Reference no: EM132828718
Tronic Industries: Gift or Bribery
Tronic Industries manufactures components for boilers, turners and other machinery used by heavy industries. Rajesh was a sales representative at Tronics. Tronics recruited sales personnel on commission basis and their income was dependent on their success in selling the components. During the training period, Rajesh could not earn much, but after two years, his income rose to Rs 10 lakh per annum. Initially, Rajesh was given six months training and he was assigned the task of looking after sales in three territories. Rajesh's territories had a mix of chemical plants, refineries, oil field production offices, oil field supply stores and oil field exploration companies as their clients.
Most of the sales in these territories were through supply stores, but Rajesh was confident of convincing industrial users to use the brand Tronics. Rajesh succeeded in increasing the sales by encouraging the supply stores to stock high inventories of Tronics's products. The commissioned salesperson had a guaranteed draw against their commission, which covered their expenses and base salary. Rajesh earned 7 percent on all the Tronics products that were sold in his territory. He was very friendly with the supply store owners and they looked upon him as more than a salesman and he had built an image of himself as a friend with whom one could work productively, and who could be depended on.
The stores usually gave 15% discount on any item and for customers with higher purchase volumes, they increased the discount percentage on Tronics's products. The storekeepers earned a margin of 5 to 8 percent. Rajesh was appreciated by the storekeepers for his straightforward and honest approach, and he proved beneficial for the stores. By third year, Rajesh's earning rose to Rs.14 lakh per annum, and he saw that if he could bring certain prospective customers, he could earn more than Rs.18 lakh in a year.
The major prospective customer for Rajesh was the company stockist of Metrotop Refitting, Anil, who stocked refitting items. Rajesh was wondering how to convince Anil to make a buying decision, for he was postponing the buying of the items from Rajesh. Through the sale of refitting items, Rajesh could earn Rs.5 lakh as commission. Convincing Anil to use his company products would give Rajesh an annual commission of Rs.5 lakh. Though Rajesh could not convince Anil to buy Tronics products, he realized during their conversation that Anil enjoyed digital desgining, and he wanted to have an Apple iMac.
Though the Apple iMac cost about Rs.1,70,000, the commission that the order would bring him would be more than the actual cost of the iMac, and he would have more business in the future with Metrotop Refitting Company.
Rajesh asked Anil that whether, if he gets the iMac, he would be interested in doing business with Tronics, and Anil readily accepted the proposal. Anil said that if Rajesh was willing to get him the iMac he could come to Rajesh's office and discuss about the list of equipment that could be purchased by Anil's company. Rajesh felt that Anil was trying to get his job done through bribery, and he was sure that this was the right thing. On meeting his manager, Rajesh learnt that Anil had called for him. Rajesh's manager warned him, saying, that Anil was well-known for pay offs and asked him to be careful.
Questions:
1. At what point do 'good customer relations become unethical? Is it acceptable to give a prospective customer a candy a bottle of liquor an expensive dinner or to spend Rs 1,00,000 on a gift?
2. How do commission and straight salary compensation of salespersons affect the way in which they approach their customers?