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Analysis of Designs by Kate: The Power of Direct Sales

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Emily Fraser

on 5 May 2014

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Transcript of Analysis of Designs by Kate: The Power of Direct Sales

Analysis of Designs by Kate: The Power of Direct Sales
Emily Fraser
Regent University

Possible Solution 4:
Increase incentives for leaders, managers, and directors
Honor rewards
(Spiro, 2008, pp. 241). are already being used through recognition in team emails, hence the company can still tap into monetary incentives such as a gift with a value ie. Mary Kay and the famous pink Volkswagons
Incorporate loyalty incentives for reps who stay with the company for multiple years
Loyalty incentives should only apply to leaders, managers, and directors
Pros: encourages morale and the higher incentives will increase the desire to grow within the company
Cons: monetary rewards cost money and raise the company's fixed costs
The Choice
Additional Issues within Company Concerning Sales:
Issues with Incentive Plan
Conclusion and Biblical Integration
Case Overview

Kate Creevy , founder of Designs by Kate (DBK) sells jewelry via direct sales. Her business had been vastly successful over the first five years, however, according to trajectories, the company's top-line growth has slowed. Kate believes that this decrease is due to sales reps not wanting to grow in the company and become sales leaders, managers, and directors which is key to the company's business model. In order to solve the problem, Kate is considering reworking her incentives system, or hiring more national trainers to inform the reps of the incentives.

Possible Solution 2:
Generate sales through other venues
23.9% of revenue from direct sales comes from Home and Family Care\Home Durables (cleaning supplies etc. ) (Deighton, 2011, pp. 5).
Create a line of DBK jewelery cleaner to add to the company
Pros: generates additional sales because of additional product
Cons: Creating a brand new product takes money, time, and effort
Possible Solution 3:
Encourage an increase in sales through an increase in events
There are an average of 6 events held by each representative annually, and 9 major holidays worthy of the party type atmosphere that the company suggests for selling, (Mother's Day, New Years, Christmas, Halloween, Independence Day, Valentines Day, Labor Day, Thanksgiving, Easter, etc.
Pros: an increase in events leads to an increase of sales
Cons: none
Create understandable break down of incentive plan to use for educational purposes. This break down should be used for social media posts, pamphlets, and emails.
Prepare presentation for plan of action to be viewed at the next meeting for Directors in New York
Inform Directors at meeting in New York of their new job to target informing representatives of incentives of growing within the company.
Require Directors to address this issue in their monthly meetings and provide Directors with pamphlets, web links, information etc., to give their team members
Pass on the information via email to Managers in the weekly updates
Plan of Action Part 1: Involve Directors
Root Cause:
"For company rewards and incentives to have an impact on motivation, salespeople must value these rewards" (Spiro, 2008, pp. 232).
The average monthly sales of a DBK rep are $781
Once a sales rep recruits one person, their sales go down 15% (new sales=$663.85) and each additional recruit decreases their sales 10% (new sales with 2 recruits=$594, 3 recruits=$507.65)
This decrease in sales by adding 3 recruits would bring a representatives commission down from $195.25 to 126.91
This significant decrease in commission is most likely scaring away representatives from recruiting members and making it seem as if recruiting is not worth the effort
The long term rewards of recruiting members are not evident to the sales representatives and along with the extra work that comes with growing in the company, the incentives do not seem to compensate
Possible Solution 1:
Rather than hiring more trainers to inform current representatives of the benefits of growing within the company, utilize the tools that the company already has ie. the directors, managers, and leaders. Start at the top and educate the directors with the plan of action for informing representatives and let the information strategically trickle down
Put together an educational process that can be taught via Directors, Managers, and Leaders utilizing team meetings, emails, and a social media campaign
In addition to educating the representatives on the incentives, add loyalty incentives for long time representatives using the money saved from not hiring more trainers
Companies like Avon claim to be successful because they are constantly changing up their business models (Deighton, 2011, pp. ) Slightly tweaking incentive plans to see what works best, such as by adding loyalty incentives, can only improve the company
Lastly, encourage more events per representative. The company is currently not tapping into the opportunity for events which can only increase sales
Actual Benefits to Becoming a Team Leader:

Representatives are mostly woman ranging from 25-50 years old
Representatives earn a base commission of 25% of sales
Sales exceeding 1000$ receive 32% commission
Recruiting 3 reps forms a Level 1 team in which the leader earns 5-12% commission of those members' sales
Recruits from Level 1 team members constitutes a Level 2 team in which the leader earns 3-8% commission of those members' sales
This system continues on through levels 3 and 4
Higher percentages of commission are earned by being promoted within the company
Leadership status requires a minimum of $500 in monthly sales
Managers must generate at least $1250 in monthly sales and have a team of at least 5 representatives and participate in weekly emails
Director status requires at least $1500 in monthly sales, a team of at least 10 representatives, monthly team meetings, and four self-paid trips for the company to New York for training and updates
Major Problem:
There is a lack of motivation to achieve higher selling status within the company because reps feel it cuts into their sales by adding team members
Sales representatives feel that there is too much work involved if you move up in the company and the incentives do not compensate
Hire more employees to inform reps of the incentives (raise fixed costs) vs. change the incentive plan
Average monthly sales: $781
Average monthly commission: $195.24

Average monthly sales with 3 Level 1 Team members: 507.65
Average monthly commission with 3 Level 1 Team members 781x3 (average salesx number of reps)(5% to 12%)=$117.15-$281.16 commission
Average monthly commission with 3 Level 1 Team members and 6 Level 2 Team Members =$117.15-$281.16(commission from level 1 members + 781x6(3% to 8%)= $140.58-$374.88(commission from level 2 members)= $257.73-$656.04 (total range of commission with combined levels)

Total Monthly Commission of the average sales leader with 3 Level 1 Team members and 6 Level 2 Team members=$452.97-$851.28
Conclusion: adding additional team members decreases sales but multiplies commission at excellent rates
With the decrease in sales from adding team members, it may be hard to reach sales quota in order to obtain managerial or director status
Sales representatives are not aware of the benefits of recruiting members for the long run
Only 3% of sales are from outside of events
Only 6 events on average are held per year per representative
Company may be stuck in a rut in regards to new financial and non-financial rewards
Hire more trainers to educate representatives about the incentive plan
Pros: Sales reps are educated and will go forth in growing within the company and hence increase overall sales
Cons: Raising fixed costs. Hiring one trainer per region would cost $100,000 overall
Deighton, J. A., & Abbott, S. (2011, April 20). Designs by Kate: The Power of Direct Sales [Electronic version]. Harvard Business School.

Rich, G., Spiro, R., & Stanton, W. (2008). Management of a sales force. New York, NY: Mcgraw-Hill Irwin.
Plan of Action Part 2: Incentive
Put together loyalty incentives for representatives starting at 1 year with the company
Incentives only apply to people with leadership status and above
1 year warrants a gift of their choice of an exclusive jewelry piece valued at $50, this piece will then be available for them to sell. This system works as both an incentive for the representative as well as free advertising for the company
Each year the representatives will get a similar gift in price, and at 5 years they will get a piece valued at $100 and as the years go higher, so on
Plan of Action Part 3: Increasing Events
Put together a social media campaign that targets the opportunity for events
Social media campaign should contain fun informational tools teaching representatives how to take advantage of holidays for DBK events
Campaign can include fun holiday themed party ideas, holiday themed recipes, and DIY decorations
By utilizing the resources that DBK already has, such as their directors, DBK can increase the rate in which representatives grow within the company through informative steps for the incentive plan. This method does not raise fixed costs, and can be accomplished easily if done strategically. DBK should also incorporate loyalty incentives in response to the feedback they have received from their representatives. Trying new things and adjusting business models is necessary for growth. Lastly, DBK should focus on increasing the number of events their representatives put on by encouraging them via social media.
The situation with DBK reminded me of The Parable of the Talents in Matthew 25. In this parable, three servants were given talents to watch over and while two of the servants multiplied their talents, the last servant hid his and did not even give it to a bank so that it would gain interest. When the servant's master checked up on them and their talents, he was very disappointed with the servant who hid his talent. This situation is similar to the sales representative who do not utilize their resources and grab onto the opportunity to profit that is in front of them.

Proverbs 1:5 says, "Let the wise hear and increase in learning, and the one who understands obtain guidance." This passage relates to Kate Creevey and her opportunity to learn through taking the feedback of her representatives and taking action. Sometimes it is hard to take feedback, especially when it is negative, however, taking criticism and acting on it is necessary for growth.
Lastly, the Bible encourages wisdom and hard work in order to obtain success. Proverbs 4:6-7 says, "Do not forsake wisdom, and she will protect you; love her, and she will watch over you. Wisdom is supreme; therefore get wisdom. Though it cost all you have, get understanding." The wise move for Kate Creevey would be to keep her fixed costs low by using the resources she already has while listening to the feedback she is given and making changes accordingly
Biblical Integration:
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