equipment company as an electrical engineer. He
has spent practically his entire business career in the sales department of Lightening
Electric Products Company, starting in the Jaipur district office as a sales trainee then
years ago. He has received a number of salary increases since he joined the company,
yet he feels his earning opportunity with the company is decidedly limited.

His wife is confident that he can achieve his ambitions with Lightening Electric
Products Company as well as with some other firm. She believes that it will be just a
question of time until he is promoted to a district managership, and receives a raise in
salary. He does not feel that he can wait forever for advancement and is undecided
whether he should resign now or remain a little while longer in the hope that
something will open up. Shah is the type of salesman who will constantly seek to
better himself wherever he is employed. He realizes that the risk involved in a more
responsible job with another company is greater than the risk he will encounter in
assuming similar responsibilities with Lightening Electric Products Company. Any
advancement he may receive from his present employer will represent a reward and
will increase his reputation and make more attractive to a competitive in the event he
later decided to go elsewhere.

Although Shah is dissatisfied with what he considers to be the failure of his district
manager to appreciate his ability and recognize his sales accomplishment, he believes
that the General Sales Manager, who has complimented him a number of times, is
convinced that he does good work and is an asset to the sales organization. If he
changes jobs, he may receive even less recognition that he has in his present position.
At least he has seniority with Lightening Electric Products and if he leaves he will
have to start allover again. Shah has heard from other salesmen who were formerly
connected with the company that a substantial increase in earnings can only be made
by going with another company. He believes that he could probably get a better
salary by negotiating with a new employer rather than by trying to persuade his
District Manager, who is the unapproachable type, to recommend him for a salary
increase.

The Jaipur district Manager, under whom Shah began his work with the company as a
trainee, still remembers him as a young newcomer to the force, and this image lingers
in his mind creating an unconscious reluctance to consider Shah for a more
responsible position or increased compensation. In addition to the district Manager's
inclination to consider him as a beginner, Shah also resents the manager's readiness to
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be little his sales accomplishment by attributing them to favourable business
conditions and a good sales territory.

Shah has not made up his mind whether to remain with the company or to resign and
seek sales work with another firm. But during the course of his own evaluation of his
opportunity for greater income and advancement with Lightening Electric Products
and in talks with other salesmen who have left the company, he recognizes serious
weaknesses in the supervisory methods of the company. He hopes he will have a
chance to correct these faults in the event that he is given supervisory responsibilities.

Another good salesman, Madhav Rane, presented an entirely different supervisory

problem for the district manager at Bombay. A high-strung nervous man, Rane had
led the Bombay district in sales volume for the past three years. His sales volume
recently declined, but the district manager was not too concerned as Rane's past
record showed that he was a dependable salesman. However, when Rane's sales
continued to drop, the manager called him in for a personal discussion of his poor
performance. Rane did not seem to know what was causing his declining sales. He
was so discouraged that he wanted to resign.

At the suggestion of the Bombay District Manager, Rane was transferred to the
Ahmedabad district on the assumption that he had gone stale in Bombay and that the
new territory would prove a challenge which could cause him to resume his former
fine sales performance. Rane had no objections to moving to Ahmedabad. But, after
three months in Ahmedabad, Rane's sales declined even further than they had in
Bombay. It was apparent that he could not be kept in Ahmedabad.

Rane was transferred back to Bombay and the District Manager was again confronted
with the problem of helping him regain his former confidence and skill. Analysis by
the District Manager of several previous interviews with Rane revealed that in one
interview he mentioned buying an expensive car, the payments on which plus the
upkeep were beyond his means. Nevertheless, he used the car to cover his territory
and asked for a higher mileage allowance than the Rs. 1.50 per k.m. paid to all
company salesmen. When he was denied the increase in car allowance, he admitted
that he was heavily in debt. Rane's decline in sales coincided with the purchase of his
new car.

When Rane was transferred to Ahmedabad, he had failed to tell the Bombay district
manager that his wife, opposed the move. They sold their home in Bombay and rented
one near Ahmedabad, but the Bombay sale failed to materialize so that had both the
unsold house in Bombay and the rented house in Ahmedabad on their hands. At this
point Rane had disagreement with his wife. However, when Rane returned to
Bombay, the family problem was resolved. In the meantime, their Bombay home had
been sold and they were forced to rent a new home in Bombay at a high rental.

The financial burden prayed on Rane's mind and he become irritable with customers.
His spirits sank so low that he made fewer calls. He formerly talked little about
himself, but now he began to tell everyone his troubles and to bore customers with
these financial difficulties.

The Bombay district manager was at a loss to know how to help Madhav Rane
recover his former selling skill. The General Sales Manager believed that there was
no alternative to discharging Rane as he failed to improve his sales performance.
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