ALLOCATE: A COMPUTER MODEL FOR

SALES TERRITORY PLANNING

James M. Comer, De Paul University

ABSTRACT
Recent years have witnessed a renewal of interest in the application of manage-
ment science techniques to personal selling related problems. Some early applications
are described in [2] [7]. Cloonan has employed simulation in examination of the
salesman routing problem [3] [ 4 ] . Lodish, in CALLPLAN, has devised an interactive
call planning system designed to assist sales management and/or salesmen in allocating
sales call time more efficiently [ 6 ] . Armstrong has devised a system he labels
SCHEDULE which estimates the value of calls on accounts [ 11. H a s and Samuels
have designed a computer based sales districting model which is an analogue of a
legislative apportionment model [ 5 ] . The objective of this paper is to explore the
nature of a call planning system entitled ALLOCATE. ALLOCATE was designed to
be employed by upper sales management either as an input device for sales manage-
ment decisions such as sales-territory-size, or as a vehicle for determining the effects
of alternative call allocation strategies on territorial revenue over multiple time
periods.

PROBLEM

A fum with a sales territory structure is continually faced with the problem of
the determination of the best call policy. No optimizing technique is possible as long
as it is recognized that (1) the firm changes its objectives from time period to time
period and perhaps from territory to territory, and ( 2 ) the firm has multiple objectives
in determining call policy. For example, the firm may be attempting to achieve market
penetration, keep salesmen busy, increase new business, or retain old business all in the
same territory at the same time, or each separately at different times in different
territories.
Unfortunately, there has not been a medium for projecting with any degree of
confidence the effects on territorial sales over time of alternative call strategies. It is
precisely this problem that the ALLOCATE system is designed to solve.

MODEL AND SOLUTION PROCEDURE

ALLOCATE is a computer model which assigns effort to subsets of customers

and prospects based on their progress toward the saturation stage of the response
curve.' Their progress toward the saturation stage is dependent on the amount of

'ALLOCATE is programmed in FORTRAN IV. It is batch processed on a CDC 6400/6600. CPU

time is approximately one minute, using at maximum 128k.

323
324 DECISION SCIENCES [Vol. 5

effort allocated to them. Since actual time spent on a call can exhibit wide variation, it
was decided to define the independent variable effort in terms of effort units where
one unit equals one hour of salesman call time.

Effort Allocation and Sales Response Generation Process

Figure 1 is a flow chart model of the ALLOCATE allocation system. It is

suggested that the reader refer to the figure as the process is described.
The process begins with the selection of an existing sales territory k . Then a
management effort allocation strategy is read for time period t . The list of all custom-
ers and prospects for territory k is read and one list member j is selected.
j is evaluated in order to ascertain its characteristics.
If j has not purchased from the firm it will be labeled CP (Client Prospect);

If j has previously purchased from the firm it will be labeled:

CEN (Client Existing New) if f s first purchase is within the previous two time
periods.

CEA (Client Existing Acquired) if f s first purchase occurred at least two time periods
previously, and f s sales in the preceding time period were less than or equal to 90
percent of fs sales potential for that period.

CEH (Client Existing Held) if j’s first purchase is more than two time periods pre-
viously and j ’ s sales were greater than 90 percent of j sales potential for that period.

The number of time periods and the 90 percent criterion are variables which may be altered
in the system to suit the environment. The length of the time period is a variable as well.

Once the character of j has been determined, a first approximation of the final
call allocation is made.
If j is in the CP category then:

j is placed into one of six categories on the basis of its sales potential. An effort
amount is then assigned to j based on previous management decision on whether to
maximize the rate or the total probability of conversions for this prospect category.
This decision fixes the effort rate E for a prospect category. In turn this E level
determines a Probability of Conversion figure PCE for j . This PCE figure is selected
from a probability matrix whose elements are Bayesian type figures generated from
management estimates or actual field salesman experience with prospect types. The
expected sales value for j for the next time period (t+l) is generated by:
19741 SALES TERRITORY PLANNING 325

FIGURE 1

ALLOCATE System Model

START

-/Management Allocation Strategy for t/

Client j Selected from

Territory k Client Lis

1
CP (prospect)
effort allo- tomer) effort customer) effort tomer) effort
cation and allocation and allocation and allocation and
sales response sales response sales response sales respoase
projection for projection for projection for projection for
t+l Deriod. t+l period. t+l period. t+l period.

Management
Reconciliation
AED = (TAEa-TREk) Strategy

r .1
Reconciliation
, conducted until
TAEa T&
&
New Reduced Ter-
ritorial Sales

/Print out or store pertinent results/

1-
END
326 DECISION SCIENCES [Vol. 5

where:
= Expected Value of Sales in an upcoming operating period for prospect j .
EVSj, t + 1

MASPj = Maximum Attainable Sales Potential, prospect j .

= Probability of Conversion for prospect j effort level E.

"j, E

SCEi = Existing sales level i at which prospect j converts. If j responds posi-

tively it must be at some sales level which is <
MASPi. Each level is
defined as a certain percentage of MASP.
PR. . I PCj, = Given that a prospect is converted, this is the prospect's Probability of
19 1
Responding at sales level SCE.

The PR. . is a conditional probability figure. It is obtained by selecting a matrix correspond-

I 1
ing to the E value. The rows of the matrix specify both a prospect characteristic (for
example, industry character) and a sales potential level, while the columns define ranges of
alternative proportions of MASP. at which j can convert. Hence, y c h element is the prob-
I .
ability of response PR for that magnitude of conversion level SCE.

If j is found to be in the CEH category then:

since a CEH is defined as being in the plateau area of its sales response curve, no
significant change is expected in future time periods in sales level ( S ) . Therefore. the
effort ( E ) and sales for the next time period were simply extrapolated from the
preceding period. That is:

Ej, t +l = Ej, t

'j, t+ l = 'j, t (3)

If j is found to be in the CEA category then:

an estimate of f s marginal sales response (M) is generated by:

next, an Index of Opportunity (I) reflecting the potential sales gain from J in the
next period for increased allocations of effort is computed:
(MASP. - S . )
J J. t
I. =
MASPj

%he matrices used in the CP allocation, as well as for subsequent customer categories, were
constructed with Bayesian estimates for actual runs of ALLOCATE. The composition and con-
struction of these matrices is discussed in a subsequent section of this article.
19741 SALES TERRITORY PLANNDVG 327

then the estimated dollar response (EDR) for j for the first effort unit ‘‘e” is
computed:

EDR. = (M.) *(I.). (6 1

J J J

It is expected that additional allocations of effort beyond the first effort unit alloca-
ted will have a decreasing response. A matrix was constructed to impart this decreas-
ing response phenomenon to the EDR figure. The rows of the matrix were defined by
effort unit increases and the columns by ranges of marginal sales response (r). The
elements of the matrix are vertically cumulative with the value of any one element
being the sum of the preceding elements. Thus, Expected Dollar Response (EXDR)
per effort unit is generated by:

J 9e J
-
EXDR. = (EDR.) (De,r),

where:

De, = the value of the element of the matrix corresponding to effort level e
and marginal response r.

Sales estimates for the succeeding time period are generated by:

and effort level by:

Pairs of effort allocations and sales responses are generated for each possible effort
unit increase as long as the marginal sales response is postive. (For practical reasons
an arbitrary cut-off point on computation was established based on the value of
5, t + l ) . The pair with highest sales level figure is then assigned to j .

If j is found to be a CEN then:

first an estimated dollar response figure (EDR) is computed in the same way as it is
for a CEA account. Next, due to the scanty nature of data points for a CEN j , a
strong element of risk exists in programmed projection. Therefore, a Probability of
Response estimate (PR) is incorporated in sales estimates for a CEN j to reflect the
increased risk. This entails the generation of estimates of the probability of a j
moving into a sales level (SL) in the subsequent time period as a function of the
amount of effort applied. These probability estimates were obtained by resorting to a
matrix where the rows are defined by effort levels and the columns by percentage
sales change from the present to the succeeding operating period. An element of the
matrix is the probability of a customer having a percentage sales increase equal to
that column magnitude given an effort level increase ( e ) of that row magnitude. A
summation of the row elements must equal one since j must exhibit some sales
response, even zero, the next time period. Sales value for j for the next time period
for effort level e is generated by:
328 DECZSION SCZENCES Pol. 5

where:

S j , t + l , ~ = Expected sales client j , time period t+l, effort level E.

= Sales j , time period t.
Sj,t
E = Proposed increase in effort level for t+l.
EDRj = Estimated DoIlar Response for first effort unit allocated.
= Probability of sales response to sales level r for effort level e.
PRr,e
= Mean of the range of sales level increase r.
SLI
Again, sales and effort pairs are generated and limited in the same manner as for CEA.
Effort level for CEN j is established using equation (9) previously discussed.

The foregoing prooess is continued for all customers and prospects in territory k.
When all j have been evaluated, territorial required effort (TRE) is computed as well as
territorial sales (TS).

Reconciliation Process

Total available selling effort (TAE) for salesman “a” in territory k has been
determined previously. Then an available effort difference (AED) figure is computed :

AED = (TAEa-TREk) (1 3)

If AED < 0 then:

the system switches to a reconciliation routine whose objective is to reduce AED to
zero. It operates as follows:

Each CEA and CEN customer had a spectrum of alternative effort and sales
levels generated. For each pair a marginal Sales D o h per Effort Unit increase
figure (SDEU) was also computed (See equation 14). For CEH only one SDEU
is available for the previous time periods. However, SDEU figures may be
retained from those time periods preceding transition to a CEH state. CP, on
19741 SALES TERRlTOR Y PLANNING 329

the other hand, have only one effort and sales level, and hence one SDEU
figure.
('j,t+l,e -s.j,t )
SDEUj,t+l,e -
-E. )
@j,t+l, e j,t

where:

SDEUj, t+l,e= Estimated marginal sales dollar per effort unit per effort unit for
customer j , period t+l,effort level e.

= Estimated sales for j , in t+l,for effort level e.

sj, t + l ,
= Actual sales for j in period t.
'j, t

Ej, t+l, = Total estimated effort to be allocated to j , for t+l, effort level e.

= Actual allocated effort to j , in t.

Ej, t

The firm may adopt a number of reconciliation strategies which are, in effect,
constrained call policies or effort allocation policies. For the moment, reconciliation
will be unconstrained; that is, available effort is allocated regardless of customer class
or firm commitments to those accounts with the highest SDEU. The reconciliation
process is conducted as follows (see Figure 2 ) :
All customers and prospects are combined onto one list and ranked according to
their SDEU. A client j with the lowest SDEU figure is selected.
If j is a CP, j is dropped from the client list.

If j is a CEH, previous SDEU figures from pre-CEH states are employed. An SDEU figure is
selected which is higher than that of the j+l list member. When they are not
available, ALLOCATE makes linear approximations. The effort and sales figures for
that SDEU value are then assigned to j .

If j is a CEA or CEN the range of alternative effort and sales pairs are searched for a SDEU
figure which is higher than that of the j+l list member. The effort and sales figures
for that SDEU value are then assigned to j . When j is assigned a new effort and sales
value, presumably lower, total territory sales are decreased by S and the avail-
i,ttl,e .
able effort difference figure (AED) is decreased by the increase in available effort
occasioned by the reduction in allocated effort to j .

If AED is still less than zero, then the amount of lost sales (ALS) due to a deficiency in
available effort is computed as well as effort required to acquire it.
n
ALSk= s.
J,t+l
j=1
where:
ALSk= Amount of Lost Sales territory k.
330 DECISION SCIENCES [Vol. 5

FIGURE 2

ALLDCATE Reconciliation Routine

From ALLOCATE system

s e l e c t e d from ranked l i s t

CEA CEN CEH

Peconcil- Reconcil- Iteconcil- A e ~ o n ic1
i a t ion iation i a t ion iation
Process Process Process Process
I I

I
TSk,r = TSk - 'j,t+l,e
I

Lrl
AED + Ej

-
Re rank
Client
List by
New SDEU

Return t o
ALLOCATE
System
19741 SALES TERRITORY PLANNING 331

n = number of accounts j on territory list with sales reduction s.

s = amount of sales reduction for account j for t+l period.

If AED > 0 then:

the salesman had more time available than was required. The value of AED is stored
for subsequent evaluation. The system then proceeds as if AED = 0.

If AED = 0 then:

the system proceeds directly to the next step - the time period decision. (In actual
system operation this option was exercised if AED was within twenty effort units of
zero. The twenty unit margin was instituted because the time period was defined as
six months [26 weeks] and it was felt that a margin of less than one effort unit per
week would imply a precision in system estimates that was not intended.)

The system then questions whether another time period should be run.

If yes, the new sales and effort values for each CEN, CEA, and CEH are used as input into
the next system cycle.

CP, on the other hand, may not respond and hence retain their CP status for the
subsequent time period. A straightforward Monte Carlo process was employed to
determine which CP actually did convert in that time period. If the CP is designated
as converting to the CEN status, the sales conversion rate is the one established in the
prospect estimation procedure with the removal of the Probability of Conversion
value. (CP must move first to CEN status, although a CEN moving out of that
category may move directly to CEH category.)

If no, the results of each subsequent time period are all preserved.

The system next checks to see if there are more territories for consideration.

If yes, then the next territory is evaluated in the same manner.

If no, then for each time period each territory, the following information is printed out:

TERRITORY K

TIME PERIOD. . .“t”

***

ALLOCATION POLICY

TOTAL AVAILABLE EFFORT

TOTAL REQUIRED EFFORT UNRECONCILED

332 DECISION SCIENCES [Vol. 5

TOTAL SALES UNRECONCILED

TOTAL SALES RECONCILED

AMOUNT LOSS SALES

AMOUNT REQUIRED EFFORT TO ACHIEVE LOSS SALES

AMOUNT EXCESS EFFORT (IF APPLICABLE)

A LISTING BY ACCOUNT

TIME PERIOD. . .t+l

***

ALLOCATION POLICY: (This may be changed at any time

by management discretion. It may
vary from time period to time
period and/or from territory to
territory.)

ALLOCATE IN OPERATION

ALLOCATE, as developed, was a theoretical model until data could be acquired

to run it. Therefore, the cooperation of a firm with an adequate data base was secured.
The product the salesman sold was a consumer product, with the salesman calling on
traditional wholesalers as well as on a wide variety of direct retail outlets. The fust
objective in running ALLOCATE was to see if ALLOCATE produced plausible results.
The second objective was to test ALLOCATE’S ability to deal with a variety of effort
allocation policies.3

Data Requirements

The ALLOCATE system requires a considerable amount of data to operate

effectively4 For explanation purposes the required data is grouped into two
categories-Individual Territory Data and Summary Data.

3For the duration of this paper allocation strategy will be considered synonymous with call policy.
4The major portion of this data could be roufinely made available if an efficient management
information system were in operation. The literature is replete with discussion of management
information systems and data collection, etc. The reader is referred to systems specifically oriented
toward sales management (Loyd M. DeBoer and William H. Ward “Integration of the Computer
Into Salesman Reporting.” Journal of Marketing, Vol. 35, No. 1 (January, 1971), pp. 4147).
19741 SALES TERRITORY PLANNING 333

Individual Territory Data. Historical data on salesman calls on each customer

and prospect, as well as their sales response, is required for at least two prior time
periods in each territory examined.
Summary Data. As the firm collects data from each territory, it summarizes and
cross-classifies data on prospects (CP) and new customers (CEN). This data is com-
bined into the matrices described previously in the development of the effort
allocation-sales generation process of ALLOCATE. For example, all calls on prospects
are recorded by type of prospect, whether the prospect converted, and if so at what
sales level. This permits a system subroutine to compute the Probability of Conversion
for each prospect type for each level of effort allocation as well as the Probability of
Response for each sales level of conversion. Since in the field test of ALLOCATE this
type of data was not available, estimates of prospect response by category, by effort
level, and by sales response level were obtained by direct questioning of field salesmen
and sales managers.

Results

The firm’s effort allocation policy (hereafter identified as MAXI) was deter-
mined in a series of personal interviews with management personnel. MAXI’S policy
was that salesmen should aggressively seek new distribution and trust to other factors,
such as strength of consumer preference, to force acquired customers to retain the
product. That is, salesmen in a territory must allocate some minimum portion of their
total available effort (for example, twenty percent) to prospects and new customers.
This means that, if a salesman does not have enough effort available for prospects and
new customers as well as older customers, the effort allocated to older customers will
be cut back.
The necessary data was collected in two sales territories, ALPHA and BETA?
Four time periods of data (six months to the time period) were collected. The first
two time periods constituted the data base for projections. The intent was to have
ALLOCATE project time periods three and four using the stated MAXI allocation
policy and then comparing ALLOCATE generated figures with actual operating re-
sults. Table 1 summarizes the results of that process.
The correlation values for the aggregate territory-wide sales and effort figures
were found to be satisfactory. Individual client categories, on the other hand, ex-
hibited a variety of correlation coefficients, with the CEN and CP classes uniformly
displaying rather low values (not shown). In general, however, ALLOCATE perfor-
mance was deemed acceptable in this ‘%backcasting” validation mode.

Alternative Allocation Policies

MAXI strategy required that salesmen allocate some portion of their effort

’Territory ALPHA was predominantly rural, so total available effort was approximately 435 effort
units for a six month time period. BETA was an urban territory and more geographically concen-
trated than ALPHA. Total available effort in BETA was about 524 effort units, also for a six
month period.
334 DECISION SCIENCES [Vol. 5

TABLE 1
Results: MAXI Allocation Strategy
TERRITORY ALPHA
Period 3 Period 4
Actual Generated Correlation Actual Generated Correlation
Effort 300 33 1 .992 273 342 9 39
Sales 105 86 953 71 62 986
(000)

TERRITORY BETA

Effort 586 554 99 5 402 52 1 974

Sales 229 282 9 40 151 229 941

(000)

toward obtaining and keeping new customers. That is, prospects (CP) and new cus-
tomers (CEN) must be called on continually. Older customers (CEA and CEH) are to
be called on, but not at the sacrifice of CP and CEN. Two somewhat different alloca-
tion strategies were devised-ALT 1 and ALT 2. Under ALT 1 , new customers receive
the maximum necessary effort, then older customers, and finally prospects. This
means that where effort time is unavailable prospect calls will be sacrificed to calls on
older customers. Under ALT 2, older customers receive all the effort allocation they
require. Newer customers and prospects are called on in that order only after the sales
potential of older customers is fully exploited.
Territory BETA is used as a basis for illustrating the differential effects on sales
of alternative allocation policies since only BETA required reconciliation-that is, had
excess required effort (AED < 0).
Table 2 presents the projected required effort in Territory BETA under all three
strategy alternatives in both Periods 3 and 4. Only two of the six aggregate territorial
required effort estimates (TRE) are less than total available effort (TAE = 524 units).
This occurs in Period 3 under ALT 2, and in Period 4 under GENERATED MAXI.The
excess under other strategies can be explained as follows: (1) The “rules” of the
strategy did not permit further reconciliation. For example, in Period 4 under ALT 2,
CEA and CEH customers cannot be included in reconciliation; and, in Period 3, under
GENERATED MAXI,CEA and CEH had received their minimum allocations and CEN
and CP cannot be included in reconciliation. Thus, no effort reductions could be made
under either strategy. This means that if these strategies are scrupulously observed, the
territory cannot be adequately covered with one salesman. (2) In the system,
reconciliation was instituted only to within a twenty effort unit range of TAE. That is,
if, after a customer had its initial effort assignment reduced in reconciliation, the
amount of the reduction, when subtracted from TRE, produced a TRE of less than
twenty effort units plus TAE, the reconciliation process was halted. It is this twenty
unit margin which is responsible for the ALT 1 territory estimates exceeding TAE in
Periods 3 and 4.
19741 SALES TERRITORY PLANNING 335

TABLE 2
Effort for Territory BETA

Period 3 Period 4

Customer Generated Generated

Class Maxi - -
Alt 1 Alt 2 Maxi Alt 1 -
Alt 2

CEN 25 0 0 21 0 0
CEA 344 359 372 384 405 33 1
CEH 161 177 144 93 127 216
CP 24 0 0 23 12 0

TOTAL 554 536 516 52 1 544 547

The effort required for any customer or prospect class did not seem to be
unusual either in terms of total amount or in comparison to other class requirements.
As might be expected it was observed that, as the allocation strategies require more for
the “older” existing customers in reconciliation, a greater proportion of available
effort is assigned to them. In the extreme case, under ALT 2, one hundred percent of
available effort is assigned to the CEA and CEH classes.
As demonstrated in Table 3, Period 3, sales estimates under the ALT 2 strategy
were the highest, with an aggregate territory estimate of $334,044.That is, according
to the system, if the available effort had been allocated in Territory BETA according
to the ALT 2 strategy it should have produced $334,044 in sales. In the same manner,
if strategies MAXI or ALT 1 had been employed, sales should have been $282,871 and
$294,769 respectively. It is obvious that the more conservative strategy ALT 2, which
concentrates exclusively on customers, generated greater immediate sales than
did any of its counterparts. The possibility exists, however, that the CP and CEN sales
“lost” under ALT 2 (which is not indicated by Table 3) will eventually, over time,
overcome and offset the immediate additional sales gained under ALT 2 from CEA
and CEH type accounts.
In Period 4, aggregate sales estimates under the MAXI and ALT 1 strategies were
approximately equal at $229,234 and $232,761. Since there was a difference of
$12,000 in estimated territory sales between these two strategies in Period 3, this
convergence in Period 4 should be attributable to some event which occurred in Period
3 under MAXI which did not occur under ALT 1. The only difference between MAXI
and ALT 1 was that under MAXI prospective customers were allocated effort, while
under ALT 1 they were not. It appears, therefore, that the new sales obtained in
Period 4 from prospects converted under MAXI in Period 3 have begun to offset the
Period 3 sales advantage derived from ALT 1’s concentration of effort on new and
 336 DECISION SCIENCES [Vol. 5

older customers. In spite of the increased sales from new customers in Period 4 under
MAXI and ALT 1, the sales estimate for ALT 2 ($261,555), with its concentration of
effort on older customers (CEA and CEH), was clearly superior to either MAXI or
ALT 1.
TABLE 3
Sales for Territory BETA

Period 3 Period 4
Customer Generated Generated
Class Maxi Alt 1 Alt 2 Maxi Alt 1 Alt 2

CEN $ 1,125 $ 000 $ 000 $ 12,611 $ 000 $ 000

CEA 165,301 158,405 175,908 142,012 140,745 93,697
CEH 115,752 136,364 158,096 72,960 91,397 167,858
CP 693 , 000 000 1,651 529 000

TOTAL $282,871 $294,769 $334,004 $229,234 $232,671 $261,555

Sales management can, by simple subtraction, develop an estimate of the

amount of lost sales for each time period for each territory for alternative allocation
strategies. To obtain an undiscounted estimate for multiple time periods, sales esti-
mates for each strategy may be summed. For YEAR 2 (Periods 3 plus Period 4), sales
derived under the ALT 2 strategy ($595,559) far outstripped those of ALT 1
($527,440) and MAXI ($5 12,105).
It was observed that under the ALT 2 strategy once the customers in the CEA
and CEH class received their assigned effort allocation none of the available effort
remained for allocation to the CEN class in either Period 3 or Period 4. As a conse-
quence not one of the customers classified as CEN received any effort and the GEN-
ERATED sales estimates were considered “lost.” In addition, under ALT 2 none of
the CP accounts received any effort allocation or generated any sales. In Periods 3 and
4, “lost” CP and CEN sales exceeded $50,000 (not indicated by Table 2). Thus
$50,000 was considered to be the estimated “cost” in YEAR 2 of retaining the
existing Territory BETA configuration and employing strategy ALT 2. In Period 3 it
was apparent that ALT 2 sales estimates exceeded MAXI estimates by approximately
$50,000 and ALT 1 by $40,000. In Period 4 ALT 2 sales estimates exceeded MAXI
and ALT 1 by about $30,000. Since ALT 2 sales exceeded ALT 1 sales by $65,000 for
the year this meant that the $50,000 “loss” for Territory BETA from CEN and CP
under ALT 2 was more than compensated for by the projected sales gain from CEA
and CEH accounts.
Two conclusions that may be drawn about Territory BETA are: (1) As long as
the territory’s existing boundaries were maintained, strategy ALT 2 was clearly supe-
rior to MAXI and ALT 1 because it produced a higher sales volume for a smaller
amount of allocated effort. Furthermore, since effort requirements under ALT 1 and
19741 SALES TERRITORY PLANNLNG 337

MAXI had to be reconciled with available effort in one or more time periods this
volume could be obtained within existing territorial boundaries but at the cost of
prospect and new customer sales; (2) The allocation strategy presently employed by
MAXI Corporation is only superior to ALT 1 and ALT 2 if available effort is in-
creased. This second conclusion was drawn from figures produced by ALLOCATE
under MAXI when the total available effort constraint was removed. The results indi-
cated that without this available effort constraint, the firm should, in Period 3, al-
locate 650 effort units to customers and prospects producing aggregate territory sales
of $384,526 (not shown). From a planning viewpoint this implied that if the firm
wished to retain its old strategy, it could input 650 effort units through the addition
of a second salesman and/or territory revision, and generate about $384,000 in sales
from this customer and prospect set.

SOME ALLOCATE LIMITATIONS

This system has a number of limitations, some mechanical, some theoretical.
First, the system is confined to employment in a firm whose product or products lend
themselves to a territorial structure. Second, it is expected that the costs of system
construction can be justified only in a firm where personal selling is employed on a
substantial scale. Third, the system requires copious amounts of data in order to be
operated successfully as a planning system. However, the data is available for the firm
to collect, for once objectives are known, with a concentrated effort, it can be accom-
plished at a reasonable cost within the confines of most firms' existing information
processing systems. Fourth, no lag effects on sales of allocated effort was permitted. It
was assumed that all effects were manifested in the time period allocated. Lag effects,
however, may be introduced by adding a decay effect of effort allocation on sales
response. Fifth, no attempt was made to compute profitability of alternative strate-
gies. By the assignment of fured and variable costs, profitability estimates by strategy
by territory may be computed. Finally, in attempting to establish system validity there
was wide divergence between actual operating results and system generated estimates
for prospects and new customers. This may result from a fundamental system weak-
ness. If so, system modifications are indicated. Three other possible sources of the
CEN and CP divergence are: First, management estimates were employed in the res-
ponse matrices replacing hard data on effort allocation and sales response. These
estimates may have been inaccurate, thus distorting system output. Second, this was
an ex post fact0 validation; that is, salesman effort allocation was not controlled to
conform to ALLOCATE norms. Salesmen could have followed an allocation strategy
of their own and not observed the MAXI strategy. Third, the client environment could
not be controlled, so certain market conditions may have been perturbing sales res-
ponse or the response probabilities by an unknown value. What is needed, therefore, in
any of these individual or combined circumstances, is additional testing of AL-
LOCATE designed to deal with these questions.

ALLOCATE CONTRIBUTIONS
ALLOCATE! provides management with the opportunity to test the effects on
sales revenue over time of alternative effort allocation strategies. What is more, since
338 DECISION SCIENCES Pol. 5

strategies can be varied on a territory-by-territory basis, greater flexibility in adapting

to local needs is obtained.
ALLOCATE can also be employed in sales-territory-size decision problems. A
firm can determine the effects over time on sales territory effort and sales figures of
changes in the account composition of that territory. This is accomplished by adding
or subtracting an account from a territory (conversely subtracting and adding to a
contiguous territory) and re-running ALLOCATE. Thus, alternative territory effort
requirements and sales responses for a given strategy are produced. These figures,
especially possible Sales b s s figures, are extremely important in deciding among
alternative territorial changes.
It takes time .to acquire and train good field salesmen. ALLOCATE can provide
sales management with territorial growth projections which may give them the lead
time necessary to hire the appropriate salesman. Furthermore, ALLOCATE can help a
new salesman learn more about his territory in a shorter time.

CONCLUSION

Sales management’s concern with the wide-ranging problems of salesman selec-

tion, motivation, management, etc., is well documented. In their quest for problem
solutions, even temporary ones, they have utilized the methodology of management
science. It is expected that methods such as suggested in this paper will assist in the
search for better salesman management techniques.

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