Ssm lecture-06 & 07 (designing and organizing the sales force)

07/06/10 1

By :

Prof. Amit Kumar

07/06/10 2

“A student pursuing management education from IILM- Graduate School of Management, for example may find himself or herself placed in a firm as a Sales Manager. Our goal is to prepare the student for the exciting challenges related to leading sales organizations in today’s hyper-competitive global economy”.

IILM-GSM

Importance of this course

Selling & Sales Management

07/06/10

IILM-GSM

Selling & Sales Management

07/06/10

Contents• Sales Organization • Organization Design & Structure

– Line Organization– Activity/Function-based Sales Structure– Geographical/Territory Sales Structure– Product-based Structure– Customer-based/ Market Structure– Combined/Hybrid Sales Structure

• Pros and Cons of Different Territory Structures• Number of Sales People• Break-even Cost Analysis

IILM-GSM

Selling & Sales Management Designing and Organizing the Sales Force

07/06/10

Sales Organization

• An organization of individuals either working together for the marketing of products and services manufactured by an enterprise or for products that are procured by the firm for the purpose of reselling.

• A sales organization defines duties, roles, rights, and responsibilities of sales people engaged in selling activities meant for the effective execution of the sales function.

IILM-GSM


07/06/10

Sales Organization

• A structural body through which the functions of sales management are carried out

• Sales organization always makes efforts to increase sales, thereby achieving the principle of profit maximization, which contributes to the overall growth of enterprise

IILM-GSM


07/06/10

Factors Influencing Structure

• Product and service related factors

• Organization related factors

• Marketing mix related factors

• External factors:

- Level of competition in the market(In case of intense competition, organization decides to expand the size of the organization to enter into new markets or to serve the existing customers better.)

IILM-GSM


07/06/10


Product and service related factors

IILM-GSM


• In case of fast moving consumer goods like soaps, oils and toothpaste, the size of the organization is large and flat at the lower level as it has to cater to a large customer base and frequency demanding product markets.

• Similarly, in complex service offers, organizations are found to be complex and are supported by a large number of sales staff.

07/06/10


Organization related factors

IILM-GSM


• If the size of the enterprise is small, there will be limited number of products and customers, and in such a case, a simple structure may be sufficient to serve the market.– Organizations having highly specialized products and

serving niche markets have a smaller and simpler sales organization.

07/06/10

Factors Influencing StructureMarketing Mix related factors

IILM-GSM


• The product, price, promotion and distribution policy also determines the structure and size of the organization.

• When organization serves a global or national market like India, organization size will be necessarily large.– Companies with a selective distribution strategy prefer to have

their own outlets and decide in favor of simple sales organizations, whereas

– With an intensive distribution strategy through retail channels have complex and large sales organizations

• Price policy, in case of low-priced goods, where the potential demand as well as the number of customers is large, size of the organization will be large.

07/06/10

Organizational Design

IILM-GSM


Organizational design refers to: • the formal and coordinated task of assigning territories and • establishing flows of communication and responsibilities of

sales groups and individuals to serve customer effectively.• The developed structure helps the salespeople in the

organization to identify their roles, responsibilities and command in the organization.

Organizations adopt different kinds of structures starting from the simple line organization to special

designs based on functions, geographic…

07/06/10

Line Organization

- In a pure line organization, the chief executive does the decision making and decisions flow down the line for execution.-Many small sales firms have such a structure. These are also called one-man show or person-centric organizations.

-As organizations grow in size, organization are designed around functions, geographic, customer-based and a combination design.

Line organization

Mr. Ratnakar ShettyPresident / Owner

Mr. ChandrakantVP (Sales)

Five sales people

IILM-GSM


07/06/10

Activity / Function-based Sales Structure

IILM-GSM


• In FSS, selling process is divided into two or more steps that are performed by specialists. – A company may have one salesperson open a new account.

But as soon as buyer makes the first purchase, the account is turned over to another salesperson who manage the account.

• For firms that sell to grocery stores or retail outlets, the sales effort might include one salesperson who establishes a store's account, a second salespeople who manages the store's stock and its order and resolve customer service issues, and a third sales-support person who merchandises the company's products by setting up in-store shelf, display and promotional materials.

07/06/10

Activity / Function-based Sales Structure

IILM-GSM


Prospecting Telemarketing/Cold CallsPresentation Face-to-face Field SalesService Personal Visits

A major problem with using FSS is coordinating the multiple salespeople that would call on a single

customer.

Activity Sales Method

07/06/10

IILM-GSM


• A firm that employs a geographical sales structure depends upon physical boundaries to organize its sales force with customer accounts. – Depending upon the number of accounts located within a geographic

entity, a salesperson is assigned a specified group of customers within a state, region, a single city or a zip/postal code.

• Firms often favor this because it is relatively easy to design, minimize duplication of efforts and ensure a specific salespeople is assigned to each customer.

• B.W.Wilson Paper Company, which was formed in Richmond, Virginia, slowly expanded its geographical sales territories across the state and into North Carolina. Company salespeople sells all paper and industrial products to commercial painters, publishers etc.

Geographical / Territory Sales Structure

07/06/10

Geographical / Territory Sales StructureVP Marketing

FMCG SALES

National Sales Manager

West DivisionArea Sales Manager

Central Division Area Sales Manager

East Division Area Sales Manager

IILM-GSM


-Mumbai -Delhi -Kolkata-Surat -Jaipur -Patna

Advantages:• Proper coverage of territory, Defining the responsibility

Disadvantage:• Salespeople responsible for the entire product line in territory• Within their territory, they may choose to concentrate on products and customers that are easy prospects.

07/06/10

Product-based Sales Structure

IILM-GSM


• When a firm's product lines are broad and complex, it might be more effective to organize sales activities around a product or division- to specialize the sales force, in other words.

• In PSS, the firms organize its sales activities around related product lines. GE offers consumer and commercial solutions in the areas of automotive, aviation, energy, health-care, oil and gas and transportation to market worldwide.

• There are also a number of limitations to product specialization. A firm may unknowingly send two or more salesperson to the same account, thus confusing the buyer.

07/06/10

President,Marketing

Product Manager (A)

Product Manager (B)

Manager(Sales)

Manager(Training)

Manager(Promotion)

Manager(Sales)

Manager(Training)

Manager(Promotion)

IILM-GSM



07/06/10


IILM-GSM


A noteworthy example is Xerox, which at one point had three independent sales forces that sold computers, copiers and office equipment. Xerox became aware, based on customer feedback, that its sales representatives from the different forces:– called upon same accounts;– had little knowledge of each other's products– confused buyers who had a genuine need for the company's

products, and– did not cooperate by providing leads and information to one

another.

To fix this problem, Xerox assigned a single salesperson to sell all three product lines to accounts. As a result,

customer service levels and total sales increased.

07/06/10

IILM-GSM


• Firms that utilize a MSS assign representatives to customers based upon their markets- automotive, telecommunications, military, computer. By employing a MSS, the firm is able to apply the marketing concept.

• Applying MSS appears to be an effective strategy when a seller wants to penetrate a new market.

For example, over the past decade pharmaceutical manufacturer like Pfizer have added a large number of salespersons to sell to physicians, hospitals and health-

care providers.

Customer-based / Market Structure

07/06/10

Customer-based / Market Structure

President(Marketing)

Sales ManagerWholesalers

Sales ManagerRetail Sales

Sales People

Sales ManagerHealth Care Product

Vice President(Marketing)

Sales People Sales People

IILM-GSM


07/06/10

Combination / Hybrid Sales Structure

IILM-GSM


• A firm utilizes a CSS when its sales force is organized based on a mixture of product, market, and geographical factors. CSS work best when the market is large, the product mix is complex and customers require different applications.

An example is a salesperson for Lenovo. Lenovo sells sales force CRM system to automotive parts

manufacturer in Midwest. But, CSS is expensive and can result in duplicate sales efforts.

07/06/10

Functional

Geographic

Customer

Combined Sales Org. Design

President

Marketing ManagerInternational

G.MInternational Sales

Marketing ManagerIndia

Vice President(Marketing)

G.MConsumer care

G.MInternational Sales

Vice President(HRD)

Vice President(Production)

Divisional ManagerSoaps

Divisional ManagerFood

Divisional ManagerPaper

Eastern Sales Division

Western Sales Division

Northern Sales Division

Europe Division America Division Gulf Division

Product

IILM-GSM


07/06/10

Pros & Cons of Different Territory Structures

IILM-GSM


PROS CONS

Geographical (Generalized approach)

Simplicity, Efficiency, No Duplication

Unbalanced Territories, Coordination Issues

Product ( Specialist approach)

Better Rep Product Knowledge, Better

Application Knowledge

Duplicate Sales Efforts

Market ( Specialist approach)

Better Customer/ Market/ Product Application knowledge

Duplicate Sales Effort,

More Complex to work

with Product Managers

Functional ( Specialist approach)

Job Expertise Achieved by Representatives

Coordination Issues

Combination (specialist approach)

Better customer and Market Knowledge

Economic of Scale Issue,

More complex to Manage,

Duplicate Sales Efforts

07/06/10

Number of Sales People(The Size of the Sales Force)

IILM-GSM


• When firms design their sales organization, a major decision is how many salespersons are needed to serve existing and potential customers.

• Sales managers utilize two methods for computing the number of salespersons they should hire and maintain:

1. Breakdown Method2. Workload Method

07/06/10

Number of Sales People

1. The Breakdown approach

This method is relatively simple to compute.

Sales Managers need only divide the forecasted sales revenue by the average sales per salesperson. e.g.

Forecasted SalesNo of Sales People =

Average Sales per Salesperson

IILM-GSM


07/06/10


2. The workload approach

The workload approach allowed the number of salespeopleneeded to be calculated, given that the company knows the number of calls per year it wishes its salespeople to makeon different classes of customer.

IILM-GSM


07/06/10

Number of Sales People2. The workload approachSeries of Steps:

1. Customers are grouped into categories according to the value of goods bough and potential for the future.

2. The call frequency (number of calls on an account per year) is assessed for each category of the customer.

3. The total required workload per year is calculated by multiplying the call frequency and number of customers in each category and then summing for all categories.

4. The average numbers of calls per week per salesperson is estimated.5. The number of working weeks per year is calculated.6. The average number of calls a salesperson can make per year is being

calculated.7. Finally the number of salespeople required is determined by dividing the total

annual calls required by the average number of calls one salesperson can make per year.

IILM-GSM


07/06/10


2. The workload approach

IILM-GSM


Number of sales people =

(Number of customers)

(Ideal frequency of calls)

X

(Average weekly call

rate)

(Number of working weeks per

year)

X

07/06/10


The workload approach

Customer Group No of Firms Call Frequency Total per year

A ( Over $ 1 Million per Year) 200 12 2400B ( Over $ .5 to 1 M per year) 1000 9 9000C (.3 M to .5 M per year) 3000 6 18000D ( Less than .3 M per year) 6000 3 18000

Step (1), (2), (3) are summarized above.

IILM-GSM


Total Annual Workload 47,400

07/06/10

Number of Sales PeopleThe workload approachCustomer Group No of Firms Call Frequency Total

per year

A ( Over $ 1 Million per Year) 200 12 2400B ( Over $ .5 to 1 M per year) 1000 9 9000C (.3 M to .5 M per year) 3000 6 18000D ( Less than .3 M per year) 6000 3 18000

Step (4) gives: Average number of call per week per salesperson = 30Step (5)...No of working weeks = 52-9 = 43Step (6) Average number of calls per salesperson per year = 43* 30 = 1290Step (7) gives,

IILM-GSM


Sales Force Size = 47,400/1290 = 37 Salespeople

07/06/10


Adjust for other workload

Now, suppose 15 % to call upon new accounts and 10 % forcustomer service duties = 25 percent

Hence, 49 salespersons needed to service existing accounts, call on new accounts, and provide

customer service.

IILM-GSM


Sales Force Size = (37) / (.75) = 49 Salespeople

07/06/10

Question: Number of Sales People

Using the following information, perform abreakdown and workload computation to predict

how many salespersons XYZ Inc. will need to service their customers.

IILM-GSM


07/06/10

Question: Number of Sales PeopleForecasted sales for next year $110 million and an averagesalesperson sells $9 million annually.

Also, XYZ sales manager has categorized existing accounts into 41 “A”, 105 “B”, and 225 “C” customers. “A” customers are visited weekly, “B” accounts monthly, and “C” accounts every other month. Salespersons are required to make four calls per day and be in the field four days per week. Because of vacation and holidays, each salesperson works 48 weeks a year. In addition to calling upon existing accounts, salespersons are assigned a quota of calling upon 10 percent new accounts and devoting 5 percent of their time to information gathering duties.

IILM-GSM


07/06/10

Company Salespeople or Sales Agent?

Case Study : Salespeople or Sales Agent

Consider the following situation:

Delhi –based branded furniture manufacturer wants to sell its furniture in southern markets. The manufacturer has to decide between two alternatives.

IILM-GSM


07/06/10

Evaluating the Major AlternativesCase Study : Salespeople or Sales Agent

1. Hiring 10 news sales representatives who will operate from offices in Bangalore, Chennai and Hyderabad. They would receive a base salary plus commissions. Also, the company has to meet the expenses for setting up their office-cum-residence.

2. Using a Bangalore-based industrial distributor dealing in furniture with offices in Chennai, and Hyderabad. The distributor has 30 sales representatives (agents), who would receive commissions based on their sales.

IILM-GSM


07/06/10

Evaluating the Major AlternativesCase Study : Salespeople or Sales Agent

1. Hiring 10 New Company Sales Force2. Using a Bangalore-based Sales Agents/Agency.

First step is to determine whether a company salesforce or a sales agents will produce more sales.The next step is to estimate the costs of sellingdifferent volumes through each channel.

IILM-GSM


07/06/10

Break-even Cost analysis

IILM-GSM


(Break-Even Chart)Total Revenue

Total Cost

Fixed Cost

Target profitBreak-even point

Sales Volume in Units (thousands)

Tot

al C

ost

Rup

ees (

in th

ousa

nd)

10 20 30 40 50

200

400

600

800

1000

Rs. 20 – Rs. 10Rs. 300,000 = 30,000Break-even volume =

loss

07/06/10

Break-even Analysis: Company Sales Force or Manufacturer’s Sales Agency

There is a sales level at which selling costs are the same for the two channels. The sales agency is thus better channel for any sales

volume below , and the company sales branch is better at anyvolume above .

IILM-GSM


Total Sales Cost: Sales Agents/Agency

Total Sales Cost: Company Sales Force

Fixed Cost

Target profitBreak-even point

loss

Sales Volume (Level)

Sale

s Cos

ts

07/06/10

Break-even Analysis: Company Sales Force or Manufacturer’s Sales Agency

SalesCosts

Sales Agency/Agents

Company Sales Force

Level of Sales

Breakeven

CONCLUSION : Sales agents tend to be used by smallerfirm, or by the large firms in small territories where volume is low.

IILM-GSM


07/06/10

Break-even Analysis

IILM-GSM


Some Examples:• Using agents to sell services like advertising is logical

because nearly anyone can advertise. However, sales agents are not practical in all sales situations. For example, pharmaceutical companies use in –house sales forces because of ethical and accountability issues.

• Insurance companies have found that independent sales reps are less expensive than hiring new.

• Company outsource their telemarketing function to independent telemarketing companies that have call center and telemarketing expertise.

Ssm lecture-06 & 07 (designing and organizing the sales force)

Documents

Transcript of Ssm lecture-06 & 07 (designing and organizing the sales force)