Final Research

SALES FORCE MOTIVATION IN THE CONSUMER GOODS MARKET IN VIETNAM: A CASE STUDY OF THE TOILETRIES AND BEVERAGES INDUSTRIES. by Luong Vu Quang A research study submitted in partial fulfillment of the requirements for the degree of Master of Business Administration Examination Committee Dr. Mark W. Speece (Chairman) Dr. Lalit M. Johri Dr. Clemens Bechter Nationality Vietnamese Previous Degree(s) Bachelor of Economics Hanoi National Economics University Hanoi, Vietnam Scholarship Donor Government of Switzerland Asian Institute of Technology School of Management Bangkok, Thailand April 1999 Abstract There is no doubt that motivation to the sales force is very important in sales management, especially in Vietnamese today’s conditions, where selling as a career is in its infancy stage. The conditions impose difficulties for sales management to determine what motivates salespeople and how to motivate them effectively. Thus, this paper aims to make clear these issues in two sectors: joint ventures (JVs) and state owned enterprises (SOEs). With in-depth interviews with nine representative companies of the two sectors, the research finds that, though in the same macro-economic conditions, salespeople in JVs place more value on high order rewards such as training, recognition, promotion. Meanwhile their SOEs counterparts show more interest in low order rewards such as salary/commissions, fringe benefits, job security and stability. This is mainly because sales and sales force management in JVs are more professional, systematic than in SOEs. To improve, JVs need to fine tune current practices while SOEs need fundamental changes. Specifically, the research suggests that, JVs should employ a multi-ladder sales system and SOEs should replace their centrally-planned minded sales managers by market-oriented ones. Acknowledgement For the completion of this research, I would like to express my deepest gratitude to Dr. Mark Speece – Chairman of the Examination Committee – for his continuous guidance and encouragement throughout the research period. I also would like to express my profound gratitude to Dr. Lalit Johri and Dr. Clemens Bechter –Committee Members of the Examination Committee – for their continuous comments and advice during the conduct of this research. Great thanks to my friends, the sales people and the companies that have helped to collect valuable information which is essential for the completion of this research. I also wish to express my thanks to the Switzerland Government for providing the scholarship in AIT. Sincere thanks to all of my friends at SAV and AIT, who have been sharing with me the studying and living during the program. I am extremely grateful to my beloved brothers and sister for their understanding, supporting and inspiration through my life. And, no word could possibly express my gratitude to my parents. Their loving encouragement and many sacrifices could never be forgotten. Table of Content Chapter Title Page Title Page i Abstract ii Acknowledgement iii Table of Content iv List of Tables vi List of Figures vii 1. INTRODUCTION 1 1.1 Rationale of the Research 1 1.1.1 Role of motivation to the sales force 1 1.1.2 Selling as a new career in Vietnam 1 1.2 Problem statement 1 1.3 Research objectives 2 1.4 Information needs 2 1.4.1 From the sales reps 2 1.4.2 From sales managers 3 2. LITERATURE REVIEW 4 2.1 Model of salesperson motivation 4 2.2 Previous findings on motivation of the sales force 5 2.2.1 Expectancy estimates 5 2.2.2 Instrumentality estimates 6 2.2.3 Valence estimates 6 2.2.4 Fairness 7 3. RESEARCH METHODOLOGY 8 3.1 Data collection 8 3.1.1 Companies investigated 8 3.1.2 In-depth interviews 9 3.1.3 Interviewing and data processing 10 3.2 Scope of the research 11 3.3 Research Framework 12 4. FINDINGS 13 4.1 Introductions to the two sectors: JVs and SOEs 13 4.1.1 State owned enterprises (SOEs) 13 4.1.2 Joint ventures (JVs) 13 4.2 Background findings 14 4.2.1 Channels 14 4.2.2 Recruiting 15 4.2.3 Orientation 18 4.2.4 A typical sales rep’s profile 19 4.3 Motivational perceptions 20 4.3.1 Effort – Performance Relationship 20 4.3.2 Performance – Rewards relationship and Fairness 22 4.3.3 Valence of rewards 22 4.4 Motivational practices 31 4.4.1 Setting up motivational policies, incentive packages, or/and campaigns, programs 31 4.4.2 Communicating these program to sales reps 33 4.4.3 Monitoring and facilitating implementation 33 4.4.4 Evaluating, reinforcing and improving the programs 34 4.5 Limitations and directions for future studies 34 5. RECOMMENDATIONS 35 5.1 To joint ventures: creating a parallel multi-ladder sales system 35 5.1.1 A parallel multi-ladder sales system 35 5.1.2 Benefits of a parallel multi-ladder sales system 36 5.1.3 Disadvantages of a multi-ladder sales system 37 5.2 Recommendations to SOEs: recruiting a new sales head 37 5.2.1 Prerequisites and feasibility of the suggestion 38 5.2.2 Why does recruiting a new sales head help? 40 5.3 Conclusions 40 REFERENCE: 42 APPENDIX 1: GUIDELINE QUESTIONS FOR INTERVIEWS 44 APPENDIX 2: RANKING OF THE IMPORTANCE OF REWARDS 45 List of Tables Table Title Page Table 1: Sample of companies investigated 8 Table 2: Sample of interviewees 9 Table 3: A typical sales rep’s profile 20 Table 4: Perceptions on motivational factors 31 List of Figures Figure Title Page Figure 1: A model of salesperson motivation 5 Figure 2: Typical structure at JVs and SOEs 10 Figure 3: The research framework 12 Figure 4: Sales force and Distribution arrangements 15 Figure 5: An example of a parallel multi-ladder sales system 36 Figure 6: Vicious circles at SOEs 38 Chapter 1 Introduction Rationale of the Research Role of motivation to the sales force According to Douglas and William (1998), by nature, salespeople handle such type of a job that is Hard since they have to frequently deal with new people, namely customers, who are tough and demanding. And they only start selling when customers say “No”. Flexible and self-controlled because salespeople spend majority of their time out of office. Ambiguous in terms of roles perception since they have little supervision and under pressure from dual masters: their customers and their companies. Thus, managing sales force requires more motivational methods rather than controlling ones. Quite many researches, studies have been working on the issue of how to motivate salespeople to achieve their most productivity. However, almost all of these studies were carried out in developed countries, far fewer studies were carried in developing countries. So the first issue this paper aims to address is whether motivational techniques that work in developed countries can also applied developing countries like Vietnam? Selling as a new career in Vietnam Vietnam has recently emerged as a new developing country. Vietnam was a closed and highly centrally planed economy until 1986. Under this economy, there was no real selling since selling to whom, at what price, at what quantity, etc. are determined from the government. As a result, there are no real salespeople. To shift to a market economy, Vietnamese government has been undertaking “doi moi” program (meaning economic renovation program) to open the economy since 1986. The move forces companies to do real selling tasks, and some employees become salespeople. The “doi moi” program has also brought in several foreign firms, who are helping to build a professional sales career in Vietnam. However, selling as a career in Vietnam is characterised with no systematic education, very fragmented (because each company develops its sales force differently), and no clear way to develop. In this situation, at the infant of selling as a career, the question of how to motivate salespeople becomes more blurred to sales managers in Vietnam. Thus, this paper would like to contribute to make clear motivational issues of the sales forces in Vietnam. Problem statement Thus, this research aims to address these issues of what motivates salespeople in specific conditions of Vietnamese economy at the time being? And how can management utilize these factors to increase their sales forces’ productivity. Research objectives Specifically, the research’s objectives are as follows: To find out what factors field salespeople in Vietnam perceive as motivators to them and what factors sales managers perceive as motivators to their subordinates? Money: salary, bonus, fringe benefits, commissions. Management’s recognition: medals, certificates, titles. Prizes: physical valuables like mobile phones, motorbikes, watches, etc. Work supports: tools that facilitate doing a job. Training Advancement opportunities Job achievement Job security and stability Freedom and supervision To compare Joint Ventures’ (JVs) motivational practices to salespeople and that of Vietnamese State Owned Enterprises (SOEs) in: Setting up a motivational policies, incentives packages or programs, Selling (communicating) these programs to salespeople, Monitoring and facilitating implementation of such programs, and Evaluating, reinforcing and improving the programs. To try to recommend applicable models for sales management in Vietnam to motivate their subordinates. To joint ventures To state owned enterprises Information needs To achieve the above objectives, following information is needed. From the sales reps What factors do they value most in term of motivating them: salaries, fringe benefits, prises, recognition, work supports, advancement opportunities, training, responsibility, job security and stability, autonomy, and supervision. What are salespeople’s opinions about effort and performance relationship? What are salespeople’s opinions about performance and rewards relationship? How do salespeople value the rewards? Are rewards worth their effort? From sales managers Do sales managers understand their salespeople’s motivational factors? How are quotas set? What are criteria to evaluate salespeople’s performance? How are rewards given? What are the most frequently used rewards? How do sales managers design, implement an incentive program, and evaluate its effectiveness? What are compensation and promotion policies? What is a typical sales rep’s profile? Chapter 2 Literature review Model of salesperson motivation In general, a person is motivated to do a task when he himself desires to put effort into the task, continues to put forth or expend his effort over a period of time to fulfil the task (Douglas and William, 1998, p 483). There is a lot of literature on how a person gets motivated. The most influential theories include Maslow’s (1970) hierarchy of needs, Vroom’s (1964) expectancy theory, Herzberg’s (1987) hygiene-motivation theory, and equity theory (Adams, 1976). According to Maslow (1970), one has five levels of needs and the lower level must be satisfied before the next higher level is sought. The five levels are as stated in terms of sales management by Douglas and William (1998, p 520) as follows: Basic needs like cash wages and bonuses, Safety and Security needs such as job security and fringe benefits, Belongingness and Social needs such as President club for more than $1 million salespeople, Esteem needs like recognition, and Self-actualization like challenging tasks calling for creativity. In his hygiene-motivation theory, Herzberg (1987) classified factors into two types: hygiene factors are those make workers feel dissatisfied if these factors are not sufficiently available but they do not make workers feel satisfied if there are more than enough of them. These factors usually are company policy and administration, supervision, salary, work conditions. Only motivation factors make workers feel satisfied with their presence. These factors usually are achievement, recognition, work itself, responsibility, and advancement opportunities. Vroom’s (1964) expectancy theory and Adams’s (1976) equity theory are the two main theories that explained the process of human being motivation. These theories provide the basic ideas for the model of motivation of the sales forced described in following paragraphs. Walker et al. (1977, 1979), Douglas & William (1998), and Futrell (1991) combined and developed these theories specifically into the field of sales force motivation. According to these authors, motivation of a salesperson is a function of (1) expectancy, (2) instrumentality, (3) valence, and (4) fairness. This is shown in Figure 1. Expectancy refers to a salesperson’s question “if I try harder, will my performance improve?” In essence, it is the salesperson’s perception on effort – performance linkage. The stronger the belief that the answer is “Yes”, the more likely the person spends more effort on the task. Instrumentality refers to the salesperson’s question “if my performance improve, will I get rewarded for that?” In other words, it is the salesperson’s perception on performance – rewards relationship. Again, the stronger the belief that the answer is “Yes”, the more the person wants to improve his performance. Valence refers to the person’s question “Are the rewards worth trying for?” This means how valuable rewards are perceived to the recipient. Obviously, the more important the reward is to the person, the harder he will try to achieve those rewards. Fairness refers to how his rewards are compared with others’ rewards in relative terms, i.e. by value of a ratio between each person’s rewards over that person’s contribution. If a salesperson thinks his ratio is somehow similar to his peers’ ratios, he will feel fair. If he feels fair, he will exert more effort. Figure 1: A model of salesperson motivation The above model works this way: If the salesperson believes that his additional effort will lead to improvement of performance AND he will be rewarded for that performance improvement AND rewards are valuable to him AND rewards are fairly given among reps, the salesperson will probably feel satisfied, thus he will put more effort into the job. The multiple sign reflects the relationship among the four factors: All the factors must be present if motivation is to be achieved. Managers’ task is to assure a strong “Yes” answer to each and all of the above questions. Previous findings on motivation of the sales force How to assure a strong “Yes” answer to each of the above questions has long been managers’ tough challenge. Now we will see what has been done to get the desired answer in each element of the model. Since no research has been done on the issue in Vietnam, the present research uses some findings in studies carried out in the US, China, Hong Kong, and South Korea as benchmarking ideas. Expectancy estimates Obviously, how much effort to put on a specific task is within each salesperson’s control. Therefore the person’s perception on this relationship depends on what it means by performance and improvement of performance. Previous researches show that these concepts, in turn, depend on job descriptions, systematic evaluation (Yoo and Lee, 1987), specific organizational procedures and practices (Chung and Lee, 1989) and feedback or communication in an organization (Alan et al. 1994). These help sales personnel have a clear picture of what is expected from them so they could direct their effort into right areas or “working smarter” (Barton et al. 1986). Benson and Stephen (1980) also found that clear task is the most important determinant of salespeople’s motivation. Feedback and communication are critical in informing salespeople about how they are performing and how much improvement they have made. This helps them realize the linkage between effort and performance (Alan et al. 1994). Cron et al. (1986) found that salespeople in different career stages have different expectancy estimates since they have different experience and knowledge. The more experience a salesperson acquires, the better the person can guess his performance. That means salespeople in later career stages have higher expectancy estimates. Instrumentality estimates Clearly, this relationship depends on how rewards systems are designed. For example, if it is a straight salary, sales reps will not see why they have to try harder and still get the same amount with less effort. But, if it is a commission salary, “salespeople know how much they will be paid for each sale and that their incomes will increase as a result of more sales” (Douglas and William, 1998). Thus, rewards systems should be designed in a way that effort is rewarded properly. However, “pay-for-performance” is not an easy task since one cannot always clarify any task (Benson & Stephen, 1980). Feedback and communication also play an important role in making salespeople have clear instrumentality estimates since feedback and communication confirm, enforce, and reinforce salespeople’s belief that better performance will be rewarded (Alan et al. 1994). Instrumentality estimates also vary with career stages due to two reasons. One, role perception becomes clearer when a salesperson proceeds into later stages. Two, the person becomes more committed with the organisation. Therefore, salespeople in each successive stage (with the exception of disengagement stage) have higher instrumentality estimates (Cron et al. 1986). Valence estimates Finding what really motivates salespeople has long been manager’s most difficult area. This is probably the richest documented area on motivation. Maslow’s (1970) hierarchy of needs theory and Herzberg’s (1987) hygiene-motivation theory fall in this area. The common assumption is that people seek things to satisfy their needs, and the things they seek are motivators to them. In sales settings, Futrell (1991, p 373) classifies these factors into seven categories as a motivation mix as follows: Sales climate: ceremonies and rites, stories, symbols, and language. Basic compensation: salary, commissions, and fringe benefits. Special financial incentives: bonuses, contests, and trips. Non-financial rewards: opportunities for promotion, challenging work assignments, and recognition. Sales training: initial, ongoing, and sales meetings. Leadership: style and personal contacts, and Performance evaluation: method, performance activity and publicity. Douglas and William (1998) and Cron et al. (1986) argue that a salesperson’s needs vary in accordance with career stages. Walker et al. (1985) confirmed this by stating that young salespeople have higher attraction to higher order rewards such as promotion, personal growth opportunities while older salespeople place relatively more on money. Stephen and Benson (1980) found in the US context that the most important determinants of motivation to a salesperson are (1) a clear task, (2) need for achievement, and (3) type of compensation plan. Some of the factors found in the US are applicable to Asian salespeople while some are not. For example, Keun and Anil (1997) found that overall model of relationship among organizational formalization, role stress, organizational commitment and propensity to leave developed in the US can be applied in South Korea. While Alan et al. (1994) found that US salespeople have higher valence for pay increase, job security, promotion, formal recognition, personal growth and development, and worthwhile accomplishment than their Japanese and Korean counterparts. Even though within China, salespeople in Hong Kong have different set of motivators to their Mainland salespeople (Sandra, 1998). Fairness Equity theory (Adams 1976) states that a worker’s perception on fair rewarding depends