Introduction
The Midwest Risk Management company has been selling personal lines of insurance, such as life, accident, and health coverage since 1987. Douglas Powell, since 1995 is the sales manager of Midwest looking after the southern district sales. The vice president of marketing has announced his intentions to expand the product line to the professional liability market concentrating on lawyers and CPAs since these professionals need protection from lawsuits by clients. And Doug has been instructed to use five salespeople out of twenty-five from his team to start the professional liability market in his area and his team has to achieve 10 percent penetration.
The southern district team has the lowest turnover rate and has been either first or second in the premium income generated. The company has been providing part of the premium percentage as commission to the agents. The sales force has been getting compensation mix of base salary and quarterly bonuses for the attainment of quotas. The salesperson is rewarded on the basis of their performance and on the basis of Doug's ability to identify and also the performance is evaluated on the basis of past year income generated and current year income comparison. Doug and his team have to spend a lot of time to in the professional liability market in contacting the professionals, so he has suggested that the sales force should also be evaluated on the basis of no-selling tasks. Doug has listed a comparison selling activities between the life, accident, and health insurance and professional liability insurance. Douglas intention is to create a flexible compensation system for both types of sales job.
Discussion
1. Could the vice president of marketing be premature in expanding into the professional liability market? Develop a sales plan for Doug to follow as he enters this new market.
The vice president of marketing has made a good decision to make expansion in the company's product line. He has seen that the professionals need protection from the lawsuits by clients so for such purpose the professional liability seems to be a good offering to add up in the service line. It is now the responsibility of the sales managers to provide the right way of marketing the product and prepare the sales force accordingly. The vice president of marketing has made matured decision to expand the product line into the professional liability market.
A sales plan is important to define sales target, making strategy, motivate salespeople, plan a budget, and review goals periodically. Doug has to follow four factors to make a sales plan to enter a new market: situation analysis, opportunities and problems, action programs, and performance evaluation systems. The market situation and completion in the market should be analyzed by considering different market factors like market size, market share, and product sales situation. Internal and external environment analysis, sales forecasting, and contingency planning helps Doug to determine the opportunities and problems in the market and in the internal resources. Use of corrective strategies and tactics as action plans will help to achieve the goals and objectives. A performance evaluation system will help to know the level of progress being made in achieving the objectives where a sales manager can compare the actual and planned standards, and help to take corrective measures accordingly.
2. Evaluate Doug’s current appraisal system for his agents. What are the current strengths and weaknesses of this system?
Compensation mix of base salary, commission, and bonus are provided to the agents working under Midwest Risk Management. Bonus are quarterly and based on attainment of quotas. Agents who are selling the policy are paid commission from the part of the premium percentage they were able to generate as agreed upon. The current appraisal system for the agents is based on the comparison of the performance of each agents premium produced for the current year with the previous year. Doug prepares a report based on the performance evaluation of each individual with recommendations to make changes in commission and base salary. The evaluation reports are submitted to the vice president of marketing for further actions.
The strength of this system is that it helps to improve the performance of each agent and individuals, a base salary of motivating factor already exists. Besides salary, commission based on premium percentage is also provided and the bonus is paid in quarterly basis based on quotas. The appraisal process will help to detect the deficiencies in the sales force and help to suggest corrective measures. The evaluation of performance will increase and improve the efficiency of the salespeople. The activity quota motivates the salespeople to increase the number of new customers.
The weakness of this system is that it is prone to biases since the sales vary according to the potential territories. The division of the territories may hamper the sales performance of the sales force since every territory may not have equally potential customers to meet the quotas. Contrast error will occur since the current year premium is compared with the past year and sales may not be the same every year. Also, the main weakness of the current system is that the reward is based on Doug's ability to identify the productivity of the salespeople.
3. Given the operating objectives for the professional liability market, which selling activities should be emphasized for the professional liability sales force? How much effort should be devoted to each sales task?
For the professional liability sales force prospecting for new accounts, obtaining endorsements for clients-affiliated professional groups, contacting prospects, and qualifying the prospects should be emphasized as the selling activities. New professional groups should be identified since the company has just started the service line in this sector so the utmost priority at the beginning should be preparing a list of those potential groups. Secondly, the service offering should be planned for those professional groups by researching on the problem they are facing from the lawsuits from their clients and the endorsement plan should properly include a hard time for those professionals.
Thirdly, after the list and the endorsements plans are ready the potential professionals should be reached through various mediums like calls, mail, or face-to-face meeting to let them know the professional liability plan has been created for their hard time. Finally, the salespeople should invest time in those professionals who seem to be interested in the company's offerings.
4. How would you develop standards of performance or quotas for the professional liability sales force?
The standards of performance are set to identify the key factors to measure salesperson effectiveness in performing the activities to achieve the goals. The assessing factors are outcome-based, behavior-based, and professional development measures. The outcome-based measures are quantitative and help in measuring goals, measures, standards, and consequences. This standards in details can help to measure objectives like sales orders, sales volume, customer accounts, return on investment and sales, selling expenses, and customer services.
Behavior-based measures help in designing sales activities, like sales call preparation, scheduling, routing, and time utilization, customer relationship management, and report preparation. This measure helps to allocate each salesperson different customer, and location to handle and can be useful in determining their performance.
Professional development measures do not have a direct impact on sales, it shows the professional qualities of the salespeople. This standard helps to differentiate salespeople about their skills and qualities like presentation skills, communication skills, and ability to impress the customers, knowledge about the product and the competitors, and ethical towards the job. By observing these qualities, salespeople can be assigned the task according to their capabilities.
5. How would you compare the productivity of the professional liability sales force with the performance of the life, accident, and health insurance sales force?
Normally, the sales activities for both the professional liability sales force and the life, accident, and health insurance sales force are the same. Due to saturated and small-sized market of the professional groups, it is easier to identify the potential customers but equally, it is hard to convert those into numbers. That means the sales force for professional liability needs extra effort and moreover, they should have a high range of skills. They should have high presentation skills, communication skills should research deeply about each professional groups, and they should be good at making strategies.
The endorsements plan are lesser for the professional liability groups and might differ according to the professionals so the return on sales might be pretty low in comparison. But in case of productivity, the professional liability sales force group are ahead due to their high skill and time they have to devote to each task. Also, the need to maintain client and professionals group relationships will help the professional liability sales force to invest lesser time in future to reach new prospects.
6. Will any changes be necessary for the compensation package? If so, what?
The current compensation packages are very effective to motivate the sales force as we can see that the turnover rate is impressively low. Though the plan is good, there are quite a few things that should be addressed in the current compensation package. The rewarding system for the sales force from the ability of Dough to identify should be completely removed as this will create errors and biases like stereotyping, contrast error, similar-to-me error, first-impression error, and leniency or harshness error. The agreed-upon quotas between the sales agent and sales manager should be removed and quotas should be based on sales volume quotas, financial quotas, activity quotas, and combination quotas.
Additionally, indirect compensation plan also should be provided for motivating like social security, pensions plan, health and life insurance policies, and vacation packages. One or two packages should be added to the current package for the sales force according to their experience level and skill.
Conclusion
In conclusion, we can say that the performance evaluation should not be only based on the income generated by the sales force but there should be consideration of time and effort devoted by them in non-selling tasks. Non-selling tasks include the time to collect and contact the list of potential customers, making a sales presentation, and various missionary selling task. The performance evaluation should be different for different nature of jobs as we can see the differences between the professional liability insurance and the life, accident, and health insurance since the time that required to identify the professional's group is much harder than the normal people.
Also, the evaluation system should not be based on the personal evaluation by the sales manager, different types of evaluation systems like 360-degree performance appraisals, performance appraisals of team selling, and performance review ranking system should be used to do the unbiased evaluation.
References
Unknown. (2016, June 21). Create a sales plan. Retrieved May 27, 2019, from
https://www.business.qld.gov.au/running-business/marketing-sales/sales/sales-plan
Ayres Crystal. (2017, October 5). 12 Advantages and Disadvantages of Performance Appraisals. Retrieved May 27, 2019, from
https://connectusfund.org/12-advantages-and-disadvantages-of-performance-appraisals
Unknown. (Unknown). Types of compensation. Retrieved May 28, 2019, from
https://www.uth.edu/hr/department/compensation/types-of-compensation.htm
