Answer to Question #33889 in Economics for abdisamad

Question

Many firms employ salespeople who are assigned exclusive territories. No salesperson may enter another’s territory and attempt to sell the manufacturer’s product there. Construct a theory to explain why firms adopt this practice. Does your theory suggest what kinds of products will be sold in this way and what kinds will not be?

Answer 1

A sales territory comprises a number of present and potential customers,located within a given geographical area and assigned to a salesperson, branch,
or intermediary (retailer or wholesaling intermediary).

In this definition, the keyword is customers rather than geographical. To under stand the concept of a sales territory, we must recognize that a market is made up of
people, not places—people with money to spend and the willingness to spend it.
A market is measured by people times their purchasing power rather than in
square miles.

A company, especially a medium- or large-sized one, can derive several benefits from a carefully designed territorial structure (see the accompanying
box “Benefits of Good Territory Design”). Unfortunately, poorly designed
territories are all too common because sales executives fail to monitor and
react to changes in the market. Over time, some territories gain potential
customers at a faster rate than other territories. Some territories might even
lose customers. Eventually, territories that once were fair and equal become
unbalanced in terms of their sales potential. This is why sales executives must
consider revising the territorial structure on a regular basis.
In select circumstances that typically involve small-sized companies, sales territories are not necessary. For example, formal
territories may not be needed for a small company with a few people selling
only in a local market. In this case,management can plan and control sales
operations without the aid of territories and still enjoy many benefits of a
formal structure. In addition, lack of territories may be justified when
personal friendships play a large part in the market transaction. This is one
reason automobile dealers and commodity and security brokers usually do not
district their sales forces. Highly specialized sales engineers also may serve
in troubleshooting assignments or be called in anywhere to help close an
important sale.