Biomed is a family business which belonged to Thailand drugs Co. , Ltd. It could be viewed as a sales agent of Thai Drugs and it sold over 100 kinds of drugs. 35 per cent of Thailand drug market was occupied by local manufacturers in which five giants accounted for over fifty per cent. The market for the rest local manufacturers was little and price competition was pretty harsh. There were majorly three channels to sell drugs: hospital, drug store and clinics.
In hospital channel, although a new government regulation favored generic brands from small local manufacturers, only manufacturer offers the lowest price won for a large district order. The previous strategy of Biomed priced at medium-high to high backed with excellent services because Biomed couldn’t operate in low-cost system. Therefore the company decided to abandon this market. Drugstores and clinics which in all accounted for thirty percent of the market wanted also generic brands. The reason why company focused on this market was that, in Biomed’s opinion, this market didn’t look solely at price, compared with hospital market.
Since price was still an issue, Biomed went to a new strategy that priced at low-medium to medium with a focus of ten to fifteen drugs. Under such system, the sales target could be only met by selling in a large volume. However, a lot of preparation needed to be done for the new strategy. The first issue was the redesign of compensation plan. The previous compensation plan was targeted at sales volume. Apart from the base salary, salespeople received annual commission and quarterly bonus.
The new sales strategy forced salespeople to consider the economies of scale which combined variable costs and volume with a limited range of drugs. In my opinion, quarterly bonus was the short-term incentive and annual commission aimed at long-term performance. In short term, quarterly bonus could be replaced by others such as sales contest. Sales contest promotes short-term performance and winner can get huge bonus. The nature of competition spurs salespeople to sell more and adapt faster. At the same time, winner can share with other salespeople.
Moreover winner will receive recognition. The target is no longer the volume, but the combination of volume and price. For example, company can award salespeople who get the highest volume and who get the highest revenue. The sales contest will lower the overall payout. Most salespeople receive nothing. Therefore this form should not last long. It’s better to hold the contest once a year to replace quarterly bonus. To achieve ideal effect, the price is 25 percent of quarterly bonus pool (two prices account for fifty percent). Compensation plan is only an incentive for salespeople.
However, without appropriate training, salespeople cannot effective carry out sales activity and it hinders better performance. A systematical training is needed and salespeople have to display a new image of the company. Also a sense of security is important for salespeople. Although salespeople might be offensive to new strategy and inept to effectively carry out sales, Chiemchanya has to believe in salespeople and provide them support. Salespeople fighting in the front line understand current situation better than no others in the company. If they resist, Chiemchanya should ask for the reason, rather than persuade.