Districting Problems - Location Science - page 579

23.2.2 Sales Territory Design

The important but expensive task of designing sales territories is common to
all companies that operate a sales force and need to subdivide the market area
into regions of responsibility that are each attended to by one or more sales
representatives. According to Zoltners and Sinha ( 2005 ), approximately every tenth
full-time employee in the U.S. is working as a field and retail sales person and
the expenditure for them is more than three trillion dollars every year. Territories
with low sales potential, intense competition, or too many small accounts lead to
low morale, poor performance, a high turnover rate, and an inability to assess the
productivity of individual territories. Therefore, well-planned decisions enable an
efficient market penetration and lead to decreased costs and improved customer
service and sales. Zoltners and Sinha ( 2005 ) “guestimate” that a good territory
alignment can increase sales by 2-7 % compared to an average alignment. In the
related literature, districts are predominantly called territories and districting is
termed territory alignment or territory design.
In the classical problem, the task is to assign a given set of (prospective) customer
accounts, each with a fixed market potential, to the individual members of the sales
force such that each customer has a unique representative and each sales person
faces equitable workload and travel time and has an equal income opportunity in
terms of incentive pay (Zoltners and Sinha 2005 ). Thus, basic units correspond to
accounts and are usually given as points. Concerning the travel time, if a sales person
visits each customer every day, then the travel time is proportional to the length of
a TSP tour. However, the workload of districts is usually balanced over 2-4 weeks
and some customers may have to be visited only once during this time whereas
others require weekly service. Moreover, customers may have time windows, tours
may include overnight stays, and so on, which makes the actual computation of the
travel times almost impossible. Hence, in most cases one has to rely on estimates.
Typically, a sales person is exclusively responsible for all customers within a specific
geographic region. However, in large companies sometimes a sales person is only
responsible for a certain product segment or accounts of a particular size within his
region. In such cases, sales territories may overlap. For practical examples of sales
territory design see Fleischmann and Paraschis ( 1988 ), Zoltners and Sinha ( 2005 ),
López-Pérez and Ríos-Mercado ( 2013 ).
Three classical sales districting criteria are again balance, contiguity, and com-
pactness. In contrast to political districting, typically more than one performance
measure has to be balanced, for example workload and sales potential. A district
with comparatively many small accounts or customers with low sales potential will
yield lower sales and, hence, lower incentives for the responsible sales person than a
district with an equitable workload but only high potential accounts. This disparity
will lead to discontent among the sales persons and, in the long run, lower sales for
the company. Having said that, only few authors consider more than one balancing
criterion: Deckro ( 1977 ), Zoltners and Sinha ( 1983 ), Ríos-Mercado and Fernández
( 2009 ). Contiguous districts are desired to obtain clearly defined geographic areas