Destructive Discounting

Jeff Carter was recently appointed vice president of sales at Marathon Electric, a manufacturer of small engines. Marathon Electric had grown rapidly over recent years, but its profit margins were declining and Jeff was brought in to address the problem.

Unfortunately, after three months on the job, he doesn't like what he is seeing from the company's nine salespeople. The sales force seems focused on closing as many deals as possible, regardless of whether they provide good solutions for customers. Salespeople are discounting so much that Marathon's margins have continued to decrease. Clearly, Jeff would be in trouble if this continued since this was precisely what he was hired to change. Furthermore, his bonus is based on achieving profit margin objectives.

When Jeff talks to the salespeople, they say that they were previously taught to focus on sales volume, not the profitability of the deals. Obviously, Jeff needs to make some changes or his profitability goals will never be met.

Questions

1. What is the main issue in this case?

2. What are the possible causes of the sales force's pricing behaviors?

3. What should Carter do first?

4. Create a chart that would show the profit effects of discounting.