Answer to Question #33889 in Other Economics for abdisamad
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?
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.