Description

Case number 1

Isabella Lopez is the northern area sales manager for Kudos Kitchen and Recreation, a large retailer of household appliances and consumer electronics with stores across North America. Kudos is losing market share to online retailers, such as Nile, and needs to extract more profit from the sales that it does make. One advantage that Kudos has over Nile is the personal contact between Kudos’ sales staff and Kudos’ costumers. Personal contact allows the Kudos sales staff to sell more extended warranties than Nile is able to sell online. Extended warranties are an important profit centre for Kudos, as they are for other appliance and electronics retailers. Yesterday, Isabella’s boss and Kudos VP  of sales, Roger MacDonald, circulated an email to his five area managers asking their opinions on a new sales policy regarding extended warranties. The new policy would aim to increase extended warranty sales by allowing store managers to raise the commission on extended warranty sales for high performing salespeople. The standard is 15%. The new policy would allow store managers to raise the rate to 20% for any warranty sales over $2,000 per month. Kudos would also allow store managers to reveal each salesperson’s warranty sales at monthly sales meetings and to terminate any sales staff who failed to sell at least $1,000 worth of extended warranties for two months in succession. Roger’s hope is that this new policy will increase the incentives for sales staff to sell extended warranties and thereby help Kudos’ bottom line. Isabella worries about the effect of this policy on the interaction between sales staff and customers. Three-year extended warranties are highly profitable because appliances and electronics are most likely either to break down from manufacturing defects soon after purchase, or to break down from wear and tear toward the ends of their designed life. The probability of a payout on a three-year extended warranty is low because the manufacturer’s warranty covers the first year, and most products are designed to last longer than three years. In order to sell extended warranties, sales staff must avoid telling customers the return rate for the second and third year of a product’s life, and must get customers to focus on horror stories regarding the very few products that customers actually do return. Isabella’s worry is that Kudos’ store managers may use the new policy to increase their staff’s usage of hard-sell practices. Roger has asked for opinions from his area managers, and their views often sway his decision. Isabella is almost certain that West, Central, and South will get behind the policy suggestion, but that East will criticize it. She is worried about the consequences of the new sales policy, but she also wants Kudos to be profitable and for Roger to see her as a team player.