Strategic Business Analysis

SALES STRATEGY – A STRATEGIC DECISION AREA

SALES STRATEGY – A STRATEGIC DECISION AREA

Sales managers are responsible for strategic decisions at the account (or specific
customer) level. Sales strategies are developed for each specific customer. However,
the strategic decisions are typically made by arranging individual customers into similar
categories or groups.

There are four parts of sales strategy.

1. Classification of Accounts
Within a target market segment, the accounts or specific customers, are classified
into different customer groups. All customers within a target segment are not the same.

2. Relationship strategy
Buyers and sellers, particularly in business markets, have some kind of business (or
working) relationships. These relationships have a range or variety such as:
a. Transactional Relationship
Transaction-oriented customers show less loyalty to a particular supplier. They
switch suppliers for lower costs. Sales managers would consider such customers
for transactional relationship.

b. Value Added Relationship

These customers have medium sales and profit potential. The focus of sales
people is on complete understanding of present and future problems or needs of
the customer, and offering better solutions or meeting those needs better than
the competitors.

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 Strategic Business Analysis
SALES STRATEGY – A STRATEGIC DECISION AREA

c. Collaborative Relationship
In collaborative relationship between a buyer and seller, the aim is to build long
term, and mutually satisfying relations. The foundation of collaborative
relationship is commitment and trust. Both the buyer and the seller should accept
that the collaborative relationship is so important that it deserves maximum
efforts to continue with it.

3. Selling Method
Sales people should use different selling method to suit different relationship
strategies. These are:
1. Stimulus response method
2. Formula method
3. Need-satisfaction method
4. Team selling method
5. Consultative selling method

1. Channel Strategy
A strategic issue in the sales strategy is to select an appropriate channel ( also
called marketing channel, distribution channel) and for covering selling efforts, it is
called sales channel. Sales managers should ensure that accounts (or specific
customers) and group of customers receive effective and efficient sales coverage.
The various sales channels available to firms for covering selling efforts to individual
customers are:
● The company sales force
● Industrial distributors or dealers
● Manufacturer’s representatives or agents
● Telemarketing
● The internet
● Brokers or commission merchants

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 Strategic Business Analysis
SALES STRATEGY – A STRATEGIC DECISION AREA

DEVELOPING SALES FORECAST

The purpose of sales forecast is to plan and achieve the forecasted sales in
an effective manner. Sales forecast are being used by other functions such as: (i)
manufacturing or production for setting up production capacity and planning production,
(ii) finance for raising cash for investment and operation as well as for profit planning,
(iii) purchase function for planning their purchases, and (iv) human resource
management for manpower planning. Thus, sales forecast has a role as a forerunner to
all planning activities in an organization. Accurate sales forecast is important because
all functions base their plans on such forecast.
Forecasting Approaches:
Top-down/Break-down Approach in this approach, typically the company sales
forecast is developed at the business unit (SBU) level, by using suitable forecasting
methods. The head of sales/marketing then breaks down the company sales forecast
into region, district, territory, salesperson, and individual customer sales quotas.
Bottom-up/Build-up Approach it starts with the company’s area or branch
managers asking its salespersons to estimate or forecast the sales in their respective
territories.

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 Strategic Business Analysis
SALES STRATEGY – A STRATEGIC DECISION AREA

SALES FORECASTING METHODS

1. EXECUTIVE OPINION METHOD
This is the oldest, simplest, and the most widely used method. The method
includes getting the views of top executives of the company regarding future
sales.

1. DELPHI METHOD
This method is similar to the executive opinion method. The difference is that
members of expert panel do not meet or discuss in a committee. The procedure
includes selection of panel of experts from within and outside the organization.

1. SALESFORCE COMPOSITE METHOD

This method involves salesperson to estimate their future sales. Forecasting is
being done by salesperson that is closest to the market and has better insight
into sales trends than any other group in the company.

1. TEST MARKETING METHOD

This method is useful for forecasting sales for a new product, which has no
historical (or previous) sales figures. It can also be used for estimating sales for
an established product in a new territory.

1. MOVING AVERAGE METHOD

This is relatively simple method that develops a company forecast by calculating
the average company sales for previous years.

1. DECOMPOSITION METHOD
In this method the company’s previous periods sales data is broken down (or
decomposed) four major components, such as trend, cycle, seasonal, and
unpredictable events.

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 Strategic Business Analysis
SALES STRATEGY – A STRATEGIC DECISION AREA

1. NAIVE/RATION METHOD
This method is a time series method of forecasting, which is based on the
assumption that what happened in the immediate past will continue to happen in
the immediate future.

1. REGRESSION ANALYSIS
This is a statistical forecasting method that is used to predict sales, called as
dependent variable “y.” The company then identifies causal (cause and effect)
relationship between the company sales and the independent variables (or
factors), which influence the sales.
HOW TO IMPROVE FORECASTING ACCURACY?
Sales forecasting is an important and difficult task. It is, therefore necessary to
understand some guidelines that help in improving the accuracy of the sales forecast.
These are:
1. Use Multiple Forecasting Methods
Companies use two or three forecasting methods to ensure high level of accuracy
and to gain confidence.

1. Identify Suitable Methods

Suitability of the forecasting method depends on the application, cost and time
available for forecasting. The forecaster should also keep in mind the advantages
and disadvantages of each forecasting method.

1. Develop a Few Factors

When the forecaster uses regression analysis, he/she should keep the number of
independent variables or factors as few as possible, because use of many factors in
result in duplication of a few basic factors like population and income.

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 Strategic Business Analysis
SALES STRATEGY – A STRATEGIC DECISION AREA

1. Obtain a Range of Forecasts

Most forecasting firms prepare a range of sales forecast, including minimum,
intermediate, and maximum estimates. The minimum sales estimates are based on
the lowest probable potential market for the product or service. The company also
estimates the market potential (maximum possible sales estimate), assuming all
favorable things to happen. Between the two extremes of minimum and maximum
estimates, the forecaster makes suitable assumptions to calculate the intermediate
sales forecast.

1. Use Computer Hardware and Software tools

Computers are playing an important role in sales forecasting. Personal Computers
(PC) are used widely for sales forecasting, because they are fast, and capable of
storing and progressing large amount of data. 

SALES BUDGETS
What is sales budget?
● A sales budget consists of estimates of expected volume of sales and selling
expenses.
● Sometimes sales budget is based on the sales forecast.
● Sales budgets are generally set slightly lower than the sales forecast to avoid
excessive risk.
● Sales budget includes a detailed estimate of sales revenue as well as selling
expenditure.
The sales volume budget, which is derived from the sales forecast, is broken down into
a. Product-wise quantities – the average selling price per unit and sales revenue
b. Territory-wise quantities – to be sold and sales revenue

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 Strategic Business Analysis
SALES STRATEGY – A STRATEGIC DECISION AREA

c. Customer-wise and salesperson-wise volume – quota during yearly, quarterly

and monthly budget period. In other words, the sales budget includes a detailed
estimate of sales revenue as well as selling expenditure.

The selling expenditure budget consists of the selling-expense budget and the sales
department administrative budget.

The selling-expense budget includes expenditures for personal selling activities such
as the salaries, commissions, incentives and other expenses for the sales force. Any
plans for increase in numbers of salespeople must also be included in this budget.

The administrative budget of the sales department should include the salaries of
territory sales, managers, sales supervisors, their secretaries and office staff. The
budget should also include operating expenses like rent, power, supplies, and office
equipment.

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