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Sonke Albers: Professor of Marketing and Management Science, University of Kiel, Kiel, Germany
ACKNOWLEDGMENT: This article first appeared in the European Journal of Marketing, Vol. 30 No. 7, 1996.
The problem
If a firm sells a certain product mix through a salesforce to heterogeneous accounts, it is faced with the problem of optimal allocation of selling effort across accounts. Zoltners and Sinha (1980) have surveyed models for aiding this decision, including the popular CALLPLAN model by Lodish (1971). Furthermore, it is a common marketing practice in a variety of industrial and institutional marketing situations as well as in sales of consumer goods within channels of distribution to delegate some price-setting authority to the salesforce (Stephenson et al., 1979). This implies that the salespeople can make use of their specific knowledge regarding the price responsiveness of each customer in order to negotiate customer-specific prices optimally. Lal (1986) presents some detailed examples in which such a differentiation of prices is usual. Now, if sales management has as much information about the selling environment as its salespeople, it has no reason to delegate the pricing responsibility. In this situation, firms need an optimization model for jointly determining price levels as well as selling effort levels. So far, no such model has been proposed in the literature existing on this subject. One reason might be that, under specific conditions, both instruments can be optimized independently (Srinivasran, 1981). If, however, production costs per unit increase with increasing levels of required production capacity, then both marketing instruments become interrelated. To address this problem, the development of the decision-support system CAPPLAN (Call and Price Planning) was undertaken.
The second and third sections of this paper are devoted to a discussion of the proposed response function and the method of estimating its parameters. A formal description of the decision model is then given, and a simple heuristic based on incremental analysis is provided for the resulting optimization task. The paper concludes with experiences from actual application of the system at an industrial photo laboratory offering the development of film and the production of prints through a variety of retailers.
Sales response function
The core element of CAPPLAN is the sales response function dependent on price and the number of calls as operationalization...