Case Study: Sales Talent: Paying Sales Force Bonuses with Fixed Budget 

Holden, the regional manager of Sales Talent was to take a decision on motivating his sales
force by paying fair and deserving bonuses. Sales Talent is a contract sales company in
Canada that provides sales force for hire to companies in Pharmaceutical industry in
Canada. The key selling feature is that Sales Talent is less expensive than the
manufacturer’s own sales force. Sales Talent has experience in selling prescription
pharmaceuticals to physicians, but has just signed its first contract in 2010(company started
in 2006) with Natural life, a company which wants Sales Talent to focus on OTC products.
There are five natural health products that Sales Talent has to sell for Natural life through
retailers in different locations across Ontario in Canada. The best selling products is a natural
health product for Colds and Flus. In 2010, the OTC market in Canada was estimated to be
around $2.8 bn, and with estimated growth rates of 15% by 2015. Since the industry was
cluttered (top three players held 30% market share collectively), selling and placing products
on retailer shelves was challenging. Differentiating one’s own product on the cluttered shelf
space of the retailers was even more difficult. Locations included any place, which had a
pharmacy, including big box stores, grocery stores, stand-alone pharmacies; these included
stores such as Wal-mart, Shoppers Drug Mart, and Rexall, which sold most of the OTC
products in Canada. As part of the contract with Natural Life, Sales Talent has to work with a
fixed budget for creating incentive plan for the sales force. The company has decided to use
a “contest” incentive plan for its sales force, but is facing difficulties in balancing the goals
of the client(sales role), and meeting the need for the sales force motivation. Any sales
incentive plan to drive distribution must have the following objectives for Sales Talent:

 Sales force behaviors must be aligned with client objectives for the team.
 Sales force must think that the incentive plan is fair and equitable for all.
 Cost of the incentive plan must fit within the fixed budget.

Natural Life

Company’s earlier experience with other contract sales agencies was not good, as the
previous agency had multiple competitor products, in its product portfolio. Natural life
wanted a dedicated sales force for its own product range, without the cost of having an own
sales force. The company was facing the following problems in distribution:
 Increasing the rate with which pharmacists recommended its products to consumers
in the store. There was a chance of 90% conversion rate based on pharmacists’
recommendation.
 Reduce stock-outs on pharmacy store shelves by ensuring larger minimum orders,
projecting demands, and pre-packs.
 Increase the amount of product displayed on shelves since the company paid for the
shelf space, and displays.

The sales force had a great role to play in ensuring all the above three objectives by working
in close relationships with the store managers, and pharmacists to ensure product
availability and display, to differentiate through the clutter of brands in the store. Besides,
Natural Life had three in-house account managers who worked with head offices of these
retailers to ensure stock purchase to fill up retail shelves. The retailers varied a lot in terms
of sales that could vary from $ 75,000 per year for a Shoppers Drug Mart store, to only $
15,000 per year for a top store in Windsor.

Sales Force

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Adapted case study for purpose of class discussion.
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Each sales person had to complete 120 calls per month, or 6 calls per day, although 140
stores per month were expected. Base salary was $ 2450 per month, including $ 300 as car
allowance. Monthly bonus ranged from $ 500 to $ 1500 depending on performance. Each
sales rep was given an iPad to record each call in detail, a Blackberry, product samples, and
promotional materials. Stores with highest sales were visited once per month, those with
average sales- once in two month, and those stores with low volumes-once every 3 months.
An average call took 45 minutes to one hour depending on size of the store, type of
pharmacy, and volume sold. The sales person was supposed to record the availability of
each Natural life product on iPad, and then check product displays on store floor. S/he should
then meet the store manager for discussing stock-outs, incoming orders, displays, missing
products, ordering, and potential demand. S/he should then meet the pharmacist to detail
about one of the products, and check if s/he is recommending the product or not.

Sales Incentive Plan

$ 7000 per month was available to pay sales bonuses. Sales Talent was considering three
options for bonus:
1. Pay based on sales. For example, the sales person who sold highest volume in a
particular month got $1500, the second and third got $1250 each, the fourth got
$1000, 5th and 6th got $ 750 each, and seventh got $ 500.
2. In this option, the sales person will get incentive based on sales as well as
increasing the number of product locations inside the store. For example, if a
salesperson sold highest volume, and came first in increasing product locations,
will get $750 for each of these goals, thus totaling $1500 per month. Similarly for
salespersons with ranks 2nd to 7th.
3. In this option, there was no incentive for sales. Instead, sales person was
incentivised based on number of calls made to pharmacists, and the number of
pharmacist recommendations, as well as product availability and displays (to
patients).

However, the concern of the sales force was that they thought that it did not award the best
performer, but was like winning a lottery. It was also easy for sales reps to misreport the
numbers, since it was based on self-reporting. What can be done to make the bonus
incentive plan motivate the sales force?

Question: Design a new incentive plan that does not have the problems of the
existing three incentive plans, and helps Sales Talent to achieve client objectives.