An Introduction

I dont care how many degrees you have on I dont care how many degrees you have on
the wall, if you dont know how to sell, youre the wall, if you dont know how to sell, youre
probably going to starve probably going to starve. .
Heavyweight boxer George Formans advice to his children
L.A. Times, pg. C2, Tuesday, March 25, 1997
If you sincerely believe that the
customer is king, the second most
important person in this kingdom must
be the one who has a direct interaction
on a daily basis with the king.
MICHAEL BON
CHAIRMAN & CEO, FRANCE TELECOM
Competence of the
Salesperson
A Total Customer
Solution
Quality of Product
or Service
Competitive Price
Marketing
mix
Products Prices Promotion
Advertising
Public
relations
Personal
selling
Sales
promotion
Distribution
Planning Motivating
Budgeting Compensating
Recruiting and selecting Designing territories
Training Evaluating performance
Sales
Management
Direct communication between paid representatives and
prospects that lead to transactions, customer satisfaction,
account development, and profitable relationships
Push and Pull strategy
To identify opportunity to create value for the customer and
to gain customer commitment
One definition: The management of the
personal selling part of a companys
marketingfunction.
Another definition: Theprocessof planning,
directing, and controlling of personal selling,
including recruiting, selecting, equipping,
assigning, supervising, paying, andmotivating
thepersonal salesforce.
The
Marketing
Strategy
Role Of Sales
Force
Structuring of
Sales Force
Building Sales
Competencies
Leading the
Sales Force
The Environment
Environmental forces constrain pursuit of
certain marketing strategies or activities
Environmental variables determine ultimate
success or failure of marketing strategies
Changes in the environment create new
marketing opportunities
Environmental variables are affected by
marketing activities
Buyer-seller interactions take place within the
context of current economic conditions
The economy impacts real potential demand
Global economic conditions are important
Competitive structure affects selling success
Increased number of laws regulate conduct of
business
Three broad categories of relevant laws:
Antitrust
Consumer Protection
Equal Employment Opportunity
Changes how salespeople/sales managers do
their jobs
Influences sales strategies
Provides opportunities for product
development
Transportation, communications, and data
processing technologies change
Ethics - development of moral standards by which actions
and situations can be judged
Sales managers:
Relationships with salespeople
Interactions between salespeople and customers
Managers must influence ethical performance by example
Ethical standards reflect integrity of firm
Nature influences demand for products
Weather
Natural disasters
Availability of raw materials
Energy resources
Shortages may cause demarketing
Social concern about possible negative
environmental impact of product and production
Mission and objectives drive customer management
approaches
Well-defined mission
Successful corporate history
Top management values
Strong corporate culture
+
Sales organizations are highly complex and
dynamic
Often difficult to expand in response to
growing markets
Outside specialists can help meet need to
expand
Lack of financial resources can:
constrain ability to develop new products
limit promotional budget
limit size of sales force
Mergers are sometimes sought to obtain
financial resources
Production capacity
Technology equipment
Location of production facilities
Transportation costs
Ability to ensure seamless distribution and
service after the sale
Competitive advantage opportunity
Difficult for other firms to compete for same
customers
Customers reluctant to switch regardless of
price
Excellent design and engineering provide
promotional appeal
Communicating technological sophistication
as value-add helps prevents over-reliance on
price for sales
Either of sales management or distribution management
cannot exist, operate or perform alone
To achieve the sales goals of sales revenue and growth, the
sales management plans the strategy and action plans
(tactics), and the distribution management has the role to
execute these plans
This will be illustrated by considering some sales
management actions and corresponding role of distribution
management (in the next slide), as well as by discussing a
few integrated cases given at the end of the book
Sales Management Tasks Distribution Management Role
Strategy for effective coverage of
markets and outlets
Follow call plan / beat plan
Make customer call productive
Use multi-channel approach
Strategy for handling customer
complaints
Prompt action at the customer interface level
If the problem persists, involve senior sales
and service people
Planning of local advertising and
sales promotion
Co-ordination with distribution channels
Responsibility of execution with distribution
channels
Expenses are shared between the company and
intermediaries
PERSONALSELLING
Sales and Distribution Management
Psychology in Selling
If a sales person makes a presentation, the prospect
mayor maynot buy
The abovebuyer behaviour model does not tell us
thereasonsof buyingor not buying
To understand the psychological aspects of sellingor
buying, salespeople should studyconsumer or buyer
behaviour, includingbuyingprocessandsituations
Stimulus
(Sales Presentation)
Response
(buy or no buy)
Buyers decision
making process
Buying Process of Consumers and Business Buyers
Five stage model for household
customers
Eight stage model for business buyers
1. Problem / need recognition 1. Problem / need recognition
2. Characteristics and quantity
determination
3. Specification development
2. Information search / collection 4. Supplier search and qualification
5. Obtain and analyse supplier proposals
3. Evaluate alternatives 6. Evaluation and selection of suppliers
4. Purchase decision 7. Selection of purchase order routine
5. Post purchase behaviour 8. Performance feedback and post-purchase
evaluation
Buying Situations Faced By
Household customers Business Buyers
Routine decision-making New task / New purchase
Limited decision-making Modified rebuy / change in supplier
Extensive decision-making Straight rebuy / Repeat purchase
Buying process and situations differ for household
consumers and business buyers.
Consumers / Buyers may skip or reverse some stages in
buyingprocess. e.g. Aconsumer buying toothpaste
Knowledge of Sales and Sales-related Marketing
Policies
Sales Knowl edge Marketi ng Polici es
Company knowledge Pricing and Payment policies
Product knowledge Product policies
Customer knowledge Distribution policies
Competitor knowledge Promotional policies
Major reasons for giving above information / knowledge
throughtrainingprogrammes to salespeople are:
increase their self-confidence
Meet customers expectations
Increase sales
Overcome competition
The Sales Process
Prospecting &
Qualifying
Preapproach /
Precall planning
Approach
Presentation &
Demonstration
Follow-up &
Service
Trail close /
Closing the sale
Overcoming
Objections
The sequence of above steps may change to meet the sales
situationinhand.
Some of the above steps may not be applicable for selling to
thetrade
Wenowdiscussapplicationof abovestepstoindustrial selling
It is identifying or finding prospects i.e. prospective or
potential customers.
Methodsof prospectingor salesleadgenerationare:
1. referralsfromexistingcustomers,
2. company sources (website, ads., tradeshow, tele-
prospecting),
3. external sources (suppliers, intermediaries, trade
associations),
4. salespersons networking,
5. industrial directories,
6. coldcanvassing
Prospecting
Companies qualify sales leads by contacting themby mail or
phonetofindtheir interests(or needs) andfinancial capacity.
The main considerations that are to be kept into mind while
qualifyingprospectsare:
Their requirement of theproduct beingmarketed
Their abilitytoaffordtheproduct
Leadsarecategorizedas:
Hot,
Warm, and
Cool
Qualifying
Preapproach
Informationgatheringabouttheprospect.
Sourcesof information:
theInternet,
industrial directories,
government publications,
intermediaries, etc.
Precall planning
Settingcall objectives
Tentative planning of sales strategy: which products, features and
benefitsmaymeet thecustomer needs
Approach
Makeanappointment tomeet theprospect
Makefavourablefirst impression
Select anapproachtechnique:
Introductory
Customer benefit
Product
Question
Praise
Theapproachtakesafewminutesof acall, but it canmakeor
breakasale
Presentation and Demonstration
There arefour components:
Understanding the buyers needs
Knowing sales presentation methods / strategies
Developing an effective presentation
Using demonstration as a tool for selling
We will examine each of the above points
Understanding the buyers needs
Firms and consumers buy products / services to satisfy
needs
Tounderstandbuyersneeds, askquestionsandlisten
In business situations, problemidentification and impact
questionsareimportant
ForExample
Have you experienced any problems on quality and
deliveryfromtheexistingsupplies?
What impact thequalityanddeliveryproblems will have
onyour costsandcustomer satisfaction?
Knowing Sales Presentation Methods/ Strategies
Stimulusresponsemethod/ cannedapproach.
It isamemorizedsalestalkor apreparedsalespresentation.
Thesalespersontalkswithout knowingtheprospectsneeds.
Usedbytelemarketingpeople
Formulamethod/ formulatedapproach.
It is also based on stimulus response thinkingthat all prospects are
similar.
The salespersonuses astandard formula AIDA(attention, interest,
desire, andaction).
It isusedif timeisshort andprospectsaresimilar.
Shortcomings are: prospects needs are not uncovered and uses
samestandardformulafor different prospects.
Sales Presentation Methods (Continued)
Need satisfactionmethod
Interactivesalespresentation
First find prospects needs, by asking questions and
listening
UseFABapproach: Features, Advantages, Benefits
Effectivemethod, asit focusesoncustomers
Consultativesellingmethod/ Problem-solvingapproach
Salespeopleusecross-functional expertise
Firmsadopt teamsellingapproach
It isusedbysoftware/ consultingfirms
Developing an Effective Presentation
Some of the guidelines are:
Planthesalescall
Adopt presentationtothesituationandperson
Communicatethebenefitsof thepurchase
Present relevant andlimitedinformationat atime
Usetheprospectslanguage
Makethepresentationconvincing giveevidence
Usetechnologylikemulti-mediapresentation
Using Demonstration
Salespresentationcanbeimprovedbydemonstration
Demonstration is one of the important sellingtools e.g.
Test drive of cars; demonstration of industrial products
inuse
Benefitsof usingdemonstrationfor sellingare:
Buyers objectionsarecleared
Improvesthebuyerspurchasinginterest
Helpstofindspecificbenefitsof theprospect
Theprospect canexperiencethebenefit
Overcoming Sales Objections / Resistances
Objections take place during presentations / when the
order is asked
Twotypesofsalesobjections:
Psychological / hidden
Logical (real or practical)
Methodsforhandlingandovercomingobjections:
askquestions,
turnanobjectionintoabenefit,
denyobjectionstactfully,
third-partycertificate, (e) compensation
Trial close and Closing the sale
Trial close checks the attitude or opinion of the prospect,
beforeclosingthesale(or askingfor theorder)
If the response to trial close question is favorable, then the
salespersonshouldclosethesale
Someof thetechniquesusedforclosingthesaleare:
alternative-choice,
minor points,
assumptive,
summary-of-benefits,
T-account,
special-offer,
probability, and
negotiation
Follow-up and Service
Necessary for customer satisfaction
Successful salespeople follow-up in different ways:
For example,
Check order details
Follow through delivery schedule
Visit when the product is delivered
Build long-term relationship
Arrange warranty service
Negotiation
Salespeople, particularly in business to business selling, need
negotiatingskills
Whentonegotiate?
(a) Whenthebuyer puts certainconditions for buyingto the seller,
(b) Whenagreement betweenthebuyer andtheseller isneededon
several factors, (c) When the product is customised, (d) When the
final priceistobedecided
Howtopreparefornegotiation?
(a) planning, (b) buildingrelationship, (c) purpose
Stylesofnegotiation
(a) I win, youlose, (b) Bothof uswin(or win-winstyle), (c) Youwin, I
lose, and(d) Bothof uslose
Styles for Negotiation?
I win, youlose
Bothof uswin(or win-winstyle),
Youwin, I lose, and
Bothof uslose
Planning Sales Strategy
Sales and Distribution Management
Strategic Planning
Planning is deciding now what, how, and when we
are going to do
Strategic planning is deciding about the organization's
long-term objectives and strategies
In a large organization, planning is done at three or
four organizational levels, as shown in the figure (in
the next slide)
Organisational
Levels
Organisation Structure Type of
Planning
Corporate Corporate
Strategic
Planning
Division /
Business Unit /
SBU
Divisional /
SBU Strategic
Planning
Product
Product /
Operational
Planning
Planning In A Large Organisation
Corporate Office
SBU A SBU C SBU B
Product
x
Product
y
Product
z
Role of Marketing in Organizational Planning
Type of Planning Role of Marketing Key Tasks Formal Name
Corporate
strategic planning
Provide customer and competition
information
Support customer orientation
Corporate
marketing
Divisional / SBU
Strategic planning
Provide customer and competition
analysis
Develop competitive advantage, target
markets, value proposition, positioning
Strategic
marketing
Product /
functional or
Operational
planning
Evolve and implement marketing plan
including marketing-mix strategy, and
sales strategy
Marketing
management
Marketing and Sales Strategies
Figure below shows how sales strategy is developed from marketing strategy
Marketing
Strategy
Target
market
strategy
(Long-
term)
Marketing
mix
strategy
(Short-
term)
Product /
service strategy
Promotion/
IMC strategy
Price strategy
Distribution strategy
Sales promotion strategy
Advertising strategy
Personal selling / sales
strategy
Public relations & Publicity
strategy
Direct marketing strategy
Components of Sales Strategy
Classifying market segments and individual customers within a
target segment
Each firm should first decide on target market segments and if possible, to
classify customers into high, medium, low sales & profit potentials
Sales strategy is developed accordingly
Relationship strategy
Whether a selling firm should use transactional, value-added, or
collaborative relationship depends on both the seller and the customer
Each selling firm to decide which segments and individual customers
respond profitably to collaborative relationship
Components of Sales Strategy(Contd.)
Selling Methods
These are:
(1) Stimulus response,
(2) Formula,
(3) Need-Satisfaction,
(4) Team Selling,
(5) Consultative
Selection of appropriate selling method depends on
relationship strategy
Components of Sales Strategy(Contd.)
Channel Strategy
There are many sales/marketing channels. For example:
company salesforce, distributors, franchisees, agents, the
internet, brokers, discount stores
Selection of a suitable channel depends on both the buyer and
the seller, products / services, and markets
Basic Terms Used in Sales Forecasting
Market demandfor a product or service is the
estimated total sales volume in a market (or industry)
for a specific time period in a defined marketing
environment, under a defined marketing program or
expenditure. Market demand is a function associated
with varying levels of industry marketing expenditure.
Market (or industry) forecast (or market size)is the
expected market (or industry) demand at one level of
industry marketing expenditure
Basic Terms(Contd.)
Market potential is the maximummarket (or industry) demand, resulting
from a very high level of industry marketing expenditure, where further
increasesinexpenditurewouldhavelittleeffect onincreaseindemand
Companydemandisthecompanysestimatedshareof market demandfor a
product or service at alternativelevelsof thecompanymarketingefforts (or
expenditures) inaspecifictimeperiod
Market Potential
Market Forecast
Market Minimum
Market Demand Functions
Industry marketing expenditure
M
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e
t

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m
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Basic Terms(Contd.)
Company sales potential is the maximum estimated company
sales of a product or service, based on maximum share (or
percentage) of market potential expected by the company
Company sales forecastis the estimated company sales of a
product or service, based on a chosen (or proposed) marketing
expenditure plan, for a specific time period, in a assumed
marketing environment
Sales budgetis the estimate of expected sales volume in units
or revenues from the companys products and services, and
the selling expenses. It is set slightly lower than the company
sales forecast, to avoid excessive risks
Forecasting Approaches
Twobasicapproaches:
Top-downorBreak-downapproach
Bottom-uporBuild-upapproach
Some companies use both approaches to increase their
confidenceintheforecast
Steps followed in Top-down / Break-down
Approach
Forecast relevant external environmental factors
Estimateindustrysalesor market potential
Calculatecompanysales potential =market potential
xcompanyshare
Decide companysales forecast (lower than company
sales potential because sales potential is maximum
estimatedsales, without anyconstraints)
Steps followed in Bottom-up / Build-up
Approach
Salespersons estimate sales expected from their
customers
Area / Branch managers combine sales forecasts
receivedfromsalespersons
Regional / Zonal managers combine sales forecasts
receivedfromarea/ branchmanagers
Sales / marketing head combines sales forecasts
received from regional / zonal managers into
companysalesforecast, whichispresentedtoCEOfor
discussionandapproval
Sales Forecasting Methods
Qualitative Methods Quantitative Methods
Executive opinion Moving averages
Delphi method Exponential smoothing
Salesforce composite Decomposition
Survey of buyers intentions Nave / Ratio method
Test marketing Regression analysis
Econometric analysis
Executive opinion method
Most widelyused
Procedureincludesdiscussionsand/ or averageof all executives individual
opinion
Advantages: quickforecast, lessexpensive
Disadvantages: subjective, nobreakdownintosubunits
Accuracy: fair; timerequired: short tomedium(1 4weeks)
Delphimethod
Process includes a coordinator getting forecasts separately fromexperts,
summarizingtheforecasts, givingthesummaryreport to experts, who are
asked to make another prediction; the process is repeated till some
consensusisreached
Experts are company managers, consultants, intermediaries, and trade
associations
Delphi Method (Continued)
Advantages: objective, goodaccuracy
Disadvantages: gettingexperts, nobreakdownintosubunits, timerequired:
medium(3/4weeks) tolong(2/3months)
Salesforcecomposite method
Anexampleof bottom-upor grass-rootsapproach
Procedure consists of each salesperson estimating sales. Company sales
forecast ismadeupof all salespersons salesestimates
Advantages: Salespeopleareinvolved, breakdownintosubunitspossible
Disadvantages: Optimistic or pessimistic forecasts, mediumto long time
required
Accuracy: fair togood(if trained)
Survey of Buyers Intentions Method
Process includes asking customers about their intentions to buy the
companysproductsandservices
Questionnairemaycontainother relevant questions
Advantages: givesmoremarket information, canforecast newandexisting
products, goodaccuracy
Disadvantages: somebuyers unwillingtorespond, timerequiredislong(3-
6months), mediumtohighcost
TestMarketingMethod
Methods used for consumer market testing: full blown, controlled, and
simulatedtest marketing
Methodsusedfor businessmarket testing: alphaandbetatesting
Test MarketingMethod(Continued)
Advantages: usedfor newor modifiedproducts, goodaccuracy, minimizesrisk
of national launch
Disadvantages: Competitors may disturb if some methods are used, medium
tohighcost, mediumtolongtimerequired
MovingAverageMethod
Procedureistocalculatetheaveragecompanysalesfor previousyears
Moving averages name is due to dropping sales in the oldest period and
replacingit bysalesinthenewest period
Advantages: simple and easy to calculate, lowcost, less time, good accuracy
for short termandstableconditions
Disadvantages: can not predict downturn / upturn, not used for unstable
market conditionsandlong-termforecasts
Exponential Smoothing Method
The forecaster allows sales in certainperiods to influence the
salesforecast morethansalesinother periods
Equationused:
Sales forecast for next period=(L)(actual salesof this year)+(1-
L)(thisyearssalesforecast), where(L) isasmoothingconstant,
ranginggreater thanzeroandlessthan1
Advantages: simplemethod, forecastersknowledgeused, low
cost, lesstime, goodaccuracyfor short termforecast
Disadvantages: smoothing constant is arbitrary, not used for
long-termandnewproduct forecast
Decomposition Method
Processincludes breaking down the companys previous periods sales data into
components like trend, cycle, seasonal, and erratic events. These components are
recombined to produce sales forecast
Advantages: Conceptually sound, fair to goodaccuracy, low cost, lesstime
Disadvantages: complex statistical method, historical data needed, used for short-
term forecasting only
Naive / Ratio Method
Assumes: what happened in the immediate past will happen in immediate future
Simple formula used:
Advantages: simple to calculate, low cost, lesstime, accuracy good for short-term
forecasting
Disadvantages: lessaccurateif past sales fluctuate
year last of sales Actual
year this of sales Actual
year this of sales Actual year next for forecast Sales
Regression Analysis Method
It isastatistical forecastingmethod
Process consists of identifying causal relationship between
company sales (dependent variable, y) and independent variable
(x), whichinfluencessales
If one independent variable is used, it is called linear (or simple)
regression, usingformula; y=a+bx, where a is the intercept and
b istheslopeof thetrendline
In practice, companysales areinfluencedbyseveral independent
variables, like price, population, promotional expenditure. The
methodusedismultipleregressionanalysis
Advantages: Objective, good accuracy, predicts upturn /
downturn, short tomediumtime, lowtomediumcost
Disadvantages: technically complex, large historical data needed,
softwarepackagesessential
Econometric Analysis Method
Procedure includes developing many regression
equations representing (i) relationships between
sales and independent variables which influence
sales, and (ii) interrelationships between variables.
Forecast ispreparedbysolvingtheseequations
Computersandsoftwarepackagesareused
Advantages: Good accuracyof forecasts of economic
conditionsandindustrysales
Disadvantages: needexpertise&largehistorical data,
mediumtolongtime, mediumtohighcost
How to Improve Forecasting Accuracy?
Salesforecastingisanimportant &difficult task
Followingguidelinesmayhelpinimprovingitsaccuracy
Usemultiple(2/3)forecastingmethods
Select suitable forecasting methods, based on application, cost,
andavailabletime
Use few independent variables / factors, based on discussions
withsalespeople&customers
Establisharangeof salesforecasts minimum, intermediate, and
maximum
Usecomputer softwareforecastingpackages
What is a Sales Budget?
It includesestimatesof salesvolumeandsellingexpenses
Sales volume budget is derived from the company sales forecast
generally slightly lower than the company sales forecast, to avoid
excessiverisks
Selling expenses budget consists of personal selling expenses budget
andsalesadministrationexpensesbudget
Sales budget gives adetailedbreak-downof estimatesof sales revenue
andsellingexpenditure
PurposesoftheSalesBudget
Planning
Coordination
Control
Sales Budget Process
Manyfirmsfollowaprocessfor preparationof annual
salesandcompanybudgets. It generallyincludes:
Reviewpast, current, andfuturesituations
Communicate information to all managers on budget
preparation guidelines, formats, timetable
Use build-up approach, starting with first-line sales
managers
Get approval of salesbudget fromtopmanagement
Preparebudgetsof other departments
Key Learnings
Strategic planning is deciding about the organizations long-term
objectivesandstrategies
Strategicmarketinghasaroleat divisional or strategicbusinessunit
(SBU) level of strategic planning by providing market information
and developing competitive advantage, target markets, value
proposition
Sales strategy is developed from marketing strategy through
marketing-mixandpromotional strategies
Components of sales strategy includes classification of market
segments / customers, relationship strategy, selling methods, &
channel strategy
Key Learnings (Continued)
Two basicapproachesof forecastingare: top-down(or breakdown),
andbottom-up(or build-up)
Sales forecastingmethods are broadly classified as: qualitative and
quantitative
Qualitative methods include executive opinion, delphi method,
salesforcecomposite, surveyof buyers intentions, test marketing
Quantitative methods consist of moving averages, exponential
smoothing, decomposition, nave/ratio, regression analysis,
econometricanalysis
Sales budget gives a detailed estimates of sales volume and selling
expenses. Itspurposesareplanning, coordination, andcontrol
Theories of Selling
Sales and Distribution Management
AIDAS Theory of Selling
This theory is the basis for many sales and advertising
texts and is the skeleton around which many sales
programs are organized.
AIDAS stands for
Attention, Interest, Desire, Action and Satisfaction
During the successful selling interview, according to this
theory, the prospect mind passes through these five
mental states.
AIDAS Theory of Selling
Implicit in this theory is the notion that the prospect goes
through these five states consciously, so the sales
presentation must lead the prospect through them in the
right sequence if a sale is to result.
The goal of the personal selling here is to put the
prospect into a receptive state of mind.
Right Set of Circumstances Theory of Selling
Everything was right for that sale sums up the second
theory.
This theory hold that the particular circumstances
prevailing in a given selling situation cause the prospect in
a predictable way.
If the salesperson succeeds in securing the attention and
gaining the interest of the prospect, and if the
salesperson presents the proper stimuli or appeals, the
desired response (that is, the sale) will result.
Right Set of Circumstances Theory of Selling
The set of circumstances includes factors external and
internal to the prospect.
To use a simplified example, suppose that the salesperson
says to the prospect, lets go out for a cup of coffee.
The salesperson and the remark are external factors.
But there are least four factors internal to the prospect
affect the response.
These are the presence or absence of desires (1) to have a
cup of coffee, (2) to have it now, (3)to go our, and (4)to go
out with the salesperson.
Right Set of Circumstances Theory of Selling
Proponents of this theory tend to stress external factors
and at the expense of internal factors.
They seek selling appeals that evoke desired responses.
This is a seller-oriented theory: it stresses the importance
of the sales person controlling the situation, does not
handle the problem of influencing factors internal to the
prospect, and fails to assign appropriate weight to the
response side of the situation-response interaction.
Buying Formula Theory of Selling
In contrast to the two previous theories, the third
emphasizes the buyers side of the buyer-seller dyad.
The buyers needs or problems receive major attention,
and the salespersons role is to help the buyer find
solutions.
This theory purports to answer the question:
What thinking process goes on in the prospects mind
that causes the decision to buy or not to buy?
Buying Formula Theory of Selling
The name buying formulas was given to this theory by
the lateE. K. Strong, Jr., and the following step-by-step
explanations adapted from his teaching and writings.
Reduced to their simplest elements, the mental processes
involved in a purchase are
Need (or Problem) Solution Purchase
Buying Formula Theory of Selling
Because the outcome of a purchase affects the chance
that a continuing relationship will develop between the
buyer and the seller, and because nearly all sales
organizations are interested in continuing relation ships, it
is necessary to add a fourth element.
The four elements then, are
Need (or Problem) Solution Purchase Satisfaction
Buying Formula Theory of Selling
In purchasing, them, the element solution involve two parts:
(1) product (and/or service) and
(2) trade name (name of manufacturer, company, or sales
person).
Thus, when a definite buying habit has been established, the
buying formula is:
Need (or
Problem)
Product/
Service
Trademark/
Brand Name
Satisfaction
Behavioral Equation Theory
Using a stimulus-response model(a sophisticated version
of the right set of circumstances), and incorporating
findings from behavioral research, J.A. Howardexplains
buying behavior in terms of the purchasing decision
process, viewed as phases of the learning process.
Four essential elements of the learning process included
in the stimulus response, and reinforcement, described as
follows:
Behavioral Equation Theory
Drives- strong internal stimuli that impel the buyers
response. There are two kinds:
A. Innate drives stem from the physiological needs
B. Learned drives
Cues- weak stimuli that determine when the buyer will
respond
A. Triggering cues
B. No triggering cues
C. Information cues
Behavioral Equation Theory
Response decision of a buyer
Reinforcement event or action that strengthens the
tendency to arrive at a decision
Behavioral Equation Theory
Howard incorporates these four elements into an equation:
B =P * D * K* V
Where
B =response or the internal response tendency, that is, the act
of Purchasing a brand or patronizing a supplier
P =predisposition or the inward response tendency, that is,
force of habit
D =present drive level (amount of motivation)
K =incentive potential, that is, the value of the product or its
potential Satisfaction to the buyer
V =intensity of all cues: triggering, product, or informational
Ethical Issues in Sales Management
Sales and Distribution Management
Most marketing organizations do not intentionally work
in isolation from the rest of society.
Instead they find that greater opportunity exists if the
organization is visibly accessible and involved with the
public.
In recent years the number and variety of issues raised by
the public has increased.
Growing perception that marketing organizations are not
just sellers of product but also have to be socially
responsible.
Being socially responsible means
An organization shows concern for the people and
environment in which it transacts business.
That these values are communicated and enforced by
everyone in the organization;
business partners; and
those who help the company distribute and sell to other
customers.
In addition to ensure
These values exist within the organization and its business
partners
Social responsibility may also manifest itself in the
support of social causes that help society.
For instance, marketers may sponsor charity events or
produce cause-related advertising.
The Implications
Marketers who are pursuing a socially responsible agenda
should bear in mind that such efforts do not
automatically translate into increased revenue or even an
improved public image.
However, organizations that consistently exhibit socially
responsible tendencies may eventually gain a strong
reputation that could pay dividends in the form of
increased customer loyalty.
Ethics: Defined
Ethics are rules of conduct that reflects the characters
sentiments of a community
Ethics is concerned with what is right and what is wrong.
There are no uniform code of ethics for all communities
and neither are they same for all societies
What is ethical in a community may not be ethical in
another and so on
Still there are certain characteristics, like honesty and
fairness which are appreciated universally
Historical Perspective
For centuries principle guideline for dealing with
merchants has been CAVEAT EMPTOR
But it does more harm to the business rather than favor it
The philosophy is now changing and the reason for
change are:
Business leaders discovering that honest dealings lead to long
term relationships which they need to survive in the market
Customer activism
Marketing Code of Ethics
The call for marketers to become more responsible for
their actions has led to the development of a code of
ethics by many companies and professional organizations.
A company code of ethics includes extensive coverage of
how business is conducted by members of an
organization.
A written code highly publicized throughout the
organization and forced without exception can be a very
powerful tool in enforcing ethical practices
Primary Areas involved
Company Policies and Practices
Sharing of Information
Reciprocity
Bribery
Gift giving
Entertainment
The Salespersons Values
Some Guidelines
Use an honest approach
Put customers interests first
Avoid misleading sales claims
Avoid attacking competitors
Avoid misusing company resources
Practice honestly after sales
Motivation and Compensation
Sales and Distribution Management
Motivating the Salesforce
MotivationisderivedfromLatinwordmovere, whichmeans
tomove
Motivation is the effort the salesperson makes to complete
variousactivitiesof thesalesjob
10-15percent salespeopleareself-motivated
Majorityof salespeoplearenot adequatelymotivated
Importance of motivating salespeople is recognised, because
financial performance of the company depends upon the
achievement of salesvolumeobjective
What is Motivation?
Motivation is the inner force that guides behaviour and is
concerned with the causation of specific actions.
Motivation is a three-dimensional construct consisting of
the following:
Intensityor the magnitude of mental activity and physical
effort expended towards a certain action;
Persistenceor the extension of the mental activity and
physical effort over time; and
Directionor the choice of specific actions in specific
circumstances.
Understanding Motivation
Motivation should be understood at two levels:
What motivates salespeople
(the reasons behind theintensity
andpersistenceof mental and
physical effort expended)
Howsalespeople choose their action
(thedirectionor decision to engage in
specific actions in specific circumstances)
Motivational theories addressing the issue:
What motivates salespeople
Need Hierarchy Theory
Two Factor Theory
Motivation factors Why work harder
Hygiene factors Why work here
ERG Theory
Motivational theories addressing the issue:
How motivates salespeople
Equity Theory
Output of A (e.g., pay, recognition) Output of B (e.g., pay, recognition)
Input of A (e.g., effort, loyalty) Input of A (e.g., effort, loyalty)
Expectancy Theory
Motivation =f
unction of
(Expectancy x Instrumentality x Valence)
Attribution Theory
Locus of control dimension
Stability dimension
Control dimension
Goal Setting Theory
Salespeople are motivated by different needs
Need for status(e.g., need for recognition and promotion)
Need for control (e.g., need to be in control and influence others)
Need for respect(e.g., need to be seen as experts who can give
advice)
Need for routine(e.g., need to follow a routine that must not be
interrupted)
Need for accomplishment(e.g., need more money and challenges)
Need for stimulation(e.g., need to seek outside stimulation and
challenges)
Need for honesty(e.g., need to believe in the rightness of their
practices)
Motivational tools
Motivational tools should satisfy at least two criteria.
1. Should generate extra effort that will help the company to
achieve its objectives , and
2. Must increase job satisfaction among salespeople.
Motivational tools include, but are not limited to:
Sales meetings;
Incentive programs(e.g., sales contests and competitions)
Recognition programs(e.g., praise, promotion, extra
responsibilities)
Selecting a Mix of Motivational Tools
Sales manager should know each salesperson and
understand his / her specific needs
For designing or selecting a mix of motivational tools,
a compromise between differing needs of customers,
salespeople, and the company management becomes
necessary
Motivational tools are divided into (1) financial, and
(2) non-financial. These are shown in the next slide
Motivational Tools in a Motivational Mix
Financial Non Financial
Financial compensation plan
Salary
Commission/Incentive
Bonus
Fringe benefits
Combination
Sales contests
Promotion
Sense of accomplishment
Personal growth opportunities
Recognition
J ob security
Sales meetings
Sales training programmes
J ob enrichment
Supervision
Compensating the Salesforce
A good compensation plan should consider objectives from the
companys and salespeoples viewpoint
Objectives of compensation plan from the companys viewpoint
To attract, retain, and motivate competent salespeople
To control salespeoples activities
To be competitive, yet economical: It is difficult to balance
these two objectives
To be flexible to adapt to new products, changing markets,
and differing territory sales potentials
Objectives of Compensation : Salespersons Viewpoint
To have both regular and incentive income
Regular income by fixed salary to take care of living expenses
Incentive income for above average performance
To have a simple plan, for easy understanding
This is in conflict with the objective of flexibility
To have a fair payment plan
Fair or just payment to all salespeople is ensured by selecting
measurable and controllable factors
Designing an Effective Sales Compensation Plan
Designing a new compensation plan or revising an existing plan
consists of the following steps:
Examine job descriptions
Set up specific objectives for salespeople
Decide levels of pay / compensation
Develop the compensation mix
Decide indirect payment plan or fringe benefits
Pretest, administer, and evaluate the plan
We shall examine these steps briefly
Separate job descriptions are required for different
sales positions or jobs E.G. missionary salesperson,
senior salesperson, key account executive
Each job description should include responsibilities
and key performance standards, to decide how much
to pay
Examine Job Descriptions
These are derived from companys sales and
marketing objectives
Salespeople should have some control on the
objectives E.G. number of sales calls made
Objectives should be measurable. E.G. sales volume,
selling expenses
Set up Specific Objectives for Salespeople
Decide Levels of Pay / Compensation
It means the average pay or money earned per year (or month)
It is important to decide levels of pay for all sales positions
It is decided based on the following factors:
Levels of pay for similar positions in the industry
Levels of pay for comparable jobs in the company
Education, experience, and skills required to do sales job
Cost of living in different metros and cities
Annual average pay levels vary between industries, within the same
industry, and sometimes within the company
Firms decide a range of average pay, instead of a specific pay
Salespeople earn pay depending on their and company performance
Develop the Compensation Mix
Widely used elements of compensation mix are:
1. salaries,
2. commissions,
3. bonuses,
4. fringe benefits (or perquisites)
Expense allowances or reimbursements like travel, lodging, etc
are not included
Compensation Plans
Basic types of compensation plans are:
Straight salary
Straight commission
Combination of salary, commission, and / or bonus
The combination plan is the most popular among the types of
plans adopted by the companies
We shall briefly examine above compensation plans
Straight Salary Plan
Characteristics:
100 percent compensation is salary, which is a fixed
component
Noconcernfor salesperformanceor salespersonsefforts
This plan is suitable for sales trainees, missionary
salespeople, andwhenacompanywantsto introduceanew
product or enter anewterritory
Straight Salary Plan
Advantages:
Salespeopleget securedincometocover livingexpenses
Salespeople willing to perform non-selling activities like
payment collection, report writing
Simpletoadminister
Disadvantages:
No financial incentive to salespeople for more efforts and
better performance.
Maybeaburdenfor newandloss-makingfirms
Straight Commission (or Commission Only) Plan
Characteristics:
It isoppositeof straight-salaryplan
Most popular commission base is sales volume or
profitability
Commissionrateisapercentageof salesor grossprofit
This plan is generally used by real estate, insurance, and
direct-sales(or networkmarketing)industries
Straight Commission (or Commission Only) Plan
Advantages:
Strong financial incentive attracts high performance,
removesineffectivesalespeopleandimprovesresults
Controlssellingcostsandrequireslesssupervision
Disadvantages:
Focusisonsalesandnot oncustomer relationship
Salespeoplemaypaylessattentiontonon-sellingactivities
Combination Plan
Combinesstraight salary&straight commissionplan
Four typesof combinationplansusedbycompanies:
1) Salarypluscommission: suitable for gettingimproved sales and
customer service
2) Salary plus bonus: a bonus is a lumpsum, single payment, for
achievingshort-termobjectives. This plan is used for rewarding
teamperformance
3) Salarypluscommissionplusbonus: suitablefor increasingsales,
controlling salesforce activities, and achieving short-termgoals.
Alsosuitablefor sellingseasonal productslikefans
4) Commission plus bonus: Not popular. Used for team selling
activitiesfor sellingtomajor customers
Combination Plan
Advantages:
Flexibletorewardandcontrol salesforceactivities
Security for livingcosts and incentives for superior
performancefor salespeople
Rewardsspecificsalesperformance
Different plansfor different salespositions/ jobs
Combination Plan
Disadvantages:
Complexanddifficult toadminister
Maynot achieveobjectivesif not properlyplanned,
implementedandunderstood
Indirect payment plan, also called fringe benefits or
perquisites, help in attracting and retaining people,
but havenowcomeunder government taxinIndia
Pretesting Compensation Plan
Companies pretest a new (or proposed) plan, before
adoption
Either it is simulated on a computer, or pretested at
one / more branches for 6-12 months
It should involve all concerned people
Administering and Evaluating Compensation Plan
Administering the new compensation plan
Announce the plan in advance
Explain the new plan and reasons for changing the
previous plan
Outsource administration if plans are changed
frequently
Evaluating the new compensation plan
Find if objectives of the plan are achieved
Some companies audit compensation plans
Sales Force Compensation
Sales and Distribution Management
Compensating the Salesforce
A good compensation plan should consider objectives from the
companys and salespeoples viewpoint
Objectives of compensation plan from the companys viewpoint
To attract, retain, and motivate competent salespeople
To control salespeoples activities
To be competitive, yet economical (a very difficult trade-off to
manage)
To be flexible to adapt to new products, changing markets,
and differing territory sales potentials
Objectives of Compensation : Salespersons Viewpoint
To have both regular and incentive income
Regular income by fixed salary to take care of living expenses
Incentive income for above average performance
To have a simple plan, for easy understanding
(a trade-off with flexibility; again difficult to manage)
To have a fair payment plan
Fair or just payment to all salespeople is ensured by selecting
measurable and controllable factors
Designing an Effective Sales Compensation Plan
Examine job descriptions
Set up specific objectives for salespeople
Decide levels of pay / compensation
Develop the compensation mix
Decide indirect payment plan or fringe benefits
Pretest, administer, and evaluate the plan
Separate job descriptions are required for different
sales positions or jobs
Each job description should include responsibilities
and key performance standards, to decide how much
to pay
Examine Job Descriptions
These are derived from companys sales and
marketing objectives
Salespeople should have some control on the
objectives E.G. number of sales calls made
Objectives should be measurable. E.G. sales volume,
selling expenses
Set up Specific Objectives for Salespeople
Decide Levels of Pay / Compensation
It means the average pay or money earned per year (or month)
It is important to decide levels of pay for all sales positions
It is decided based on the following factors:
Levels of pay for similar positions in the industry
Levels of pay for comparable jobs in the company
Education, experience, and skills required to do sales job
Cost of living in different metros and cities
Annual average pay levels vary between industries, within the same
industry, and sometimes within the company
Firms decide a range of average pay, instead of a specific pay
Salespeople earn pay depending on their and company performance
Develop the Compensation Mix
Widely used elements of compensation mix are:
1. salaries,
2. commissions,
3. bonuses,
4. fringe benefits (or perquisites)
Expense allowances or reimbursements like travel, lodging, etc
are not included
Compensation Plans
Basic types of compensation plans are:
Straight salary
Straight commission
Combination of salary, commission, and / or bonus
The combination plan is the most popular among the types of
plans adopted by the companies
We shall briefly examine above compensation plans
Straight Salary Plan
Characteristics:
100 percent compensation is salary, which is a fixed
component
Noconcernfor salesperformanceor salespersonsefforts
This plan is suitable for sales trainees, missionary
salespeople, andwhenacompanywantsto introduceanew
product or enter anewterritory
Straight Salary Plan
Advantages:
Salespeopleget securedincometocover livingexpenses
Salespeople willing to perform non-selling activities like
payment collection, report writing
Simpletoadminister
Disadvantages:
No financial incentive to salespeople for more efforts and
better performance.
Maybeaburdenfor newandloss-makingfirms
Straight Commission (or Commission Only) Plan
Characteristics:
It isoppositeof straight-salaryplan
Most popular commission base is sales volume or
profitability
Commissionrateisapercentageof salesor grossprofit
This plan is generally used by real estate, insurance, and
direct-sales(or networkmarketing)industries
Straight Commission (or Commission Only) Plan
Advantages:
Strong financial incentive attracts high performance,
removesineffectivesalespeopleandimprovesresults
Controlssellingcostsandrequireslesssupervision
Disadvantages:
Focusisonsalesandnot oncustomer relationship
Salespeoplemaypaylessattentiontonon-sellingactivities
Combination Plan
Combinesstraight salary&straight commissionplan
Four typesof combinationplansusedbycompanies:
1) Salarypluscommission: suitable for gettingimproved sales and
customer service
2) Salary plus bonus: a bonus is a lumpsum, single payment, for
achievingshort-termobjectives. This plan is used for rewarding
teamperformance
3) Salarypluscommissionplusbonus: suitablefor increasingsales,
controlling salesforce activities, and achieving short-termgoals.
Alsosuitablefor sellingseasonal productslikefans
4) Commission plus bonus: Not popular. Used for team selling
activitiesfor sellingtomajor customers
Combination Plan
Advantages:
Flexibletorewardandcontrol salesforceactivities
Security for livingcosts and incentives for superior
performancefor salespeople
Rewardsspecificsalesperformance
Different plansfor different salespositions/ jobs
Combination Plan
Disadvantages:
Complexanddifficult toadminister
Maynot achieveobjectivesif not properlyplanned,
implementedandunderstood
Indirect payment plan, also called fringe benefits or
perquisites, help in attracting and retaining people,
but havenowcomeunder government taxinIndia
Pretesting Compensation Plan
Companies pretest a new (or proposed) plan, before
adoption
Either it is simulated on a computer, or pretested at
one / more branches for 6-12 months
It should involve all concerned people
Administering and Evaluating Compensation Plan
Administering the new compensation plan
Announce the plan in advance
Explain the new plan and reasons for changing the
previous plan
Outsource administration if plans are changed
frequently
Evaluating the new compensation plan
Find if objectives of the plan are achieved
Some companies audit compensation plans
Factors Affecting Design of Compensation Plan
Relation with PLC
Demographic Characteristics
Role of selling in marketing strategy
Industry Practices
Sales Territory Management
Sales and Distribution Management
Sales Territory
It represent existing and potential customers assigned to
salesperson
May or may not have geographic boundaries
However, geographic area are attached to sales territories
Sales Territory Management
Is planning, implementation and control of salespersons
activities with the goal of realizing the sales and profit
potential of their assigned territories
Sales Territories
Can be formed on the basis of:
Geographical location
Industry
Product use
Method of buying
Channels of Distribution
Sales potential
Work load in territories
Arbitrarily
Rational basis
Sales Territory Management leads to
Better planning
Proper coverage
Efficient call patterns
Better customer service
Control sellingexpensesandtime
Enablebetter evaluationof salesforceperformance
Increasesalesforceeffectiveness
Improvesalesandprofit performance
Choosingappropriatesalespersonfor specificaccounts
Factors that affect the sales volume of a territory:
Size
Market potential
Number of customer accounts
Firms experience
Market share in the territory
Factors that affect the size of a territory:
Number of customers and prospects in the area
Call frequency on existing customers
Number of calls a sales person makes in a day
Procedure to Designing Sales Territories
Select a Control Unit
Find location and potential of
customers
Decide basic territories
Deciding Sales Territories
Market Build-up
Workload
Breakdown
Market Built-up Approach
Estimation based on the potential demand by looking at
how the market is built-up
This means to identify:
Who are present and potential users
How much do they consume
Consumption at what frequency
Generally used for industrial market offerings
Workload Approach
Customers grouped into class sizes A, B, C according to
sales volume
Optimum call frequencies estimated
Present and potential customers are then located
geographically and are arranged volume and value wise
The number of customers in each group are multiplied by
the call frequencies to get the total number of planned
calls
Territories then formed to give adequate workload to
salespersons
Breakdown Approach
Estimate company sales potential for total market
Forecast sales potential for each control unit
Estimate sales volume expected from each
salesperson
Make tentative territories
Develop final territories
Relativeabilityofsalespeople
(1) Product knowledge,
(2) Market knowledge,
(3) Past salesperformance,
(4) Communication,
(5) Sellingskills
Assigning Salespeople to Territories I
SalespersonsEffectivenessinaTerritory
Decided by comparing social, cultural, and physical
characteristics of the salesperson with those of the
territory
Assigning Salespeople to Territories II
Management of Territorial Coverage
It means: Howsalespersonshouldcover theassigned
salesterritory
It includesthreetasksfor asalesmanager:
Planningefficient routesfor salespeople
Schedulingsalespeoplestime
Usingtime-management tools
Routing
Routing is a travel plan used by a salesperson for making
customer callsinaterritory
Benefitsof or Reasonsfor routing:
Reductionintravel timeandcost
Improvement interritorycoverage
Importanceof routingdependsontheapplication:
Natureof theproduct Important for FMCG
Type of jobs of salespeople Important for driver-cum-
salesperson job, but creative selling job needs a flexible
routeplan
Procedure for Setting up a Routing Plan
Identify current and prospective customers on a territory map
Classify each customer into high, medium, or low sales
potential
Decide call frequency for each class of customers
Build route plan around locations of high potential customers
Computerized mathematical models are developed
Commonly used routing patterns are:
B
Circular
B
Clover Leaf
Base
(B)
C5
C1
C4 C3 C2
Straight line / Hopscotch
Scheduling
Scheduling is planning a salespersons visit time to customers. It
dealswithtimeallocationissue
Howtoallocatesalespersonstime?
Sales manager communicates to salespersonmajor activities and
timeallocationfor eachactivity
Salesperson records actual time spent on various activities for 2
weeks
Sales manager and salesperson discuss and decide how to
increasetimespent onmajor activities
Companiesspecifycall normsfor current customers, basedonsales
andprofit potentials, andalsofor prospectivecustomers
Time Management Tools
Tohelpoutsidesalespeopletomanagetheir timeefficiently
andproductively, thetoolsavailableare:
High-techequipment likelaptopcomputersandcellular
phones
Insidesalespeopletoprovideclerical support, technical
support, and for prospecting, and qualifying, as they
remainwithinthecompany
Outside salespeople can then spend moretimegetting
more orders & building relationships with major
customers
Sales Quotas
Sales and Distribution Management
Sales Quotas
Sales quotas are sales goals or targets (quantitative
objectives) set by a company for its marketing / sales
units for a time period
Marketing / sales units are regions, branches, territories,
salespeople, and intermediaries
Generally, company sales budget is broken down to sales
quotas for various marketing units
Sales Quotas: Objectives
To use quotas as performance standards or performance
goals
To control performance
To motivate people by linking quotas to compensation
plans
To identify strengths and weaknesses of the company
Basic Criteria to be considered
Corporate revenue goals
Historical revenue performance
Current sales coverage model
Planned increases in sales headcount
Introduction of new products and services
Current market share
Stretch targets
Types of Quotas
Organizations set many types of sales quotas:
1. sales volume,
2. financial,
3. activity,
4. combination
Sales volume quotas
For effective control, sales volume quota should be
set for the smallest marketing units, such as
salesperson, districts / branches, product items /
brands
Sales volume quotas can be stated in terms of:
Rupees / dollars sales volume quotas
Unit sales volume quotas
Point sales volume quotas
Financial Quotas
Financial quotas control
(a) gross margin or net profits, and
(b) expenses of marketing units
Are of 2 types:
Gross-margin / Net-profit quotas
Expense quotas
Activity Quotas
These are set when salespeople perform both selling and
non-selling activities
Objective is to direct salespeople to carry out important
activities
For effective implementation, activity quotas are
combined with sales volume and financial quotas
E.G. Calling on high potential customers, payment
collection from defaulting customers
Combination Quotas
Used when companies want to control
salesforceperformance on key selling and non-
selling activities
Focus on a few types of quotas, to avoid
confusing salespeople.
Methods for Setting Sales Quotas
Several methods are used for establishing sales quotas
In practice, companies use more than one of the
following methods to increase their confidence in sales
quotas
Total market estimates
Territory potential
Past sales experience
Executive judgment
Salespeoples estimates
Compensation plan
Total Market Estimates Method
The Process followed by established companies is as
under:
1) Estimate next years total market demand, or industry
sales forecast, using sales forecasting methods
2) Decide the companys estimated market share for next
year
3) Companys next year sales forecast=(1) x (2)
4) Find each territorys percentage share out of the total
company sales in the previous year
5) Territory sales quota =(3) x (4)
Territory Potential Method
The procedure followed by new companies is as under:
1) Estimate next years industry sales forecast or market
potential, using sales forecasting methods
2) Estimate multiple factor index (MFI) for each territory, based
on factors that influence sales of the product. These factors
are given weights corresponding to the degree of sales
opportunity.
3) Industry sales forecast in a territory (or territory market
potential=(1)x(2)
4) Territory sales quota =(3) x estimated market share of the
company in the territory
Past Sales Experience Method
The process consists of taking past one years sales (or an
average of previous 3 to 5 years sales), adding an
arbitrary percentage (or a percentage by which the
market is expected to grow), and thus setting each
territory sales quota
The assumption that future sales are related to past sales
may not be always correct
This method should not be the only method used
Past sales should be one of the factors used for deciding
sales quotas
Senior executives use their judgement when the
product, territories, and the company are new or
very little market information is available
Executives predict company sales budgets and also
territory sales quotas
This method should generally be used along with
other methods
Executive Judgment Method
Some firms ask their salespeople to set their own
quotas
Many salespersons either set very high or too low
sales quotas
For setting proper quotas, many sales managers use
2 or 3 of above methods, discuss with salespersons
to get their inputs, and decide sales quotas
Salespeoples Estimate Method
Some organizations set quotas to fit with their sales
compensation plan
E.G. A company wants to pay a monthly salary of Rs 5000, and
a commission of 3% on monthly sales above Rs 1,00,000. The
quota of Rs 1,00,000 is set in such a way that salesperson
would find it very difficult to cross total compensation of Rs
8000 per month (5000+3000)
Sales quotas should not be based only on this method,
because it would put the cart before the horse
Compensation Plan Method
Process of Setting Quotas
Establish parameters for developing quotas
Add a growth expectation
Adapt the quotas to each sales rep
Get buy-in from your sales team
Adapt quotas to market realities
Sales Meetings
Sales and Distribution Management
Effective Sales Meeting
The sales meeting traditionally has been used to update
sales staff on
product knowledge,
selling skills,
sales goals,
marketing direction,
administrative and service needs, etc.
It should also be used as an opportunity to encourage,
reward and inspire.
Make an agenda and stick to it
Pre-plan everything you will discuss, and be prepared
with handouts, product samples, questionnaires,
overhead transparencies, etc.
Some managers distribute the agenda several days before
the meeting.
The agenda is considered a commitment of what will be
covered and who will be talking about each item.
Further, the sales staff has the opportunity to get their
thoughts together and ask better questions.
Announce the successes
Nothing starts a meeting better than recognizing the winners.
Take a few minutes to congratulate and thank the people who
are contributing, meeting goals and closing the deals.
Keep the staff involved and in the learning mode by asking
them non-threatening questions.
Get the sales team directly involved by having team members
present product demonstrations or sales tips at each meeting.
The presenter should be given ample time in advance to
prepare.
This should be seen as a reward for some expertise.
Talk about information and ideas that will help the salespeople
make more money.
Tell stories
At least one positive war story should be a part of every
meeting.
Again, involve individual team members.
The story does not have to be a David vs. Goliath epic to
be informative and educational.
Tell stories
The manager should pick the story several days before
and then give the presenter some written general
guidelines:
Tell us how you made the first contact.
Tell us the customer's situation.
Who was the competitor, what did they do right, and what did
they do wrong?
Tell us what you think you did right and wrong.
Tell your story in two to five minutes. It's entirely possible to
have a boring war story if it goes on too long.
Meeting guidelines
Never go over the scheduled time without notifying the sales staff
well in advance
This establishes an unspoken respect for their time.
It lets the sales staff know that they can set appointments on the
morning of the meetings and be certain of their schedule.
Reward people who are on time instead of trying to punish people
who are late
One way to reward individuals might be to have a product
knowledge contest at the end of meetings.
Those who score the highest get company-paid lunches or dinners,
tickets to sporting events, etc. (Incidentally, the late ones would
probably not be late if they had really wanted to come in the first
place.)
Talk about prospects
Each of the sales team should expect to talk about his or
her top 10 prospects for about three minutes.
This puts pressure on some of the team and gives others
the opportunity to brag.
Peer pressure is very good to promote sales activity on
the team.
This event should also offer sales reps the opportunity to
ask for help or support and expect that other team
members will offer it when necessary and desired.
Talk about expectations
The sales meeting is the forum -- talk about where the
team and the company are going.
The goals of the team should be discussed here in a
positive, upbeat manner.
Make it fun (while being tasteful)
Take advantage of the creativity of your people.
If people are coming from out of town to talk about a new
product, hold a product meeting.
If a corporate big shot wants to talk to the team, great! Show
them the meeting agenda, and ask if they would like one of
the slots or prefer a special meeting at a different time.
Unless it's something very special, they would probably
appreciate the fact that they will only be expected to talk for a
few minutes.
Sales meetings should be an event people look forward to
If they don't, it's time to go to work on making the meetings
work for everyone.
The General Rules for a Successful Meeting are:
Be consistent- with time, place and content.
Be prepared- spend time developing the content of the meeting
and use an agenda.
Be concise- Be selective in your agenda items, if you can accomplish
your goals in thirty minutes then do so.
Be respectful - avoid last minute changes, last minute cancelations
or not being prepared. Never keep them waiting for you.
Be creative- Bring new ideas to the table as often as possible.
Be empowering- Give your employees opportunities to develop
content and/or present to the group.
Be demanding- Demand that each member of the team becomes
fully engaged in the meeting, to be prepared, to be on time, to know
their business and to be positive.
10 ways to insure a sales meeting will be a disaster
Publicly make a bad example of one sales rep.
Let someone else humiliate one of your sales reps.
Concentrate on administrative forms and policy, etc.
Try to put on a meeting without a plan.
Don't plan for fun.
Don't let the sales team talk or get involved in the meeting.
Invite or allow someone from outside the team to talk down to your
sales professionals. (Administrative people are usually best at this)
Allow one sales rep to dominate a part of the meeting.
Let the meeting drag on longer than expected.
Allow the meeting to sink into a "pity party," concentrating on gripes
and whining.
Sales Contests
Sales and Distribution Management
Sales Contests: Defined
Sales contests are short-term incentive programs that can
be an effective motivational tool if they are carefully and
properly designed.
a prize competition for salespeople, often part of an
incentive program, designed to increase sales.
A sales contest winner is usually the person who has
achieved the most sales for a particular time period.
Basic Considerations in Designing Sales Contests
Each salesperson has an equal opportunity
Use of sales quota
Select either open-ended contests (unlimited number of
salespersons can win) or close-ended contests (only a
limited number of salespersons can win)
Prizes should be attractive
Care should be taken that salespersons should not
undertake undesired activities to win sales contests
Differences in cultural aspects should be kept into
consideration while designing sales contests
Why Sales Contests
Increase sales
Motivate sales force
Build competition within sales force
Push sales volumes for New or Neglected Products
New Advertising Campaign
Collecting bad debts
Finding new uses for products
Downtime caused by accidents
Non-selling incentives
Good Sales Contests
Timing- Consider a short, quick, unannounced sales contest to
shake up sales force and their habits
Theme- Give your contest a theme (Lost Finding the
Missing Sales)
Showmanship -Have a contest to see who can come up with
the most addictive, powerful, exciting, informative multimedia
presentation and then give the winners presentation to your
whole force.
Follow-up -without proper follow-up the contest is sure to fall
apart
Payoff- Its as important how you pay as it is what you pay
Drawbacks
Three of the most obvious disadvantages are :
1) Pre-contest stalling
2) Over-selling
3) Post-contest slump
SalesforceEvaluation & Control
Sales and Distribution Management
Evaluating & Controlling Performance of Salespeople
Purposes / objectives / importance of performance evaluation of
salespeople are:
To find how salespeople have performed
To use this information for other purposes, such as:
Improving salespersons performance, by identifying causes of
unsatisfactory performance
Deciding salary increments and incentive payments
Identifying salespeople for promotion
Determining training needs
Motivating salespeople through recognition and reward
Understanding strengths and weaknesses of salespeople
Procedure for Evaluating SalesforcePerformance
Set policies on performance evaluation and control
Decide bases of salespersons performance evaluation
Establish performance standards
Compare actual performance with the standards
Review performance evaluation with salespeople
Decide sales management actions and control
Set Policies on Performance Evaluation & Control
Most companies establish basic policies. Examples are:
Frequency of evaluation - Mostly once a year.
Who conducts evaluation? - Mainly immediate supervisor
Assessment techniques to be used.
Management by objectives (MBO), 360-degree feedback
Sources of information
Sales analysis, new business reports, lost business reports, call
plans, etc
Bases of salesforceevaluation
Conducting performance review sessions with salespeople
Decide Bases for Salespersons Performance Evaluation
A firm should decide which of the following bases / criteria it would use:
1. result / outcome based,
2. efforts / behavioral based, or
3. both results & efforts based
Quantitati ve results / outcome
bases / cri teri a
Quantitati ve efforts /
behavioral bases / cri teri a
Qualitative efforts / behavioral
bases / cri teri a
Sales volume
In value / units
Percentage of quota
by products & segments
Accounts / customers
New accounts nos.
Lost accounts nos.
Customer call s
No. of calls per day
No. of calls per customer
Non-selli ng activi ties
overdue payments
collected
No. of reports sent
Personal skil ls
Selling skills
Planning ability
Team player
Personality & Attitudes
Cooperation
Enthusiasm
Establish Performance Standards
Performance standards are also called sales goals, targets,
sales quotas, sales objectives
Performance standards for quantitative results are related to
the companys sales volume or market share goals
Performance standards for efforts / behavioural criteria are
difficult to set
For this, companies do time and duty analysis or use
executive judgement
Performance standards should not be too high or too low
After establishing standards, salespeople must be informed
Compare Actual Performance with Standards
Salespersons actual performance is measured and compared with
the performance standards
For this, sales managers use different methods or forms:
Graphic rating scales
Ranking
Behaviorally anchored rating scale (BARS)
Management by Objectives (MBO)
Descriptive statements
Companies combine some of the above methods for an effective
evaluation system
Review Performance Evaluation with Salespeople
Performance review / appraisal session is conducted, after evaluation of the
salespersons performance
Sales manager should first review high / good ratings, and then review
other ratings
Both should decide objectives / goals and action plan for future period
After the review, sales manager should write about performance evaluation
& objectives for the future
Guidelines for reviewing performance of salespersons
First discuss performance standards / criteria / bases
Ask the salesperson to review his performance
Sales manager presents his views
Establish mutual agreement on the performance
Decide Sales Management Actions and Control
Many companies combine this step with the previous step i.e.
performance review
During performance review meeting with salesperson, sales manager
does the following:
Identifies the problem areas. e.g. Sales quotas not achieved
Finds causes. e.g. less sales calls, poor market coverage, or superior
performance of competitors
Decides sales management actionse.g. train salesperson, redesign
territories, or review companys sales / marketing strategies
If a salespersons performance is good, he / she should be rewarded
and recognized
Evaluation of Effectiveness of Sales Organization
To know what happened, companies analyze their
sales, costs, profits, andproductivity
Effectivenessof asalesorganizationcanbemeasured
using:
Effectiveness
of a
Sales
Organization
Sales Analysis
Cost Analysis
Profitability Analysis
Productivity Analysis
Sales Analysis
All levels
In Sales
Organization
Different
Type of
Sales
Different
Type of
Analysis
National and/or international levels sales organisation
Regional level
Branch /district level
Territory level
Individual level
Total sales of the company
By type of products
By type of distribution channels
By type of customer classifications
By size of orders
Comparisons with sales quotas / targets
Comparisons with previous periods
Comparisons with industry / competitors
Comparisons within sales organizations
Comparisons with sales forecasts
S
a
l
e
s

A
n
a
l
y
s
i
s
Sales Analysis
For evaluation and control: sales analysis needed at different organization
levelslikeregional, district, territory
For identifyingproblems: Usehierarchical salesanalysis.
Salesperformanceat national level belowsalesvolumebudget
Findwhichregionshaveproblemsinachievingsalesquotas
Focussalesanalysisof branchesreportingtoproblematicregions
Dosalesanalysisof territoriesunder problematicbranches
Further analysis of problematic territories to be done by talking to
salespeople, customers, branchmanagers
Correctiveactionscanthenbetakentoimprovesales
Extendhierarchical salesanalysistodifferent typeof sales
Out of different typeof analysis, comparisonswithsalesquotasarewidelyused
Cost and Profitability Analysis
To measureprofitabilityof companys marketingunits suchas
territories, market segments, products, channels, &customers
This information helps to decide which marketingunits to be
expanded, reduced, or eliminatedinfuture.
Procedure
Statepurposeof theanalysis
Identitymajor functional (or activity)expenses
Convert natural accountingexpensesintofunctional expenses
Allocatefunctional expensestomarketingunits
Prepare profitability of marketing units, by using full-cost
approach, or contributionapproach
Before starting cost and profitability analysis, it is necessary to
knowfor whichmarketingunitstheanalysiswouldbedone
Thishelpstoclassifycostsintodirect andindirect.
e.g. Salespersons salary is direct cost for territory analysis, but
indirect cost for analysisof productsor segments
Purposeof the Analysis
Thecompanyshouldpreparealist of major functionsor activities
withrespect tomarketingexpenses
e.g. Personal selling expenses, order processing expenses,
packing and delivery expenses, warehousing and inventory
expenses, administrationexpenses
Identify Major Functional Expenses
Convert Natural Accounting Expenses into Functional Expenses
Natural or traditional expenses are to be converted to
functional expenses, for doing marketing cost analysis
A better method for allocating costs is activity-based costing
(ABC), which allocates costs based on cause of expenses
Let us take an example to make it more clear
Convert Natural Accounting Expenses into Functional Expenses
Natural /
Traditional
Expenses
Total Functional Expenses
Personal
Selling
Adv. and
Sales
Promotion
Warehousing &
Inventory
Administration
Salaries 20,000,000 10,000,000 4,000,000 2,000,000 4,000,000
Rent 10,000,000 2,500,000 1,000,000 5,000,000 1,500,000
Travel 5,000,000 5,000,000 __ __ __
Adv. and
Sales
Promotion
15,000,000 __ 15,000,000 __ __
Total 50,000,000 17,500,000 20,000,000 7,000,000 5,500,000
Note: All figures are in Rupees
Allocate Functional Expenses to Marketing Units
Functional expenses are allocated to the marketing unit under study,
dependingonseveral basesshownbelow, asexamples
Theallocationsaredonetofindmarketingcostsandprofitabilityof marketing
units
Function Bases of allocation of expenses
Personal selling Directly to sales territories
Selling time given to each product and market segment
Sales calls x average time per call to customers & channels
Advertising and sales
promotion
Circulation of media to sales territories
Media space for each product & market segment
Equal charges to customers & channels
Administration Equal charges for all marketing units
Prepare Profitability of Marketing Units
This is done by preparing profit and loss statements for the marketing units
under study
Two approaches are available in allocating marketing costs for profitability
analysis:
Full-cost approach
Useful for long-term profitability studies of products and
market segments
Contribution approach
Useful for short-term decisions like profitability of branches
/ regions
An Example of Profitability Analysis
SNo Particulars Full-cost
Approach
Contribution Approach
Western Region Branch A Branch B Branch C
1 Sales 400 150 130 120
2 Cost of good sold 300 112.5 97.5 90
3 Gross margin (1-2) 100 37.5 32.5 30
4 Branch selling expenses 12.7 4.5 4.2 4
5 W. Region direct selling
expenses
12.0 - - -
6 Contribution (3-4-5) 75.3 33.0 28.3 26.0
7 Allocated indirect
expenses
36.3 - - -
8 Net profit (6-7) 39.0 - - -
Note: All figures are in Rupees million