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Classifying Customers in a Sales Territory

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As part of the sales territory planning process, sales managers and sales executives have to categorize their accounts according to their sales potential and attractiveness to the company. Please discuss what methodology should be used for such classification of customers.

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Account management is an important element of the sales territory planning process. As a part of this process, a sales manager has to develop some kind of system for account management according to which he can allocate his resources to different accounts in an optimal manner. Presently many account management models are in use that serve as guidelines for territory planning. One of the most common and widely used methods is the 'ABC Analysis' in which the accounts are divided into three or four categories according to their sales potential. Usually categories 'A', 'B', and 'C' are made where 'A' consists of the largest accounts in terms of sales, 'B' contains medium-sized and 'C' the smallest accounts. In most of the cases 'A' category accounts are the smallest in number but they represent a major percentage of the company's sales. A common belief is that almost 80% of sales are generated by only 20% of customers. This 80/20 concept is roughly true for most of the industries. Once the accounts are categorized then the sales manager is in a position to decide as to how much selling effort needs to be directed to each category and accordingly he allocates sales people and promotional budget for each category of accounts. This system is easy to understand and simple to adopt, however, it does not take into consideration certain additional factors that may be necessary to evaluate an account. For instance sales potential may not always be the only factor to determine the attractiveness of an account, other factors such as future growth prospects, the health of a business and other similar factors may also need to be considered.

In this article we are introducing a new account management model, which we call the Account Portfolio Model (APM). This model is an improvement of ABC method and it takes into account additional dimensions while evaluating a client. The structure of APM is based on the famous Boston Consulting Group (BCG) Growth/Share matrix. BCG matrix is primarily used for corporate strategic planning, however, it can be modified and adapted for many other applications.

The BCG matrix uses market growth rate and relative market share as two fundamental parameters to assess the health of individual businesses or products and to develop an optimum business portfolio. Growth rate refers to the annual rate of growth of the market in which the business unit operates and relative market share refers to market share of the business unit relative to its largest competitor. ...

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