Chapter 3 Sales Force Management

Chapter 3

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Linking Strategies and the Sales Role in the Era of Customer Relationship Management

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Learning Objectives 0011 0010 1010 1101 0001 0100 1011

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• Understand and outline the key components and goals of CRM • Explain the importance of market orientation and how a market orientation is fostered within the firm • Identify the key steps in developing and implementing strategies • Describe the role of personal selling in marketing strategy • Outline the stages in developing strategic partnership relationships between organizations 2 • Discuss the actions salespeople can take to ensure a longterm buyer-seller relationship

Key Terms 0011 0010 1010 1101 0001 0100 1011

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marketing concept marketing mix marketing communication mix (promotion mix) market orientation customer orientation customer-centric formalization customer relationship management (CRM) touchpoints mass marketing target marketing customer marketing one-to-one marketing customer value customer loyalty lifetime value of a customer firing a customer

•data warehouse •data mining •return on customer investment •strategic direction •mission statement •goals •objectives •strategic business units •sustainable competitive advantage •distinctive competencies •generic strategies •market opportunity •marketing program •market exchanges •functional relationships •strategic partnerships •trust

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•customer delight •upgrading •full-line selling •cross-selling •preferred supplier •total quality management (TQM) •integrated marketing communication •pull strategy •push strategy •just-in-time reorder and delivery •category management •supply chain alliances •efficient consumer response (ECR) 3 •selling team •top-to-top selling

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Marketing concept (pg. 73) – Turning to consumers themselves for input in making strategic decisions about what products to market, where to market the products and how to get them to market, at what price, and how to communicate with consumers about the products. Marketing mix (pg. 73) – The four elements of product, distribution, price, and promotion. Marketing communication mix (promotion mix) (pg. 73) – The promotional message used by a firm to communicate with customers • Personal selling • Advertising • Sales promotion • Direct marketing 4 • Public relation/publicity

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Market orientation (pg. 73) – The implementation of the marketing concept. Customer orientation (pg. 73) – The firm places the customer in the center of all strategic decisions and firm activities. Customer-centric (pg. 73) – Firms high in customer orientation because they have the customer at the center of their business model. Formalization (pg. 73) – The process of setting up structure, processes and tools, and managerial knowledge and commitment in support of the market 5 oriented or customer-centric culture.

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Customer Relationship Management (CRM) (pg. 73) – The most prevalent formalization of a customer-centric culture in which the comprehensive business model for increasing revenues and profits focuses on customers. Three goals of CRM are customer retention, acquisition and profitability. Touch-points (pg. 74) – The intersection of business events via a channel using a medium where the selling firm touches the customer in some way, thus allowing for information about customers to be collected.

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Customer marketing (pg. 74) – Focusing on developing relationships with individuals. One-to-one marketing (pg. 74) – Ability to customize offerings for individual users. Customer value (pg. 75) – When customer weighs the costs (monetary and otherwise) of a relationship with a seller, the benefits realized from that relationship outweigh the costs. Customer loyalty (pg. 75) – When customers are highly satisfied with the relationship and the product offering, and are very unlikely to switch to another company and its products or brands. 7

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Lifetime value of a customer (pg. 76) – Pay off in terms of cost savings, revenue growth, profits, referrals, and other important business success factors. It is possible to calculate an estimate of the projected financial returns from a customer, providing a very useful strategic tool for deciding which customers deserve what levels of investment of various resources (money, people, time, information, etc.) Firing a customer (pg. 76) – This can occur when a customer exhibits a low predicted lifetime value and resources are better used elsewhere.

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Data warehouse (pg. 76) – The compilation of information obtained from touch-points and transformation of that information into useful information for customer strategy development.

Data mining (pg. 76) – The use of software techniques to learn more about current and potential customers from large data warehouses of information. Return-on-customer-investment (pg. 78) – Related to the lifetime value of a customer, this is the financial evaluation of a customer relationship.

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Strategic direction (pg. 82) – The mission and goals on which a firm’s marketing strategy may be built and implemented. Mission statement (pg. 82) – The answer to the most basic questions about a firm’s reason for being. Goals (pg. 83) – Coming from the mission statement, goals are more specific targets the firm wishes to meet. Objectives (pg. 83) – More specific targets than goals. Objectives should be specific, measurable, and realistically attainable. Strategic business units (SBUs) (pg. 83) – Multiple divisions of a company likely to have its own objectives and 10 a distinct strategy for accomplishing them.

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Sustainable competitive advantage (SCA) (pg. 83) – This is the keystone of a business-level strategy about how a business will compete it its market based on the set of distinctive competencies exhibited by the firm, the quality or attribute of the organization that sets it apart from its competitors. Distinctive competencies (pg. 83) – The quality or attribute of the organization that sets it aside from its competitors. How is it, or how will it be, different from the rest of the pack. Generic strategies (pg. 83) – Common strategies pursued by business units across a variety of industries. Most common are low cost, differentiation, and niche or 11 focus.

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Market opportunity (pg. 83) – Exists whenever some human need is unsatisfied. Marketing program (pg. 86) – A combination of elements from the marketing mix to implement the strategy. It reflects a particular allocation of financial and human resources. Market exchanges (pg. 87) – One-shot transactions that occur between a buyer and seller without much thought of future interaction. Functional relationships (pg. 88) – Long-term relationships between buyer and seller based upon close personal friendships. 12

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Strategic partnerships (pg. 88) – Long-term relationships in which the partners make significant investment to improve profitability of both companies and jointly achieve strategic objectives. Trust (pg. 90) – Important part of developing long-term relationships, and represents confidence that a salesperson’s word or promise can be believed and that the salesperson has the long-term interests of the customer at the core of his/her approach to doing business.

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Customer delight (pg. 90) – Exceeding customer expectations to a surprising degree. This is a powerful way to gain customer loyalty. Upgrading (pg. 91) – Convincing the buyer to use a higher-quality product or newer product (similar to generating repeat sales.) Full-line selling (pg. 91) – Selling the entire line of associated products. Cross-selling (pg. 92) – Similar to full-line selling but reflects selling products that may not 14 be related.

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Preferred supplier (pg. 92) – In general the supplier is assured a large percentage of the buyer’s business and will get the first opportunity to earn any new business. Total quality management (TQM) (pg. 92) – The process of continually working to eliminate errors and defects in all aspects of a company’s products and processes. Integrated marketing communications (IMC) (pg. 93) – Various ways a firm strategically communicates its message about 15 its products to the marketplace.

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Pull strategy (pg. 96) – Attempts by a firm to build strong customer demand for its brand. Key Terms

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Push strategy (pg. 96) – Attempts to build reseller support, by offering direct inducements to potential wholesalers and retailers to encourage them to stock the product. Just-in-time reorder and delivery (pg. 96) – Process to help resellers reduce their investments in inventory and improve inventory turnover. 16

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Category management (pg. 96) – Manufacturers work with resellers to maximize sales volumes and margins in the product categories in which the selling firm’s products are represented. Supply chain alliances (pg. 97) – Used to strengthen relationships with major customers, by involving customers in the development of joint information and reorder systems.

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Efficient consumer response (ECR) (pg. 97) – An automated system in which sales information from stores is sent directly to computers, which figure out automatically when to replenish each product and schedule deliveries direct to each store. This paperless exchange minimizes mistakes and bill-backs, minimizes inventory, decreases out-of stocks, and improves cash flow. Selling team (pg. 98) – A group of representatives from various functional departments of the company assigned to a single customer. Top-to-top selling (pg. 98) Executives at the very top of firms (even CEOs) are directly involved in 18 selling to major strategic partner customers

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CRM is… 0011 0010 1010 1101 0001 0100 1011

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a comprehensive business model for increasing revenues and profits by focusing on customers. both an overarching business philosophy and a process tool to facilitate a truly customer-driven enterprise.

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CRM is… 0011 0010 1010 1101 0001 0100 1011

“…a journey of strategic, process, organizational and technical change whereby a company seeks to better manage its enterprise around customer behaviors. This entails acquiring knowledge about customers and deploying this information at each touchpoint to attain increased revenue and operational efficiencies.”

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PriceWaterhouse Coopers

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Customer Orientation 0011 0010 1010 1101 0001 0100 1011

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Continues to move toward being customer-centric. Builds upon… – The marketing concept which overarches all business strategy – Use of the marketing mix as a “tool kit” for marketing strategy creation – Consumers information fueling strategic decisions about products – Aligning all business processes and functions to maximize the firm’s success.

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Customer-Centric Cultures Include… 0011 0010 1010 1101 0001 0100 1011

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Adopting a partnership business model with mutually shared risks and rewards Defining selling as customer business consultation Formalizing customer analysis processes and agreements Being proactive in educating customers about value chain and cost reduction opportunities Focusing on continuous improvement principles stressing customer satisfaction

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Marketing Evolution 0011 0010 1010 1101 0001 0100 1011

MASS MARKETING

TARGET MARKETING

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Evolved in the early 1900s and dominated marketing management for decades

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In the ‘60s, many firms began to apply the principles of segmentation to different customer groups.

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Marketing Evolution 0011 0010 1010 1101 0001 0100 1011

CUSTOMER MARKETING In 1980, the focus shifted towards developing customer relationships.

ONE-TO-ONE MARKETING

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Technology allows firms to customize offerings to individual users.

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Objectives of CRM 0011 0010 1010 1101 0001 0100 1011

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Customer Retention - retain loyal and profitable customers and channels Customer Acquisition - acquire customer based on known characteristics which drive growth and increase margins Customer Profitability - increase individual customer margins by offering the right product at the right time

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Advantages of CRM 0011 0010 1010 1101 0001 0100 1011

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Reduces advertising costs Increases awareness of customer needs Tracks the effectiveness of promotional campaigns Allows competition for customers based on service, not prices Prevents overspending on low-value clients and under spending on high-value ones Speeds the time it takes to develop and market a product Improves use of the customer channel

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10 Critical Questions in CRM Customers 2. Who are our customers? 0011 0010 1010 do 1101 0001 0100 1011 3. What our customers want and expect? 4. What is the value potential of our customers? The Relationship 7. What kind of relationship do we want to build? 8. How do we foster exchange? 9. How do we work together and share control?

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Managerial Decision Making 12.Who are we? 13.How do we organize to move value closer to our customers? 14.How do we measure and manage our performance? 15.How do we increase our capacity for change?

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The Importance of Market Orientation 0011 0010 1010 1101 0001 0100 1011

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Successful salespeople think beyond “selling”

• Market-driven companies do better market sensing • Market-drive companies develop stronger relationships with customers and channels • Internal partnering is a critical component of market orientation

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Process of Strategy Development 0011 0010 1010 1101 0001 0100 1011

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• The mission statement answers the most basic questions about an organization’s reason for being. • Firms should define their mission in terms of broad human needs to be satisfied. • This approach makes it easier to identify attractive market opportunities.

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Process of Strategy Development 0011 0010 1010 1101 0001 0100 1011

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Goals – flow from the firm’s mission statement and represent specific targets the firm intends to hit. Objectives – more specific than goals and should always be: – Specific – Measurable – Realistically attainable

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SBU Strategy 0011 0010 1010 1101 0001 0100 1011

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Business-level strategy involves how the business will compete in its industry to achieve a sustainable competitive advantage (SCA) An SCA focuses on distinctive competencies Porter’s Three Generic Strategies: • Low Cost • Differentiation • Niche

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Personal Selling’s Role in Marketing Strategy 0011 0010 1010 1101 0001 0100 1011

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Market exchanges - one-shot transactions occurring between a buyer and seller with limited thought of future consideration Roles of salespeople in market exchanges • Create new value • Adapt • “Make the market” • Exit

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Personal Selling’s Role in Marketing Strategy 0011 0010 1010 1101 0001 0100 1011

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Functional relationships create a climate of cooperation, with open and honest communication. • Functional relationships engender a high level of personal trust in well managed business activities. • One danger is what happens when one party is the relationship leaves.

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Personal Selling’s Role in Marketing Strategy 0011 0010 1010 1101 0001 0100 1011

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Strategic Partnerships are long-term relationships where both parties make significant investments. • This relationship requires direct communication with production, production designers, and others.

• Salespeople serve two roles-- relationship manager and general manager.

• Strategic partnerships work best with clients large enough to 39 make investments worthwhile.

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Stages in Relationship Development 0011 0010 1010 1101 0001 0100 1011

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Stage I – Exploration • Determine value, build trust, set expectations, monitor Stage II – Expansion • Generate repeat sales, full-line selling, cross-selling Stage III – Commitment • Build loyalty, become a preferred supplier, engage in

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Role of Personal Selling in IMC An Integrated Marketing Communications (IMC) strategy effectively integrates personal selling, advertising and other communications options

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Advantages of Selling in IMC • Face-to-face contact • More persuasive • More demonstrative • Customization opportunities Disadvantages of Selling in IMC • Limited ability to duplicate • More costly

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Customer Satisfaction and Feedback 0011 0010 1010 1101 0001 0100 1011

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Maintaining customer loyalty is one outcome of customer orientation.

customers. . . Tend to concentrate on their purchases. Provide positive word-of-mouth and customer referrals. May be willing to pay premium prices for the value they receive.

Satisfaction measures need to be supplemented with examinations of customer behavior, such as annual retention rate, frequency of purchases and percentage of the 47 customer’s total purchases captured by the firm.

Summary • Firms today strive to create a marketoriented, customer-centric culture. 0011 0010 1010 1101 0001 0100 1011 Within such a culture, the role of personal selling is vital to the successful development and implementation of marketing strategies. • CRM provides the firm with necessary formalization for success. That is, a wellimplemented CRM business model offers structure, processes and tools, and managerial knowledge and commitment in support of the customer-centric culture. With these things in place, marketing strategies and programs may be successfully developed and executed 48 toward the goals related to customer

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