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Pharma Talent Paying Sales Force Bonuses Within A Fixed Budget Case Solution
Holden Garabedian, a regional business manager for Pharma Talent, was sitting at home mulling over the structure of and problems with his newest sales team in Ontario. Pharma Talent was a contract sales company for pharmaceutical companies across Canada. The company promised its clients that its representatives would drive sales at a lower cost than what the client would incur if it had its own sales force.
Following questions are answered in this case study solution
The Sale Force
Evolution of the Bonus Structure
Case Analysis for Pharma Talent Paying Sales Force Bonuses Within A Fixed Budget
Garabedian’s main concern was the bonus structure for his representatives. In order to meet the client’s high standards, Pharma Talent had all teams on a pay-for-performance structure. Historically, the company had contracts with products that targeted physicians (e.g., prescription drugs or medical devices). Garabedian, who had joined Pharma Talent in July 2011, was leading the company’s first contract with an over-the-counter (OTC) product. In this contract, representatives called on pharmacies across Ontario.
Typically, the pay-for-performance structure was based solely on the sales made by each representative. Unfortunately, Garabedian noticed immediately that this was not in line with how the client wanted to drive business in each pharmacy. Furthermore, due to the structure of the different territories in Ontario, many of Garabedian’s team members thought the bonus was unfair and very discouraging.
Garabedian knew he had to fix the bonus structure quickly. He had both the client breathing down his neck as well as his team not working as productively as he would like. He needed to ensure that the bonus structure accomplished three main objectives:
That it promoted behaviours that aligned with the client’s objectives for the team and reinforced behaviours that ensured that Pharma Talent was meeting the client’s goals.
That the team felt that it was fair and that everyone had an equal opportunity to be the top performer.
That the total cost of the sales team was within Pharma Talent’s budget for this particular account.
The OTC pharmaceutical industry was comprised of all pharmaceutical products that could be sold without a prescription, including cough and cold remedies, vitamins and minerals, medicated skin products and traditional medicines. In 2010, the Canadian OTC market was valued at $2,728.91 million and was expected to grow by 15 per cent by 2015.2
The industry was very fragmented, with the top three leaders holding only 30.5 per cent of the market. Johnson and Johnson (Tylenol, Band-Aid, Listerine), GlaxoSmithKlein (Abreva, BreathRight, Tums) and Jamieson Laboratories (vitamins and minerals) were the leaders in the OTC segment. Due to this fragmentation, it was always a challenge for companies to try to get space and differentiate themselves on cluttered pharmacy shelves. OTC products were sold in Canada in any location that had a pharmacy, including big box stores, grocery stores and stand alone pharmacies. Stores such as Wal-Mart, Loblaws, Shoppers Drug Mart and Rexall sold most OTC products in Canada.
1. Pharma Talent
Pharma Talent started in 2006 after Camdon Arksey (owner and founder) determined there was a need for a company that could provide a contract sales team that drove business for the client. In the past, Arksey had worked for several large pharmaceutical companies, and it was clear to him that the industry was shifting towards contract groups rather than in-house sales teams. He thought that the time had come to develop a company that could meet these companies’ needs.
Pharma Talent grew slowly, managing some small accounts across Canada with companies such as Takeda, Bayer, Valente Pharmaceuticals and Paladin Labs. All of these accounts focused on products that were promoted to physicians.
Pharma Talent felt that it differentiated itself from other contract sales companies for many reasons. First, it offered a “turnkey” sales force. This meant that Pharma Talent provided recruiting, training, data management and tracking, detailed call data and field management. Detailed call data was a key success factor for the company. Most brokers currently did not provide data from the field or even pictures, which came at an added cost to the client. Second, Pharma Talent was dedicated to the client. Pharma Talent only worked on products mandated by the client unlike other broker teams, who could have up to 40 products, potentially from different companies, per representative. Finally, the company promised an attractive return on investment (ROI) that could be proven through field data.
2. The Client
In 2010, Pharma Talent secured its first client that focused on OTC products, Natural Life. Natural Life had five natural health products that were sold in banners3 such as Costco, Rexall, Loblaws, WalMart, Independent Pharmacies and Shoppers Drug Mart (SDM) across Ontario. Their main product was the best- selling natural health product for colds and flus in Canada.
1 All monetary figures are in Canadian dollars. 2 “OTC Pharmaceuticals in Canada,” MarketLine Industry Profile, February 2012.
3 In this industry, retailers are often referred to as banners. The distinction is made because one retailing company may operate with several store banners.
In the past, Natural Life had a broker represent its product, but over time it realized that its major products were not being adequately represented among the 50 other products in that broker’s portfolio. Natural Life wanted a sales force dedicated to its products but not at the cost of an in-house sales force.
Natural Life was experiencing many problems at store level on which they felt a sales team could have a large impact. First, the company expected each representative to meet with the pharmacist at each pharmacy. Having the pharmacist recommend Natural Life products was very important because nine out of 10 times a consumer would follow through with such a recommendation. Furthermore, the pharmacist was the only one in the store allowed to recommend OTC products. Second, the company wanted the representative to ensure that the products were always on the shelf. In the past, Natural Life experienced large losses due to stock outs.4 The company hoped that representatives would work with the store manager or owner to prevent these stock outs by increasing minimum orders,5 projecting demand and ordering prepacks.6 Finally, Natural Life wanted to increase the amount the product was displayed in each store. Generally, Natural Life paid for the amount of shelf space at each store and wanted sales representatives to ensure that this space had their products in it as well as to use their relationships with the managers to gain more space. Natural Life also paid a significant amount of money for large displays to be set up in the store. Often times, these were not used, and the product was put directly on the shelves. It was very important to Natural Life that representatives worked with the store managers to get these displays up for as long as possible. Natural Life knew it was tough to compete with the large players in the market and ultimately wanted representatives to make personal relationships with each store to ultimately increase distribution,7 in-store marketing and pharmacist recommendations.
Natural Life had three in-house account managers at the head office in Toronto, Ontario. These account managers worked directly with the head office of each retailer. These account managers had the responsibility to ensure that each banner purchased enough stock before the cough and cold season to fill their stores shelves from September to March. Natural Life did not want the Pharma Talent representative’s primary objective to be ordering stock but to work with store managers to ensure there was always stock on the shelves and to supplement the stock in the stores by ordering if necessary.
3. The Sales Force
In 2010, Pharma Talent started to work with Natural Life in Quebec. The sales team consisted of a regional business manager and five representatives throughout the province. The way representatives interacted with pharmacies in Quebec was significantly different than the rest of the country. It was not uncommon for most of the pharmacies to do all their necessary ordering through a representative, and therefore these representatives were responsible for driving sales. Furthermore, Quebec’s Natural Life division was separate from the head office in Toronto.
In 2011, Pharma Talent expanded their sales force to Ontario with one regional business manager and seven representatives. Each representative managed 200 to 300 stores in their assigned territory. These territories included Ottawa-Kingston, Toronto Central, Toronto West (Mississauga, Waterloo, Guelph, etc.), Toronto East (Peterborough, Oshawa, etc.), Niagara-Hamilton and London-Windsor. Sales of
4 Stock outs occurred when the shelf was empty because the product was sold out. A day of not having the product on the shelf in one store during peak season could cost the company thousands of dollars.5 Minimum orders were the amount of stock left in the system to prompt a reorder. For example, if at a certain SDM the quantity of product dropped below two, the computer would put in an order.
6 Prepacks were a display for the store floor or shelf with a pre-determined amount of product. 7 Distribution refers to the amount of product that is displayed in the store
products in each territory could vary significantly. For example, a SDM in Toronto Central could sell $75,000 dollars per year in product while the top grossing store in Windsor might do only $15,000 in sales per year.
Each representative was mandated to complete a minimum of 120 calls per month or six calls per day. Pharma Talent encouraged representatives to exceed this target and meet with 140 stores per month. Each representative was compensated on a monthly basis. The base salary each month was $2,450, which included a $300 car allowance. Furthermore, the representative was awarded a bonus that ranged from $500 to $1,500 depending on performance each month. Finally, if a representative travelled 50 kilometres away from home, they received 44 cents per kilometre. Each representative was given an iPad to record each call in detail, a Blackberry, product samples and promotional materials.
Pharma Talent categorized each store for their representatives. Stores with the highest sales were visited once a month, stores with average sales were visited every other month and low volume stores were visited every three months. Representatives needed to be conscious of the different rules at each banner. Exhibit 1 describes each banner on which the representative called.
An average call took between 45 minutes to one hour depending on the size of the store, the type of banner and the volume of product the store sold. A call was generally structured as follows: the representative entered the store and signed in. They would go to each location where the product was supposed to be located and record in the iPad if the product was on the shelf or sold out. If the product was not in its assigned location, the representative would take note of this as well and also looked for any displays that were supposed to be on the store floor. Once this was completed, the representative connected with an available manager to discuss stock outs, sales, incoming orders, displays, products missing in the assigned location, ordering and potential demand. Finally, the representative would wait for an available pharmacist and “detail”8 one of the products. After this conversation, the representative would then record the pharmacist’s name and whether the pharmacist currently recommended the product or not.
After the call, the representative added any final notes, recorded what was discussed with the manager and the pharmacist and processed any orders. Pharma Talent always pushed for representatives to go above and beyond at each store in order to impress the client; the company encouraged representatives to send success stories, pictures of in-store displays they may have created and distribution data that the regional business manager could present monthly to Natural Life. It was this type of evidence that set Pharma Talent apart from other contract sales organizations.
4. Evolution Of The Bonus Structure
Pharma Talent had changed the bonus structure twice over the first three months that the representatives were in the field. Unfortunately, Garabedian was concerned that the client and the representatives were still not content with the current structure. He himself had received complaints from his representatives.
The amount of money allocated for the bonus was $7,000 each month. Since the dollar value charged to the client was fixed, so was the bonus. Therefore, each rendition of the bonus was some form of standard distribution. Furthermore, to be considered for a bonus, the representative needed to ensure the minimum amount of calls were filled each month.
8 A detail involved talking to the pharmacist about a specific product’s features and benefits. It also gave the pharmacist time to ask any questions, comment on the product or express concerns. The information from these conversations was invaluable to Natural Life.
Implemented for two weeks, the first bonus structure was modeled after every other team Pharma Talent had, including the Natural Life team in Quebec, and was based completely on sales. Pharma Talent awarded the highest amount to the person who processed the highest dollar amount through their iPad. The standard distribution for this bonus is shown in Table 1. This standard structure was designed by Arksey.
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