Chapter 4 Sales Force Management

Chapter 4

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Organizing the Sales Effort

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Learning Objectives 0011 0010 1010 1101 0001 0100 1011

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• Identify the purposes of sales organization. • Understand the different horizontal organizational structures of a sales force. • Outline the major issues in key account and team selling. • Discuss key vertical structure issues in sales organizations. • Identify important issues in starting a new sales force from the 2 ground up.

Key Terms 0011 0010 1010 1101 0001 0100 1011

• division and specialization of labor • line organization • line and staff organization • outsourcing the sales force • manufacturers’ representatives • selling agents • transaction cost analysis (TCA) • geographic organization • product organization •

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•organization by selling function •telemarketing •national or key accounts •team selling •selling center •matrix organization •multilevel selling •co-marketing alliances •logistical alliances •span of control

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Key Terms 0011 0010 1010 1101 0001 0100 1011

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Division and specialization of labor (pg. 109) – Dividing a function into its component activities and assigning each activity to a specialist who can increase the efficiency with which almost anything is performed. Line organization (pg. 109) – Vertical organization in which the chain of command runs from the chief sales executive down through levels of subordinates. Each subordinate is responsible to only one person on the next higher level, and each is expected to perform all the necessary sales management activities relevant to his or her own level. Line and staff organization (pg. 110) – Several sales management activities, such as personnel selection, training, and distributor relations, are assigned to separate staff 4 specialists.

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• Outsourcing the sales force (pg. 111) – Term used to indicate use of agents. • Manufacturer’s representatives (pg. 111) – Intermediaries who sell part of the output of their principals, the manufacturer they represent, on an extended contract basis. • Selling agents (pg. 111) – Intermediaries who do not take title or possession of goods they sell and are compensated solely by commissions from5 their principals.

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• Transaction cost analysis (TCA) (pg. 114) – This is a theory that states when substantial transactionspecific assets are necessary to sell a manufacturer’s product, the costs of using and administering independent agents (i.e., the manufacturer’s transaction costs) are likely to be higher than the costs of hiring and managing a company sales force. • Geographic organization (pg. 115) – Individual salespeople are assigned to separate geographic territories. • Product organization (pg. 116) – Separate sales forces are in place for each product or 6 product category in their line.

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• Organization by customer type (pg. 118) – Creation of separate sales teams to call on a particular customer type. • Organization by selling function (pg. 119) – Different salespeople specialize in performing different selling functions. • Telemarketing (pg. 119) – Selling functions are performed over the telephone.

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National or key accounts (pg. 120) – Large and important customers. Team selling (pg. 123) – Assigning a group of specialists inside the firm to an individual customer. Selling center (pg. 123) A group of individuals from the organization (marketing customer service, sales, etc.) assembled to help the salesperson do his/her job more effectively

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• Matrix organization (pg. 124) – Type of team selling in which direct reports and supporting internal consultants bring collective expertise to bear for the client or customer. • Multilevel selling (pg. 125) – A variation of team selling, where the sales team consists of personnel from various managerial levels who call on their counterparts in the buying organization.

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• Co-marketing alliances (pg. 125) – Joint marketing and sales programs among suppliers, in order to sell integrated systems directly to the ultimate customer. • Logistical alliances (pg. 125) – Alliances between customers and suppliers resulting in the development of computerized information and ordering systems for customers to place orders directly via a dedicated telephone or satellite link to suppliers’ computers. • Span of control (pg. 126) 10 – The number of people each manager supervises.

Importance of Sales Organization Decisions 0011 0010 1010 1101 0001 0100 1011

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• Organizing the activities and management of the sales force forms a major part of strategic sales planning • Managers are becoming more proactive in restructuring • A strong corporate vision and effective strategic market planning are closely linked with how the organization is structured and how it interacts with its customers

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Purposes of Sales Organization 0011 0010 1010 1101 0001 0100 1011

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• Activities should be divided and arranged in such a way the firm can benefit from the specialization of labor. • The organizational structures should provide for stability and continuity in the firm’s selling efforts. • The structure should provide for the coordination of activities assigned to different persons in the sales force and different departments in the firm.

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Division and Specialization of Labor 0011 0010 1010 1101 0001 0100 1011

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• Increase productivity - each specialist can concentrate efforts and become more proficient at the assigned task • Divide required selling activities to gain maximum benefits of specialization within the sales force • Line organization - vertical organization, chain of command runs from the chief sales executive down through levels of 13 subordinates

Division and Specialization of Labor 0011 0010 1010 1101 0001 0100 1011

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• Line and staff – most common design • Concerns – What specific functions should be assigned to staff? – How can staff activities be integrated with line sales manager activities? – Should staff activities be performed in-house or outsourced to independent contractors?

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Organize for Stability and Continuity 0011 0010 1010 1101 0001 0100 1011

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• Organize activities without regard to the talents or preferences of current employees. • People can be trained or recruited to fill positions. • The same activities will be carried out at the same positions within the firm even if designated individuals receive promotions or leave.

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Coordination and Integration 0011 0010 1010 1101 0001 0100 1011

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• The more an organization divides tasks among specialists, the more difficult integrating those tasks becomes. Issues: • Sales force activities must be integrated with customer needs. • Selling activities must be coordinated with other departments. • Tasks must be integrated.

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Outsourcing the Sales Force 0011 0010 1010 1101 0001 0100 1011

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Manufacturer’s Representatives – intermediaries who sell part of the output of their principals. – Take neither ownership nor physical possession of the goods they sell. – Cover a specific territory and specialize in a limited range of complementary products.

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Outsourcing the Sales Force 0011 0010 1010 1101 0001 0100 1011

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Advantages of Manufacturer’s Reps – Many established contacts and prospects – Familiarity with the technical nature and applications of specialized products – The ability to keep expenses low by spreading selling costs – They appear as a variable cost item on their principals’ income statement

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Outsourcing the Sales Force 0011 0010 1010 1101 0001 0100 1011

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Six C’s of finding the right rep Compatible lines Compatible territories Compatible customers Credibility of the rep Capabilities Credits

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Source: Dan Hanover, “Independents Day,” Sales & Marketing Management, April 2000, pp. 65–68.

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Outsourcing the Sales Force 0011 0010 1010 1101 0001 0100 1011

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Outsourcing the Sales Force 0011 0010 1010 1101 0001 0100 1011

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Selling Agents – Intermediaries who do not take title or possession of the goods they sell – Compensated by commissions from their principals – Have broad authority by their principals to modify prices and terms of sale – Actively shape the manufacturer’s promotional and sales programs

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Considerations for Outsourcing the Sales Force 0011 0010 1010 1101 0001 0100 1011

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Economic Criteria Control Transactions costs Strategic Flexibility

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Common Bases for Structuring the Sales Effort 0011 0010 1010 1101 0001 0100 1011

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Geographic organization Product organization Organization by customer type or markets Organization by selling function

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Geographic Organization 0011 0010 1010 1101 0001 0100 1011

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• Simplest and most common method • Individual salespeople assigned to separate geographic territories • Each salesperson is responsible for performing all activities necessary to sell all the products

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Geographic Organization Advantages • Tends to achieve lowest costs • Travel time and expenses are minimized. • Sales administration and overhead costs are kept low.

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Disadvantages • It does not provide any benefits associated with the specialization of labor.

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Product Organization A0010 separate sales force each 0011 1010 1101 0001 0100for 1011

product (or

category) in the line. Advantages • Individual salespeople master effective selling methods for single or related products. • Closer alignment of sales and production possible. • Sales management controls the allocation of the selling effort across the line.

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Disadvantages • Duplication of effort.

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Organizing by Customer Type or Markets Organizing a sales by customer 0011 0010 1010 1101 0001 force 0100 1011

type is a natural extension of the marketing concept and a strategy of market segmentation.

Advantages • Better understanding of customer needs • Increased familiarity with certain businesses • Increased control over the allocation of the selling effort

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Disadvantages • Possible higher selling and administrative costs • Duplication of effort

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Organizing by Selling Function

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• Different salespeople specialize in performing different selling functions – e.g. prospecting and developing new accounts versus maintaining and servicing existing customers.

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Role of Telemarketing 0011 0010 1010 1101 0001 0100 1011

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• Prospecting for and qualifying potential new accounts • Servicing existing accounts quickly when unexpected problems arise • Seeking repeat purchases from existing accounts that cannot be covered efficiently in person • Gaining quicker communication of newsworthy developments

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National and Key Accounts 0011 0010 1010 1101 0001 0100 1011

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• Organizational approach to deliver customer service necessary to attract and maintain large and important customers.

• Sales execs must be able to . . . – be business managers capable of managing key accounts – customize products and services – plan and implement key account business plans

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Organizing for National and Key Accounts 0011 0010 1010 1101 0001 0100 1011

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• Assign key accounts to top sales executives • Create separate corporate division • Create a separate sales force to handle major accounts

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Team Selling 0011 0010 1010 1101 0001 0100 1011

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• Team selling integrates functional specialists with customer relationship specialists. • Benefits include: – Questions answered faster – People with similar interests speak directly with one another

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Team Selling 0011 0010 1010 1101 0001 0100 1011

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• A selling center brings together individuals from around the organization • A matrix organization employs direct-reporting salespeople who support internal consultants with specialized expertise

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Alternative Organizations 0011 0010 1010 1101 0001 0100 1011

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• Multi level selling –sales team consists of personnel from various managerial levels who call on their counterparts in the buying organization • Co-Marketing Alliances – develop marketing and sales programs to sell integrated systems directly to the ultimate customer

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Logistical Alliances and Computerized Ordering 0011 0010 1010 1101 0001 0100 1011

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From the customer point of view, computerized ordering is – Convenient, – Flexible and – Less time consuming How will computerized reorder systems change the role of the sales force?

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Vertical Structure of Sales Organizations 0011 0010 1010 1101 0001 0100 1011

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Key questions: – How many levels of sales managers should there be? – How many people should each manager supervise? (span of control)

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Vertical Sales Organization 0011 0010 1010 1101 0001 0100 1011

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• Generally, span of control should be smaller and number of levels of managers larger when: – The sales task is complex – The profit impact of each salesperson’s performance is high – The salespeople in the organization are well paid and professional

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Vertical Sales Organization 0011 0010 1010 1101 0001 0100 1011

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Span of control should be smaller at higher levels in the sales organization Other issues: – How much authority should each manager be given? – At what level of sales management should authority for different decisions lay?

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Building Blocks for New Sales Force Startup 0011 0010 1010 1101 0001 0100 1011

1. 2. 3. 4. 5. 6.

Start with a strategy Appoint an expansion team Leverage existing strengths Go to the press Avoid compensation snafus Provide support

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Sales managers assigned to create a new43

Summary A good organizational plan should satisfy three criteria. 1. It should allow the firm to realize the benefits that can be derived from the division and1011 specialization of labor. 0011 0010 1010 1101 0001 0100 2. It should provide for stability and continuity in the firm’s selling efforts.( by organizing activities and not people.) 3. It should produce effective coordination of the various activities assigned to different persons in the sales force and different departments in the firm. Question of horizontal organization focus on how specific selling activities are to be divided among members of the sales force. 1. Whether to use company employees to perform the sales function or to rely on outside manufacturers’ representatives or sales agents. The cost of using outside agents is usually lower than that of a company sales force at relatively low sales volume. However, most executives believe company employees will generate greater levels of sales and are easier to control than agents. When a firm employs its own sales force, four types of horizontal organization are commonly found, structured according to (1) geography, (2) type of product, (3) type of customer, and (4) selling function. Geographic organization is the simplest and most common. It possesses the advantages of low cost and clear identification of which sales person is responsible for each customer. Its primary disadvantages is that it does not provide the firm with any benefits from division and specialization of labor. 44 2. Specializing of the sales force along product lines allows salespeople to develop great familiarity with technical contributes,

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Summary Two key questions must be addressed in deciding on an effective vertical structure of the sales organization: (1) How many levels of sales managers should there be? (2) How people each manager supervise? The 0011 0010many 1010 1101 0001 should 0100 1011 answers are related: For a given number of salespeople, a greater span of control produces fewer levels of management. Although it is difficult to unequivocally state the optimal span of control for a firm, it is generally true that the span of control should be smaller in those firms where (1) the sales task is complex, (2) the profit impact of each salesperson’s performance is high, and (3) the salespeople in the organization are well paid and professional. Another question that must be addressed in designing the vertical structure of a sales organization is, How much authority should be given each manager in the sales management hierarchy, particularly with respect to hiring, firing, and evaluating subordinates? As a general rule, the more important such decisions are to the firm, the higher the level of management that should make such decisions. 45 Starting up a sales force from scratch requires strong

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Summary Organizing a sales force by type of customer or market served allows salespeople to better the needs and requirements of the 0011 0010 1010understand 1101 0001 0100 1011 various types of customers. Salespeople are more likely to discover ideas for mew products and marketing approaches that will appeal to those customers. However, this scheme also produces duplication of effort, which tends to increase selling and administrative expenses. A selling function organizational philosophy holds that people should be allowed to do what they do best. Thus, it makes sense to have, say, one sales force specializing in prospecting for and developing new accounts while another maintains and service existing customers. These arrangements are often difficult to implement because of coordination problems. In addition to deciding on a basic structure, 46 a firm needs to specify how it intends to service national

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