Stories from the field
A big supplier in the industry had a clear objective: to grow the placements of their key growth brand in as many locations as possible. This brand had shown tremendous potential for growth and the supplier was determined to capitalize on its success.
As the distributor for the brand, the leadership team was fully aware of this objective and knew that it was crucial for their own success as well. They wanted to make sure that their sales team was fully focused on achieving this goal, and so they came up with an innovative solution: a pay for performance (PFP) incentive.
Under this program, the sales team would receive a bonus for every placement of the key growth brand that they secured. This not only provided a financial incentive for the team to focus on this brand, but it also served as a way to track and measure their progress.
The announcement of the PFP incentive was met with enthusiasm from the sales team. They were excited to have a clear and tangible way to contribute to the company’s overall objectives, and they were determined to make the most of this opportunity.
The first 30 days
Over the next month, the sales team executed on their objective with renewed energy and determination. They worked tirelessly to secure placements for the key growth brand in as many locations as possible, using every tool and resource at their disposal.
As the month progressed, it became clear that their efforts were paying off. The placements of the key growth brand began to increase at an impressive rate, and it wasn’t long before the sales team had achieved an 80% placement rate across their accounts.
The distributor’s leadership team was thrilled with this success and praised the sales team for their hard work and dedication. They knew that this achievement was the result of months of tireless effort and that it was a testament to the team’s skills and expertise.
The supplier, too, was pleased with the results. They had set out to grow the placements of their key growth brand, and thanks to the hard work and dedication of the sales team and the distributor’s leadership, they had achieved their goal.
14-week reports
As the weeks passed, the distributor noticed that their placement rate for the key growth brand had started to decline. At first, the decline was gradual, but soon it became clear that something was seriously wrong. As they looked at the data more closely, they were shocked to see that their placement rate had plummeted to zero. It was as if they had never even sold the brand at all.
The distributor was puzzled by this sudden drop in performance. They knew that their sales team was strong and highly motivated by the PFP incentive, and they couldn’t understand why the placements of the key growth brand had suddenly come to a halt.
Determined to get to the bottom of the issue, the distributor launched an investigation to find out what was going on. They interviewed their sales team, analyzed sales data, and visited stores to see the brand in action.
Through their efforts, the distributor discovered that while they had indeed secured placements of the key growth brand, they had not been able to maintain the velocity in the stores.
Research at the store level
As the distributor continued their investigation into the decline in placements of the key growth brand, they started to see patterns emerging that helped them understand the root cause of the issue.
One of the main issues they identified was that the sales team had secured placements for the brand, but they had not always been in the best spots.
Upon further examination, the distributor discovered that the sales team had often opted for quick and easy placements, rather than ones that would actually influence consumer buying behavior. This was especially true for the PFP incentive, where the sales team was motivated by the financial rewards and focused on securing placements as quickly as possible.
The data showed that when the packages of the key growth brand were placed on the same shelf and merchandised properly, velocity went up by 65%. However, in many cases, the distributor’s sales team had not taken the time to ensure that the packages were placed in the optimal location.
For example, the distributor found that in one account, all four targeted packages were in the store, but none of them were next to each other. This made it difficult for customers to find the brand and reduced its visibility in the store.
Cost of poor incentives
As the VXP team, we often see examples of mis-aligned incentives leading to unintended consequences.Â
As we break down the costs of this program, the distributor realized that there is a real cost to their sales reps who are not focusing on the bigger picture. By not focusing on placing the packages together, the reps quickly earned their $10/placement bonuses. But it also meant that the packages were not creating the “billboard” effect on the shelf, leading to low velocity and few rebuys. Data showed that when all 4 packages were placed together on a shelf, the velocity of sales increased by 65%.
The unintended result of this mis-aligned incentive was that it was completed quickly, but without any long-term success— The distributor lost money in the long-term despite a great distribution drive.
The supplier made profits by selling the cases to the distributor, the sales reps made profits through their bonuses, but the distributor was left with low volume and no profits in their bank. The reps earned $10/placement, but the distributor only made $9 in gross profits, resulting in a loss of $4 in each store.
Same rep different results
The behavior of the sales reps in this classic PFP program is a common issue that many companies face when trying to drive sales and growth. Sales reps are naturally motivated by financial rewards and are often willing to do whatever it takes to earn their commissions. This can lead to short-sighted decision making and a focus on quick and easy placements, rather than ones that will truly influence consumer buying behavior.
This is where the VXP system comes in. By refocusing sales reps on three key metrics – volume, profit, and finished product loss (FPL) – the VXP system helps to shift the focus from short-term commissions to long-term growth and profitability.
In the case of the distributor in this story, the VXP system would have helped to properly focus and incentivize the sales reps to go the extra mile to place the key growth packages that the supplier was focusing on next to one another. These packages had strong growth potential and were also very profitable, making them a huge opportunity for the sales reps.
Overall, the VXP system is a powerful tool for companies looking to drive sales and growth in a long-term sustainable and profitable way. By refocusing sales reps on key metrics and incentivizing them to make strategic decisions, the VXP system helps companies achieve results that are truly transformative.
Ready for your transformation?
If you’re interested in learning more about how the VXP system can influence the behavior of your sales team and drive the results you’re looking for, reach out to the experts on the VXP team. We can provide insights and guidance on how to implement the VXP system in your organization and achieve transformational results.