The sales quotas development process

4.3.1 Sequential description of the process

4.3.1.1 Development of national sales forecasts

The sales quotas development process starts around May, with the development of the sales forecasts for each of the products in the portfolio. The product managers are responsible for their products’ national sales forecast first draft and for this reason they interact with the medical manager, market research, sales operations and the business unit manager to whom they report. A number of formal meetings are organized in order to get the necessary input from the different stakeholders. Their forecasts are based mainly on historical performance and market trends and consider a few future events that might have an impact on the performance of their products allocating probabilities of occurrence to each of the events and adjusting future sales accordingly. The scope of the forecast considers a three years period, which is revised year on year.

This initial process does not consider any participation from the sales force and although one of the subjects emphasized that there was participation from district mangers, triangulation proved this not to be the case. It might have happened a couple of times in the past but it is not a formal requirement as district managers do not have a holistic view of the business having only a regional focus. Formally, sales representatives channel up the feedback they collect from the field to the product managers through their district managers electronically through email. However, as most of the feedback is anecdotic in nature and it is “assumed” that sales representatives have a vested interest on having a lower sales forecast, the feedback they provide is not formally consolidated and analyzed.

Product managers also develop a forecast for expenses and investments that supposedly goes in line with the sales forecasts they have to produce. However, this proved not to be the case (from the interviews) as they have an “almost” fixed percentage of sales allocated to expenses and investments.

By the end of September, each product manager needs to have a proposal ready to be submitted to international headquarters for approval. At the beginning of October, sales forecasts are sent to headquarters where the numbers are challenged and adjusted following a top-down process. There could be a formal instance for negotiation but the local office has a very small room for manoeuvring. Once the adjustments are introduced, the forecasts for the following year become frozen. No modifications or adjustments are allowed within the current year.

4.3.1.2 Drill-down of the sales forecasts to the sales territories

The national sales forecasts are then distributed to each of the district managers’ areas through an apportionment mechanism that consists mainly on a mathematical formula.

The formula considers a series of variables and allocates certain weight to each one of them. Exemplars of variables are the number of sales representatives in the area, market share and sales increase. Both variables and weights remain fairly stable throughout the years. When there is a new product launch, they take a market of reference (analogue) and distribute sales based exclusively on the share of that market. For one of their recent launches, because they could not get a proper market of reference for that product, they just divided the national sales forecast by the number of sales representatives.

There is a business line meeting late in December where the weights assigned to each of the variables being considered by the formula are discussed and adjusted. District managers provide their feedback on this respect and there is a negotiation process that ends with a final distribution of sales by product to the different areas. The three business lines take slightly different approaches to the delivery of sales goals to their subordinates. One of the business line managers does not allow the district managers to

participate at all in the development of the weights imposing the share of sales unilaterally to each district manager.

Once each one of the district managers have the forecasts for their areas they have to drill them down to each of their sales representatives. Again, the tool is used and district managers are allowed to introduce minor adjustments. However, the sum of the adjustments needs to be zero. What they normally do is to reduce the goals for new sales representatives and put more weight on high performers in order to compensate any expected low performance. They are also allowed to change the phasing throughout the four sales cycle meetings (each one for each quarter of the year). However, the final amount of sales needs to remain the same as defined by the national sales forecasts. The sales cycle meeting is an instance where the plan for the quarter is discussed in detail. It is a cascade-down process starting with a meeting among business unit managers and district managers and then, afterwards, in the subsequent days district managers have their analogue meetings with their sales representatives. At the beginning of January everything needs to be ready to be communicated to the sales representatives in the first sales cycle meeting of the year. Sales representatives have no participation in these meetings receiving just the sales quotas they need to achieve. In general this is assumed to be reasonable and normal and there are not many sales representatives complaining about the sales quotas they receive. Once the goals for each sales representative are defined, the information is introduced into the ETMS system (call reporting system) allowing for the monitoring and assessment of performance and subsequent payment of incentives. After each of the sales cycles, there is an assessment of the progress being made by each sales representative. Incentives are paid based only on sales quota achievement and considering the year as a whole with quarterly advance payments. On each quarter, there is a cumulative payment that gets reviewed and adjusted at the end of the year once the final yearly results are confirmed.

4.3.1.3 Communication

There are several instances where formal communication happens. First, when sales representatives send their feedback from the field to the product managers copying the

district managers. Then, when the product managers prepare their forecasts they have to communicate internally to the business unit managers who in turn have to communicate to the general manager who has to communicate to the headquarters. Then, the cascade down process begins through a series of meetings: one led by the business unit managers and directed to the district managers and another one led by the district managers and addressing sales representatives. There is an instance where performance from the sales representatives is assessed by the district managers and both action plans are developed and incentives are calculated and paid.

4.3.1.4 Control

After the first quarter, performance of each sales representative is assessed by the district managers and, although the goals cannot be changed, action plans for improvement are developed. The ETMS system allows both the district manager and the sales representative to track performance as they could see sales by brick (a small geographical area; could be a postal code or groups of postal codes) as well as number of calls and investments made on each of the targets.

4.3.2 Incentives

There are several informal goals or rather implicit rules of behaviour that sales representatives need to follow in order to earn their salaries. Exemplars of this are the number of times they should be visiting a physician, the quality of the message they should be delivering and the investments they should allocate to each target. However, variable pay (incentives) is based on the quarterly/yearly sales’ goal achievement. For this, they use a matrix system where, on one axis, there is the main product the sales force promotes and certain ranges for goal achievement. On the other axis, they have a combination of the other two products that each sales force promotes and again there are different scales for goal achievement. Each combination allows them to get a certain proportion of € 16,000 (the incentive when they achieve 100%). This represents approximately 30% of their fixed salaries.

Table 4-1: Illustrative example of the incentives matrix being used at Alpha Pharmaceuticals

Source: originated by the author