“Eureka Forbes Ltd. – Managing the Selling Effort”(A) Case study

Introduction The Case “Eureka Forbes Ltd. – Managing the Selling Effort”(A) is all about the Eureka Forbes Ltd and in the case there is a good learning about the role of a sales rep and the design of effective sales management and compensation systems in a direct sales organization is presented EFL was established in1982 as a joint venture between the Forbes (India) Group and Electrolux of Sweden. Euro clean vacuum cleaner Aquaguard vacuum were some of the leading products of the company. The company offers broad range of industrial cleaning products targeted for the health and safety of consumers and their homes reflect a corporate vision that embraced the customer as a „Friend for life. One of the company‟s most recent model was Euroclean Bullet which incorporated „Deep Cleaning+‟ as a technology designed for cleaning delicate electronics as well as drapes and carpets and the like. The business strategy of the company deals with using the direct sales approach without the involvement of the middlemen & company followed performance linked pay system.

It involves targeting customers at home in order to enhance extensive

presentation, demonstration and customer objection handling. In this case there is also a deep discussion about the EURO champs was presented so understand who are EURO champs “EFL recruited primarily young men in their early 20‟s from lower middle class homes. These recruits were expected to be able to read and write effectively in both English and local language. EuroChamp s were basically customer sales specialists who have the responsibility of front line sales representative. Their commission was linked to the performance they did”.

Analysis of the Euro Champs jobs & their critical evaluation: The EuroChamps task was result oriented. However no importance was given to how they achieved this task. So the end was more important but the means to achieve the end are not important. Due to the direct sales approach of the company and performance linked pay system being followed the EuroChamps focused just on targets. 1. The selection of the EuroChamps is not based on the academic criteria. It is mainly based on the subjective judgments of the people. Due to this it may be possible that efficient EuroChamps may not be recruited since their recruitment is purely judgmental. 2. Also, the training which they received was not adequate. Due to which it was observed that the EuroChamps ignored the art of responding to customer objections. 3. Lack of clarity and lack of communication of company‟s expectations led to the improper and inefficient performance of the EuroChamps.

4. The commission of the company was related to the sales the EuroChamps made and the targets they achieve. Hence if there is no sale happening, EuroChamps prefer to exit very quickly. 5. Poaching takes place in the company. The focus is on buying talent from other leading organizations by offering lucrative offerings. Thus raiding/poaching is seen a lot in the company because result is more important than the means of achieving the same. 6. Less attention is given by the EuroChamps on relationship building. The job of the EuroChamps is a high pressure job. It is a high pressure job in terms of the physical, psychological and economic conditions involved in it. The psychological pressure of the job makes it very important for the company to focus just on results and targets more than anything else. This phenomenon is thus cyclical as too much focus on results leads to psychological pressure and too much focus on psychological aspects leads to more result oriented approach

Situational Analysis: In 1980s Eureka Forbes had launched a number of new products that were new in the market. These products were intended to bring in a better quality of life in Indian homes; however the need for these products were not felt among the potential customers, hence the customer‟s first need to be convinced of the importance of these products i.e. selling the concept and then be persuaded to buy the product. Selling the concepts to customers depended on extensive presentations, demonstrations and customer objection handling, hence it needed considerable human interaction, thus the Euro Champs were expected not only to sell the product, but before that build a good customer relationship, sell the new concept to the customer and then enter into a sale. Thus Mr. Goklaney expected his Euro Champs to not only focus on sales, but also on good customers relationships. At that time The Old Compensation Scheme was there for Eurochamps & base Compensation structure of a EuroChamp included salary, rent allowance, leave travel concession, holiday bonus, medical reimbursement and travel reimbursement. Commissions were earned on the basis of sales volume. A EuroChamp could earn as much as two thirds of his monthly earnings in the form of commissions. In a month a EuroChamp was required to give 60 demos, do a minimum sale of 10 and have an average of 50 customer contacts. Thus a lot of emphasis was laid in number of sales done and earning commissions accordingly.

Other forms of recognition for high achievers included membership in Achiever‟s club, Silver Circle Club, which were platforms to promote excellence of performance. The high performers in these clubs were given full expense paid holidays in various international destinations. Strength of the Current System 1. Highly result oriented System, where commissions were directly impacted by the number of sales done. 2. Direct contact with customer is possible as there is no middle line of distribution. 3. There is no limit to the commission one can earn, as it is dependent on the number of products sold. 4. Transparent system of compensation, where performance of each employee and the commission earned is known. 5. Recognition of high achievers through membership in exclusive clubs with awards and paid holidays in attractive destinations. 6. Compensation was directly related number of products sold.

Limitations of the Current System

1. Achieving maximum sale was objective, how it is achieved was not important. 2. The main concern of the employee was to just complete the task than understanding the addressing the concerns of customers and winning their confidence. 3. No importance of good customer relation was seen among the employees, they were interested only in making a sales deal. 4. If a Sales representative is not able to sell any product, he would not earn any incentive, hence his morale would go down and his performance would further deteriorate if he is not able to come up, and this will lead him to quit the organization.

The New Compensation System Instead of compensating the employees solely on the basis of sales volume, the new system would award points for successful completion of each stage of the selling process, and link compensation to the points scored.

Bigger goals were divided into smaller targets so that the EuroChamps motivation and Spirit is kept high. Daily target setting and recognition by superiors was done.

Strengths of the New System  Clarity of the various processes of sale and how each stage has point to be earned.  Every stage was important so there would be no usage of unfair means, like poaching other employee‟s customers and regions.  Daily recognition of performance would put a control on low performers and hence would lead to low attrition.  Productivity of low performers would be improved.  Number of daily demonstration would increase.  Customer engagement time would be enhanced.  Morale and Sprit of the sales team would be improved.  Sales productivity and overall sales quality will improve.

Limitations of the New System  EuroChamps focus of “making sales” would get shifted to earning more points, with no end result.  Nonperformers with substantial points, but without any actual sale would get rewarded.  Daily filling of activity report forms by EuroChamps was time consuming.  Daily monitoring and tallying the point of EuroChamps performance required considerable time in paper work and also training in using the spreadsheet of the computerized reporting system.  No method to prevent the EuroChamps from overrating their efforts in order to gain more points and earn more money.

Problem Identification Suggest which compensation plan is better and what changes to the sales compensation systems would better motivate his sales force and improve their sales performance.

Solution:

Let us first have a brief look at the new scheme: 1. The new scheme was named: “Bettering the Best”. 2. As per the new scheme the focus shifted from compensating based on the end result to the entire process of reaching there i.e. not only the end but the means adopted for the end is also necessary. 3. Daily recognition is introduced; a EuroChamp can be now recognized by his superior at least 10 times a day. 4. A monthly reward of Rs.500 can be earned by the top performing employee in their departments. After analysing whole of the case in my views it would not be wise to implement this scheme as it is. Some reforms need to be made in it and then implemented. No doubt the intention behind this scheme is to motivate all the EuroChamps, including the low performers and lift their spirits,There is many good things in the new scheme like Linking various stages of selling process to the compensation: Organization follows the slogan of “Your friend for life” for its salesmen. The proposed compensation plan truly allows them to adhere to this motto as compared to existing compensation system. Because rewarding only through sales volumes doesn’t achieve that. While in the proposed plan, the EuroChamps achieved the points for different phases of the selling process like door knock, demo, attending meetings and purchase. So it served the multiple purposes of improving sales productivity, improving the spirit and morale of the sales team, improving overall quality of the sales. It might help to reduce current attrition rate of the organization which is one of the factors for revision of the compensation system. Consequently, it will serve company’s business strategy of customer services.

However due to some of the following reasons there is some room for improvement where this scheme is lacking like: 1. Financial rewards: Current financial rewards linked to the points system were too small to make any difference. Once the sales rep realizes how much effort he needs to put in before he got something in return. Financial rewards should be linked for all stages separately. This would ensure the accountability for all the stages.

2. Equality of opportunity: Changing demographics have made some territories more lucrative than others. Senior representatives who claimed more popular territories or poached sales in areas assigned to new sales representatives were a source of conflict and tension within EuroChamp ranks. In relation to commissions, the central issue in this regard is how sales territories or customer portfolios are determined. Here, carelessly drawn line on a map made a substantial difference to the sales potential of the territory and the compensation plan fall into disrepute. Not only that, the emphasis on sales volume had an impact that the EuroChamp who can‟t learn to sell doesn‟t get a commission. This individualistic approach led to customer dissatisfaction and also losing opportunities in the lucrative territories. 3. Selling efforts of EuroChamps: It might be possible that one salesman has achieved more points in the preliminary stages of door knock, demo etc but he has earned less points for less sales. Another salesman has earned fewer points in preliminary stages but more points in terms of final selling. 2 nd salesman is more beneficial to company as he performs to get more sales as compared to 1st salesman. More return on investment is for 2nd salesman. There is no solution suggested for such situation in proposed plan.

Reforms need to be made in New Compensation Scheme:1. There is a scope for getting compensated equally even when the EuroChamps call has not been converted to sale. This way a EuroChamp with say point 1000 having 2 sales (600 points each) and a EuroChamp with same 1000 points but only 1 sale (300 points) would be compensated the same and sense of inequality would creep in.Because of the this discrepancy non-performers would earn points but there would be no result. For e.g. there is a possibility of someone earning 1000 points solely on the basis of door knock, demo and attending meetings. 2. To keep track of every EuroChamp would mean too much time consuming and tedious work for the sales manager. The sales manager‟s major time would go in this which would affect their performance. And this would give rise to inflationary risk of self-reporting 3. A trade-off would always exist between improving organizational performance (sales) and earning more points. If the organization succeeds in providing proper training to the EuroChamps and putting across its value system, it would not be very difficult to make the EuroChamps abide to their morale and keep them motivated to achieve the targeted sales through this new scheme