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Seal-Rite Envelope Company

Seal-Rite Envelope Company's sales manager, Rose Douglass, noticed that there was some conflicting data in previous reports when conducting a routine profitability analysis. Previous reports state that the firm's direct selling costs per call were about $110 considering a $22 million sales volume for 2006. Of this, sales representatives got an average order amount of $440 each as the firm's average gross margin amounted to roughly 25%. The average order amounts barely covered the cost of direct selling expenses, leaving overhead expenses unpaid; clearly, an issue that needed to be addressed. Rose was able to bring up data in her computer representing the firm's customer database to try and find more information. The data was not ideal, and the conclusion was made that this issue was most likely a result of misdirected marketing efforts. Rose is now in a pickle, trying to build a drafted solution for the concern at hand.

Data presented in Seal-Rite Envelope Company's customer database is referred to as Table 15-1A, also attached below. One of the problems indicated was that many customers are unprofitable, more specifically smaller accounts that are under $2,000 in annual sales. Another issue was that sales representatives are spending too much time calling on these smaller accounts when they should be focusing on their efforts for building loyal relationships with the larger accounts. Altogether, the average selling expense per customer amounts to 20.1% with an average of 5% in operating profit. This is a large gap in finances for a business that should be reliant on their products' quality to show value to their customers' needs. Operating profit to selling expense does have more positive implications when looking at higher annual customer volume, however, the issue of representatives focusing on smaller accounts enhances the decline in ratio as the customer value goes down. With the total 43,693 calls made, at $440 per order requirement for sales representatives, the numbers simply do not add up. Misdirected marketing efforts can occur in firms when salespeople do not orderly make their sales quotas and the company exceeds their marketing activities (sales calls) based on a given budget from revenue brought in. The key is to impediment the use of an 80-20 rule, ensuring given roles are properly managed. 80% of all company sales should come from only 20% of the sales force, similarly that 80% of company sales should come from 20% of all customers. The distribution of sales efforts is disproportionately not coordinated with revenue being brought in, resulting in the company's overhead costs unpaid.

Rose needs to get her sales representatives calling on the right customers the right number of times. This may involve limiting the number of calls made on those small accounts (under $2,000 in purchase volume per year). Instead of visiting those types of customers on average, roughly seven times per year (number of calls divided by the number of accounts), perhaps representatives should only call on them 2-3 times per year. If employees called on these types of accounts less frequently but were able to "build the sale" on each of the calls, they would become profitable for the firm. They may be able to do so by planning ahead with the customers for supply needs in the next fiscal quarter. Rose may even decide if these customers would be better handled via telemarketer, direct mail, or through their web page. Perhaps, they just aren't ordering enough to justify the sales team's time. Although the representatives should continuously be prospecting for future business, they must be efficient in selecting who they spend their valuable time with. Likewise, Rose may want her employees to spend more time calling on customers who buy in higher volumes. Since they are so successful in terms of operating profit, it would be beneficial for the firm to move other customers into this class.

In terms of implementation, Rose needs to meet with her sales force to discuss this data. Many of the sales representatives may be under the impression that frequent calls on small buyers prove to be just as profitable of an approach as calling on larger customers. In fact, Rose would need to review her sales force compensation plan to ensure that the insight provided by her analysis is incorporated. In making these kinds of changes, Rose can help her firm move towards a "directed" marketing effort.

Some obstacles that may arise in these problem resolution recommendations mainly revolve around individual performance pride. There could be some backlash that occurs when Rose brings up the issue with her sales team as they might feel she is diminishing their hard work efforts. If the issue of sales representatives calling on smaller buyers too often is addressed in a negative manner, it is likely that they will feel their work is not appreciated or that they are "not good enough" even though there was no previous instruction for what customers they should be focused on. Outside of sales representative obstacles, the company itself could risk its reputation and revenue. The sales team has worked to build a relationship with their smaller buyers due to continuous check-ins made by representatives. Buyers enjoy being loyal along with feeling a personal connection with who they do business with. If Seal-Rite reduces their calls made to the ones who make the most purchases, buyers could feel they are "forgotten" or simply no longer matter anymore, leading to them walking away. Given that these small purchasers make up such a majority of sales, it could result in less revenue brought in; especially if the sales force is unsuccessful in bringing in more large buyers.

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