Case Study 9: Isabella and Deceptive Sales Practices

Summary

In this video case study, Isabella Lopez, Northern Area sales manager at Kudos Kitchen and Recreation, grapples with a new sales policy proposed by her boss, Roger McDonald, VP of sales. The policy aims to boost extended warranty sales by increasing commissions for high performers and introducing sales targets. Isabella is concerned about the potential for deceptive practices, as sales staff may be incentivized to mislead customers about the value of extended warranties. She must balance her ethical concerns with the need to support Kudos' profitability and her own reputation as a team player.

Takeaways

• 📉 Kudos is losing market share to online retailers like Nile and needs to increase profits from sales.
• 💬 Kudos has an advantage over Nile due to personal contact between sales staff and customers, which helps sell more extended warranties.
• 💼 Isabella Lopez is the Northern Area sales manager for Kudos, concerned about the impact of a new sales policy on customer interactions.
• 📧 Roger McDonald, Kudos VP of sales, proposed a new policy to increase extended warranty sales by offering higher commissions and incentives.
• 💰 The new policy allows store managers to raise the commission rate to 20% for high-performing salespeople on extended warranty sales over $2,000 per month.
• 🗣️ Store managers would be allowed to disclose each salesperson's warranty sales and could terminate staff not meeting sales targets.
• 🤔 Isabella is worried that the new policy might encourage hard-sell tactics and negatively affect customer relationships.
• 🔢 Three-year extended warranties are profitable for Kudos as the likelihood of payout is low due to the manufacturer's warranty and product longevity.
• 📈 Roger hopes the new policy will motivate sales staff to sell more extended warranties, improving Kudos' bottom line.
• 🤝 Isabella is conflicted; she wants Kudos to be profitable and be seen as a team player but is also concerned about the ethical implications of the new policy.

Q & A

What is the main challenge faced by Kudos kitchen and Recreation?

Kudos is losing market share to online retailers such as Nile and needs to extract more profit from the sales it makes.

What advantage does Kudos have over online retailers like Nile?

Kudos has the advantage of personal contact between its sales staff and customers, which allows for more extended warranty sales.

What is the current commission rate for extended warranty sales at Kudos?

The standard commission rate for extended warranty sales at Kudos is 15%.

What is the proposed new policy regarding extended warranties?

The new policy would allow store managers to raise the commission rate to 20% for any warranty sales over two thousand dollars per month and to disclose each salesperson's warranty sales at monthly meetings.

What is the potential consequence for sales staff who do not meet the extended warranty sales target under the new policy?

Sales staff who fail to sell at least one thousand dollars worth of extended warranties for two months in succession may be terminated.

What is the rationale behind the new sales policy?

The new policy aims to increase the incentive for sales staff to sell extended warranties, which would help Kudos' bottom line.

Why are three-year extended warranties highly profitable for Kudos?

Three-year extended warranties are profitable because the probability of a payout is low, as most products either break down from manufacturing defects soon after purchase or last much longer than three years, with the manufacturer's warranty covering the first year.

What ethical concerns does Isabella have regarding the new policy?

Isabella worries that the new policy may encourage hard sell practices and mislead customers about the actual return rate of products during the second and third year of their life.

What is Isabella's role within Kudos?

Isabella Lopez is the Northern Area sales manager for Kudos.

What is the opinion of the other area managers regarding the new policy?

Isabella expects that the West Central and South area managers will support the policy, while the East area manager will criticize it.

What is the dilemma Isabella faces in deciding her stance on the new policy?

Isabella is torn between her concerns about the policy's effect on customer interactions and her desire for Kudos to be profitable and for Roger to see her as a team player.