Sales Functions and Organizational Strategies

Selling functions and strategies

Selling functions and strategies

Selling Objectives and sales organization

Salary plus incentive

Prospective and new accounts

Provide high service levels

particularly pre-sales service

Product/market feedback

Build salesvolume; Secure

distribution

Build

SBU Objectives andthe Sales Organization

Compensation System

PrimarySales Tasks

Sales Organization Objectives

Market Share Objectives

Compensation System

PrimarySales Tasks



Salary plus commission

or bonus

Call on targeted current

accounts

Incr. service levels to current

accounts

Call on new accounts

Maintainsales volume

Consolidate market position

through concentration

on targeted segments

Secure additional outlets

Hold


Compensation System

PrimarySales Tasks



Salary plus

bonus

Service most profitable accounts

eliminate unprofitable

accounts

Reduce service levels and/or

inventories levels

Reduce selling costs

Target profitable accounts

Harvest


Compensation System

PrimarySales Tasks



SalaryDump inventory

Eliminate service

Minimize selling costs and clear out inventory

Divest or Liquidate


Business Strategy andthe Sales Function

• Low-cost supplier

• Differentiation

• Niche

Pursue large customers

Minimize cost

Compete on price

Seek customers who are low price shoppers

Compete on non-price benefits

Provide high quality customer service

Seek customers who are not low price shoppers

Serve a distinct target market not served well

by others

Provide high quality customer service

Seek customers who are not low price shoppers

Sales Forecasting and Operational Planning

• Central part of strategic planning• Directly or indirectly influences following

functional areas– Sales an marketing planning– Production scheduling– Cash flow projections– Financial planning– Capital investment– Procurement– Inventory management– Human resource planning– Budgeting

Assessing the forecasting environment

• Controllable factors• Uncontrollable factors• Long-run or short- run forecast• Leading indicators (to name few)

– New orders– Ratio of price to unit labor cost in manufacturing– Corporate Profit after tax– Prices of industrial materials– Average workweek in manufacturing

Identifying levels of forecasting

Market Potential (350 thousands units)

Sales Potential ( 150 thousands units)

Sales forecast (125 thousand units)

Sales Quota ( 25 thousand units per sales person)

Description of concepts• Market potential – Highest potential expected industry

sales of a product or service during a set time period and specified market assuming application of appropriate marketing methods

• Sales Potential – Maximum market share that any company or brand could possibly obtain in a specified market segment during a given period.

• Sales forecast – Expected actual sales for a company or brand during a given time period

• Sales Quota – Sales volume goal for a salesperson or a sales organization

Analyzing Market Potential

• Market identification– Who Buys the product?– Who Uses it?– Who are the prospective buyers/users?

• Market Motivation– Why do people buy?– Why don’t people buy?

• Analysis of Market potential– Select market factors associated with the product’s demand– Eliminate market segments that do not contain prospective

buyers of the product

Sales Forecasting Methods• Jury of executive opinions

• Delphi technique (version of jury opinions method)

– Responses of one series of questionnaires are used to produce next questionnaires

• Poll of sales force opinion

• Projection of Past Sales– Simple method ( On the basis of current year’s actual sales or

adding some % to it (moving average))

Next year’s sales = this year’s sales x this year’s sale

Last year’s sale

Continued• Time series analysis

– long term trends, cyclical changes, seasonal variations, irregular fluctuations)

– For long term sales forecast

• Exponential smoothing – Moving average with weighted sum of past time series numbers

including higher weight to most recent data– Equation – Next year’s sales = a (this year’s sale) + (1-a)(this year’s

forecast)– a is small if the series of sales data changes slowly and vis-à-vis

• Evaluation of past sales projection method– Influencing factors: Market saturation, competitor’s move, marketing

campaigns etc.

Continued• Regression analysis

A statistical tool used in sales forecasting and measuring the association between company sales and other variables

– Simple regression ( one independent and one dependent variable)

– Multiple regression ( two or more independent variable and one dependent variable)

– The higher the co-relation the closer the association

Continued

• Econometric model building and simulation– Attractive for the companies in durable goods– Independent variables = demand determining variables

Formula = S = R + N» S = Total sales» R = Replacement demand» N = New-owner demand

• Converting Industry forecast into company forecast

Determining sales related marketing policies

Sales and Marketing policies

Three major Policies

1.) Product Policy ( What to sell)

2.) Distribution Policy ( whom to sell)

3.) Pricing Policy

Product Policies ( What to sell)

• Product objectives (e.g. – Selling products that require less after sales service or selling products having higher quality than competitors)

• Product line Policy– Short line (narrow range/specialized product)

– Full line (large range)

i.) Changes in Product offerings• Whether items are still in line with the market• To select the items to be dropped or to be added

Product Policies Continued…

ii.) Reappraising and simplification of product line– Clash between two products– Profitability standards– Desires of dealers– For better utilization of resources– Chances of making the product better by change in some policies

iii.) Reappraising and diversification of product line– Existing product lines at market saturation or industry in dying– Assist dealers in increase in sales– Unused plant facilities / seasonal fluctuations– Introducing a new product and then a new product line


iv.) Ideas for new products

• From internal resources or external resources

v.) Appraisal of proposed new product

• Profitability, market potential, legal implications, competition, pricing of the policy

• Production friendliness of the product• Benefits of existing distribution channels and sales

force if any


• Product Design Policy

– Frequency of the design change

– Protecting design from copying

• Product Quality, Service and Guarantee Policy

– They can be advocated in marketing campaign

– Simple and customer friendly service policies win over competition

– Of prime Importance for customer loyalty

Distribution Policies ( Who to Sell)

Distribution Objective: Getting the right product/service to the right people at the right time with special consideration for profit and effectiveness

• Distribution channels are influenced by the nature of the product.

• The choice of particular distribution channel/s sets the pattern for sales force operations

Producer Producer Producer Producer

Consumers Consumers Consumers Consumers

Retailers Retailers Retailers

Wholesalers Wholesalers

Agents orBrokers

WholesalerWholesalerChannelChannel

RetailerRetailerChannelChannel

DirectDirectChannelChannel

Agent/BrokerAgent/BrokerChannelChannel

Traditional Channels for consumer markets

Producer Producer Producer Producer

IndustrialUser

IndustrialUser

IndustrialUser

IndustrialUser

IndustrialDistributor

IndustrialDistributor

Agents orBrokers

Agents orBrokers

Agent/BrokerAgent/BrokerChannelChannel

IndustrialIndustrialDistributorDistributor


Producer

GovernmentBuyer


Agent/BrokerAgent/BrokerIndustrialIndustrialChannelChannel

Traditional Channels for Industrial markets

Non-Traditional Channels

• Tele marketing

• Internet Marketing

• Direct Mailers

• Network Marketing

Distribution Policies

• Sales volume potential:– Reach to the potential buyers by the channel– Market analysis to judge each channel’s potential– Comparative analysis– Role of the sales people

• Comparative Distribution Costs – Shortest are the costliest– Direct selling more common in industrial markets than

consumer markets

• Net Profit possibilities– Relationship of gross margin, expenses and net

profits

Pricing Policies

• Relative to Competition– Meeting the competition– Pricing above the competition– Pricing under the competition

• Relative to Cost– Full cost pricing (Variable + fixed cost covered)– Promotion Pricing (special low introductory prices)– Contribution Pricing (above relevant incremental cost)

Continued…• Relative to Buyers

– Wherever individual sales involve large sums– Bargaining power varies with the size of transaction– Creative selling

• List pricing– List of standardized resale price– Seek or does not seek to control resale price– Multiply with the increase in the number of middlemen– Resale price reporter is essential for effective

enforcement

Continued…• Policy on discount

– Trade discounts ( A discount on the list price granted by a manufacturer or wholesaler to buyers in the same trade)

– Quantity discounts

– Cash discounts (A reduction in the price of an item for sale allowed if payment is made within a stipulated period)

• Geographical pricing policy

– F.O.B pricing– Delivered pricing

Continued…

• Policy on price leadership

• Product line pricing policy– Price space between two lines– Pricing of the top and bottom lines

• Competitive bidding policy– Industrial and government buyers– Large volumes

Determining the kind of sales personal

Determining the kind of sales personal

Sales Organization ConceptsSales Organization ConceptsSalesforce Specialization

GENERALISTSGENERALISTSAll selling activitiesand all products to

all customers

SPECIALISTSSPECIALISTSCertain selling activities

for certain productsfor certain customers

Some specializationof selling activities,products, and/or

customers

Selling SituationSelling Situation

• Consideration of Specialization• A generalized salesforce should be used when selling effort is

more important than selling skill• A specialized salesforce should be used when selling skill is

more important than selling effort

• Consideration of Environmental Characteristics, Task Characteristics, and Performance Objectives

• Consideration of Customer Needs and Product Complexity

Selling Situation Selling Situation Customer and Product Determinants

of Salesforce Specialization

Customer Needs Similar

Customer Needs Different

SimpleProductOffering

ComplexRange ofProductsGeography-

DrivenSpecialization

Product-Driven

Specialization

Market-Driven

Specialization

Product/Market-Driven

Specialization

Geographic Sales OrganizationGeographic Sales Organization

Sales Training Manager

Salespeople (100)

District Sales Managers (20)

Zone Sales Manager (4)

Eastern Regional Sales Manager

Salespeople (100)

District Sales Manager (20)

Zone Sales Manager (4)

Western Regional Sales Manager

National Sales Manager

Product Sales OrganizationProduct Sales Organization

Salespeople (100)


Office Equipment Sales Manager

Salespeople (100)


Office Supplies Manager


Market Sales OrganizationMarket Sales Organization

Sales Training Manager

Salespeople (50)

Dsitrict Sales Managers (25)

Zone Sales Managers (4)

Commercial Accounts Sales Manager

Salespeople (50)


Government Account Sales Manager


• Broad Market Specialization– Consumers and/or Industrial

• Specific Industry Specialization– Government agencies, educational institutions, distributors, and

retailers, OEMs

Functional Sales OrganizationFunctional Sales Organization

Salespeople (160)


Regional Sales Managers (4)

Field Sales Manager

Salespeople (40)


Telemarketing Sales Manager


Sales Organization StructuresSales Organization StructuresIdentify Major Accounts

Complexity of AccountSimple Complex

Large

Small

Size

of

Acc

ount

LargeAccount

RegularAccount

ComplexAccount

MajorAccount

Comparison of Sales Organization Comparison of Sales Organization StructuresStructures

Organizational Structure Advantages Disadvantages

Geographic Low Cost No Geographic Duplication No Customer Duplication Fewer Management Levels

Limited Specialization Lack of Management Control Over

Product or Customer Emphasis

Products

Product Salespeople Become Experts inProduct Attributes andApplications

Management Control overSelling Effort Allocated to

High Cost Geographic Duplication Customer Duplication

Market Salespeople Develop BetterUnderstanding of UniqueCustomer Needs

Management Control OverSelling Effort Allocated toDifferent Markets

High Cost Geographic Duplication

Functional Efficiency in PerformingSelling Activities

Geographic DuplicationCustomer DuplicationNeed for Coordination

Hybrid Sales Organization Hybrid Sales Organization StructureStructure

Major AccountsSales Manager

WesternSales Manager

EasternSales Manager

FieldSales Manager

TelemarketingSales Manager

Regular AccountsSales Manager

Commercial Accounts Sales Manager

Office EquipmentSales Manager

Office SuppliesSales Manager

Government Accounts Sales Manager


Determining the size of the sales force

Determining the size of the sales force

Popular methods

• Workload method

• Sales potential method

• Incremental method

Workload Method

• Step 1 - Classifying the customer• Step 2 - Decide on length of time per each call and

desired call frequencies on each customer per year• Step 3 - Calculate the total workload involved in covering

the entire market• Step 4 - Determine the total time available with the sales

person• Step 5 -Divide the total time available per sales person

by task• Step 6 -Calculation of total number of salespeople

needed

Sales potential method

Formula usedN = S/P(1+T)

N = Number of sales personnel S = forecasted sales volumeP = Estimated productivity of one sales personnelT = Allowance of rate of sales force turnover

E.g. - N = 10,00,000 (s)/ 1,00,000 (P) x 1.10 (@ 10% sales force turnover)

= N = 11 sales personnel units

Incremental method

With additional salesperson no

Additional sales

volume of

Cost of goods sold Gross margin

16 250000 162500 87500

17 200000 130000 70000

18 150000 97500 52500

19 100000 65000 35000

With additional salesperson no

Gross margin

Salaries +commission+

travel exp

Net profit contributio

n

16 87500 44500 43000

17 70000 42000 28000

18 52500 39500 13000

19 35000 37000 -2000

Documents

Sales Functions and Organizational Strategies