Product Being Sold Are Industrial

¶ … product being sold are industrial grade heating, ventilation and air conditioning (HVAC) units which include advanced electronics, advanced product packaging to protect them from extreme climate conditions, and advanced metalworking to support air flow scenarios as defined by customers' unique requirements. While the company sells these HVAC units throughout all 50 states, the majority are sold in those southwestern, mid-western and southern states that typically have the highest temperatures year-round. As a result the majority of these HVAC units are sold throughout Southern California, Nevada, Arizona, New Mexico, Texas, and with heavy sales activity throughout Louisiana, Mississippi, Alabama, Georgia and Florida due to the high levels of humidity that pervade these latter set of Southern States. As production centers are located throughout the U.S. And the forecasting systems in place to serve the sales force are stable and perform consistently well, there is rarely if ever a shortage of HVAC units for commercial customers. This includes the supply of HVAC units specifically designed to the customized needs of commercial customers.

Strategies for Defining Sales Territories

In defining sales territories it's critical to first start with the strategic plan for the HVAC division of the company, specifically focusing on volume, profit margin and lifetime customer value objectives. In the defining of sales territories, the processes by which sales representatives will attract, sell and serve commercial HVAC accounts needs to be determined. According to Gartner (2006) the need for making territory assignments transparent, fact-based, equitable, logically determined, with reasonable opportunity to attainment, all focused on having optimized coverage for the HVAC products and services being sold. The intent of this paper is to list the potential approaches to defining territory assignments nationally for the commercially available HVAC products, and then make a recommendation as to which model or approach makes the most sense.

The first and most obvious approach is to define geographic, exclusive territories for each set of states. The highest performing salesmen would be assigned to the most active states, which would be in the Sunbelt and southern states, as the sales quotas in each of these areas would be the highest. This purely geographical approach to defining sales quotas and aligning the top sales representatives to region of opportunity by level of salesmanship is what many organizations do on both a local and regional basis as well. While this geographical approach to building territories is the easiest and quickest, it is seldom the most profitable (Allen 2001).

A second approach to defining territories is to segment potential and existing customers by the size and type of businesses they are. In the case of selling commercial HVAC systems, the minimum size of company typically has either a manufacturing or office operation that generates over $3M in revenue per year, and can range well over $100M. In addition, the variations between selling to manufacturers vs. companies whose main businesses require office space takes a completely different selling skill set. These variations are further exacerbated by the fact that selling HVAC equipment to private industry vs. To colleges, hospitals, schools and universities is a completely different skill set. For these reasons many companies organize their sales territories by size of customer and vertical market, which in this example would be manufacturing, office environments or state & local government. This model of defining and executing sales territories is also supported by the work of Duetscher, Burgoyne, Grundman, Marshall (1982). This research team also observed that the main requirement for success in this segmented approach to defining sales territories is the ability to align specific technical skill sets with the exact requirements of the customer segment looking to be sold to. Also supporting this strategy is the observation of both Duetscher, Burgoyne, Grundman, Marshall (1982) and Kelly and Hise (1979) that the greater the extent of integration of product management and engineering expertise with the unmet needs in a specific market, the greater the success of the territory plan in attaining its objectives. Clearly the defining of sales territories specifically by size of company and vertical market has many advantages.

A third approach that could be taken in defining a territory management strategy for commercial HVAC selling is to choose to use an indirect or multi-tier distribution channel vs. one that is direct or single-tier territory assignment. Typically companies who need to rely on indirect channels as part of the selling strategies need access to larger accounts while at the same time having reseller partners who provide much-needed technological expertise. It is rare to find companies who rely completely on one approach to defining their territories; often indirect channel strategies require sales representatives to concentrate their efforts on top-tier distributors and resellers who are capable of generating the greatest revenue at the lowest cost. This type of territory strategy works very well when combined with the vertical market experience and extend of customer relationships these distributors and resellers have in the markets of interest to any manufacturer. In the case of selling HVAC systems, the reliance on an indirect channel strategy that includes the assignment of distributors and resellers who in turn both sell to dealers and to their own top accounts is one of the more effective territory strategies for gaining distribution in highly competitive markets quickly. As was mentioned earlier, there is often also a blending of both the indirect and direct territory and channel management strategies of companies, as the largest end users or customers are often called "house" accounts and are managed by executives in headquarters. Clearly this approach to defining territories is the most cost-effective as it doesn't require as many sales representatives as the purely geographic, or the company size and vertical market orientation one does, both of which predominantly rely on a direct sales model, which doesn't include channel partners or resellers.

Of the three dominant approaches defined above for defining sales territories the major considerations of salesperson productivity need to be kept in mind as well. Specifically focusing on reach and frequency, activity of the sales reps, population, workload, the ROI of the specific territory strategy and the need for often blending these attributes of territory assignment are all critical decisions. In the context of the purely geographical model, the ability to get between client appointments is often time-consuming, and in many sales organizations leads to "busy work" of just getting as many call reports in as opposed to making the effort to see only the highest value customers. Geographically-based territory assignments also are inherently inefficient from the mapping of sales calls to the ability to stay connected with top prospects and the continual focus on gaining greater business with existing customers. What becomes often the most frustrating aspect of the geographic approach to defining sales territories is the wide variation in the type of businesses being called on and their specific needs.

The second approach to territory assignment of relying on company size and the vertical market the company participates in has much merit for the HVAC manufacturer's needs of being able to align product engineering, product management, and service departments to the unique needs of each segment of customers. This approach when used in conjunction with a direct sales strategy also favors hiring sales representatives who are experts in the specific vertical markets they are selling into. This approach to defining territories also often leads to solution selling strategies where the sales representative has the opportunity to become a trusted advisor to the customers in their targeted vertical market segment. Companies including Cisco, Hewlett-Packard and others have successfully used this approach to defining sales territories, as their respective product strategies have eventually become influenced by the unmet needs of customers in these segments. This is evidenced by the fact that both Cisco and Hewlett-Packard have made small business a core focus on their selling efforts in the last twelve months.