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Change Territory Setup from Region to Region/Postal Code

Our Business Users have decided that they need to break Territories down further to meet their needs.  Sales Representatives are going to be assigned to Regions and within those Region (i.e. Central) specific Postal Codes.  How does one do that to Territories that already exist?

All the Sales reps are assigned to regions. Do Territories need to be created for each Region/State/Zip?

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