Case Study 9: Isabella and Deceptive Sales Practices

DalCltElearn

13 Jan 201503:42

Summary

TLDRIn 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.

Outlines

00:00

🛍️ Introduction to Isabella Lopez and Kudos Kitchen's Sales Challenges

Isabella Lopez is the Northern Area Sales Manager for Kudos Kitchen and Recreation, a major retailer of household appliances and electronics across North America. Kudos faces increasing competition from online retailers like Nile and is working to increase profits from its remaining sales. A key advantage Kudos has over Nile is the in-person interaction between sales staff and customers, which allows them to sell more extended warranties, a significant profit source for Kudos.

📧 New Sales Policy Proposal

Isabella's boss, Roger McDonald, the VP of Sales at Kudos, recently sent an email to five area managers, including Isabella, asking for their opinions on a new sales policy. The policy is designed to boost extended warranty sales by increasing commission rates for high-performing salespeople. Store managers could raise the standard commission from 15% to 20% for those who sell over $2,000 worth of warranties in a month. Additionally, salespeople's performance on warranties would be revealed at monthly meetings, and staff failing to meet the $1,000 warranty sales threshold for two consecutive months could be terminated.

💼 Isabella’s Concerns About the Policy

While Roger hopes the new policy will motivate staff and improve Kudos’ financial performance, Isabella is concerned about its potential impact on customer interactions. Extended warranties are highly profitable, but the likelihood of customers actually needing them is low, as products typically break down either early on (covered by the manufacturer's warranty) or much later. To sell these warranties, sales staff may resort to withholding key information about product reliability and emphasizing rare instances of product failures.

😟 Potential Consequences and Dilemma

Isabella is worried that store managers might use the new policy to push salespeople towards aggressive, hard-sell techniques. While some area managers will likely support the policy, others may criticize it. Isabella faces a dilemma: she wants to maintain ethical sales practices and avoid alienating customers, but she also wants Kudos to succeed financially and to be seen as a team player by Roger. She now must decide what stance to take and what feedback to provide Roger regarding the proposed policy.

Mindmap

Keywords

💡Deceptive Sales Practices

Deceptive sales practices refer to unethical or misleading strategies used by salespeople to persuade customers into making purchases they might not otherwise make. In the context of the video, this term is central to understanding the dilemma faced by Isabella Lopez, as she contemplates the potential consequences of a new sales policy that may encourage such practices to boost extended warranty sales.

💡Market Share

Market share is the portion of the total available market that a particular company or product holds. The script mentions that Kudos is losing market share to online retailers like Nile, which underscores the urgency for Kudos to find ways to increase profits, such as through the sale of extended warranties.

💡Extended Warranties

Extended warranties are additional coverage agreements that extend the terms of the original manufacturer's warranty on a product. They are highlighted in the video as a significant profit center for Kudos, which is looking to capitalize on this by incentivizing sales staff to sell more through a new commission policy.

💡Personal Contact

Personal contact refers to the face-to-face interaction between sales staff and customers. The video emphasizes the advantage Kudos has over online retailers due to this personal contact, which allows for more effective sales tactics, particularly for selling extended warranties.

💡Commission

Commission is the percentage of a sale that a salesperson earns as compensation. The new sales policy proposed in the video aims to increase the commission rate for high-performing salespeople, which is intended to motivate them to sell more extended warranties.

💡Hard Sell Practices

Hard sell practices are aggressive sales tactics that push customers to make a purchase, often by using high-pressure techniques. Isabella's concern in the video is that the new policy might encourage store managers to use hard sell practices to increase extended warranty sales, which could harm customer relationships.

💡Sales Incentive

Sales incentive is a reward or motivation offered to salespeople to encourage them to achieve certain sales targets. The video discusses a new policy that would use increased commission rates as an incentive for selling extended warranties, aiming to boost overall sales performance.

💡Sales Staff

Sales staff refers to the employees who are responsible for selling products or services. In the video, the sales staff at Kudos are central to the company's strategy for selling extended warranties, and their performance is a focus of the new sales policy.

💡Monthly Sales Meetings

Monthly sales meetings are regular gatherings where sales performance is discussed, and goals are set. The video mentions that under the new policy, store managers would reveal each salesperson's warranty sales at these meetings, which could be a motivational tool or a source of pressure.

💡Profit Center

A profit center is a part of a business that generates revenue and contributes to the overall profitability of the company. Extended warranties are described in the video as a profit center for Kudos, highlighting their importance to the company's financial health.

💡Sales Policy

Sales policy refers to the guidelines and rules that govern the sales process and the behavior of sales staff. The video case study revolves around a proposed new sales policy that could have significant implications for how Kudos sells extended warranties and interacts with customers.

Highlights

Isabella Lopez is the Northern Area sales manager for Kudos Kitchen and Recreation, facing market share loss to online retailers like Nile.

Kudos seeks to extract more profit from sales, leveraging personal contact between sales staff and customers.

Extended warranties are a significant profit center for Kudos and other appliance and electronics retailers.

A new sales policy is proposed by Kudos VP of sales, Roger McDonald, to increase extended warranty sales.

The policy would allow store managers to raise the commission on extended warranty sales for high performers.

Store managers could increase the commission rate from 15% to 20% for sales over two thousand dollars per month.

Kudos would also permit managers to disclose each salesperson's warranty sales at monthly meetings.

The new policy proposes termination for sales staff failing to sell at least one thousand dollars worth of extended warranties for two consecutive months.

Roger hopes the policy will incentivize sales staff to sell more extended warranties, benefiting Kudos' bottom line.

Isabella is concerned about the policy's impact on the relationship between sales staff and customers.

Three-year extended warranties are profitable due to the low likelihood of payout within the warranty period.

Sales staff must avoid discussing the return rate for the second and third year of a product's life to sell extended warranties.

Isabella worries that store managers might use the new policy to increase hard sell practices.

Roger has asked for opinions from area managers, whose views often influence his decisions.

Isabella anticipates that West Central and South will support the policy, while East will criticize it.

Isabella is torn between her concerns about the policy and her desire for Kudos to be profitable and for Roger to see her as a team player.

The decision Isabella makes in response to Roger will significantly impact the sales strategy and customer relations at Kudos.